The Internal Revenue Service (IRS) has recently disclosed the 2024 indexing adjustment for the percentage utilized in the Affordability Safe Harbors under the Affordable Care Act (ACA). This adjustment holds significance for employers striving to ensure that the coverage they offer to employees remains affordable. The newly announced percentage for the 2024 plan years is set at 8.39%, marking a decrease from the 9.12% recorded in 2023.
Understanding the Safe Harbors
The ACA provides three essential “safe harbors” for determining the affordability of employer-provided coverage. These are the Federal Poverty Level Safe Harbor, the Rate of Pay Safe Harbor, and the W-2 Wages Safe Harbor. Employers must satisfy one of these safe harbors to demonstrate the affordability of the coverage provided.
Federal Poverty Level Safe Harbor
Calendar Year Plan
The Federal Poverty Level Safe Harbor allows employers to charge a maximum amount for self-only coverage on a calendar year plan to be considered affordable. The maximum allowable charge for employees working in the contiguous U.S. has been adjusted to $101.93 per month, which is a slight decrease from the previous amount of $103.28. The figures for employees working in Alaska and Hawaii have also been adjusted accordingly.
| Maximum Charges for Self-Only Coverage on a Calendar Year Plan | ||
|---|---|---|
Non-Calendar Year Plan
For non-calendar year plans, the specific maximum amount an employer can charge for self-only coverage and still be deemed affordable is yet to be announced. While these plans can utilize the calendar-year figures, it’s crucial to be aware that the 2024 Federal Poverty Guidelines are expected to be published around the third week of January. Plans renewing on or after this date may have a slightly higher threshold, pending inflation and other factors.
Rate of Pay Safe Harbor
The Rate of Pay Safe Harbor determines affordability based on an employee’s lowest hourly rate of pay or salary. The cost of coverage is considered affordable if it does not exceed 8.39% of 1/12 of the annual salary for non-hourly employees.
For hourly employees, the calculation involves multiplying 130 hours with their lowest hourly rate of pay and then again with 8.39%. Let’s say an employee’s lowest hourly rate of pay is $10.00, then after multiplying the rate by 130 hours and then by 8.39%, the safe harbor threshold would be $109.07.
| Rate of Pay Safe Harbor Calculation (Hourly Employees) | |||
|---|---|---|---|
Employers should note that any raise given to an hourly employee after the plan year’s first day won’t impact the threshold until the following plan year.
W-2 Wages Safe Harbor
The W-2 Wages Safe Harbor is a method used to determine the affordability of the health coverage offered to employees. The affordability is assessed based on the employee’s Box 1 income from their 2024 IRS Form W-2. If the annual cost of coverage in 2024 does not exceed 8.39% of their annual Box 1 income, then the offer of coverage is considered affordable.
For employees who were not eligible or employed for the full 12 months of 2024, similar prorated calculations are applied to determine the affordability of the coverage offered.
It is advisable to keep a close eye on updates from the IRS throughout the year. The recently announced indexing adjustments for the year 2024 emphasizes the significance of carefully evaluating and adjusting the affordability of the healthcare coverage provided by the employer, to ensure compliance with ACA regulations and avoid any potential penalties.
Partnering with Pierce Group Benefits
It is critical for employers to stay up-to-date with the adjustments related to the Affordable Care Act (ACA) compliance. If you have questions about navigating the 2024 affordability safe harbor adjustments, please reach out to your Pierce Group Benefits Account Executive or contact a PGB Representative at partnership@piercegroupbenefits.com.