Are you ready for some important news regarding the Affordable Care Act (ACA)? The IRS has just released an update that could impact your organization’s healthcare offerings. In this blog post, we’ll break down the latest announcement and what it means for employers and employees alike. If you’re interested in diving deeper, be sure to download our PDF for more information.
IRS Announces 2024 ACA Affordability Indexed Amount
The IRS recently made an important announcement in Revenue Procedure 2023-29 regarding the Affordable Care Act’s (ACA) affordability indexed amount under the Employer Shared Responsibility Payment (ESRP) requirements. This announcement is significant for employers as it affects the calculation of penalties related to ACA compliance.
2024 Affordability Percentage
Starting in 2024, the affordability indexed amount for ACA compliance will be set at 8.39%. This is a notable decrease from the 2023 percentage, which stood at 9.12%. It’s also below the original threshold of 9.5%. This change will have implications for employers when evaluating contribution tiers for their 2024 healthcare plans.
Understanding the Background
Revenue Procedure 2023-29 establishes the indexed “required contribution percentage” used to determine whether an individual is eligible for “affordable” employer-sponsored health coverage under Section 36B. This section is related to the qualification for premium tax credits when individuals buy ACA Marketplace coverage. Importantly, a change in this percentage under Section 36B corresponds to a similar change in affordability under Section 4980H ESRP requirements.
Determining Affordability in 2024
For employers to avoid penalties related to ACA compliance in 2024, they must ensure that their health coverage meets one of the following safe harbors:
- The W-2 Safe Harbor: This safe harbor evaluates affordability based on an employee’s monthly contribution compared to their W-2 wages. The coverage is deemed affordable if it equals or is lower than 8.39% of the employee’s W-2 wages.
- Rate of Pay Safe Harbor: This safe harbor calculates affordability by comparing the monthly contribution to an employee’s computed monthly wages. For hourly employees, monthly wages are 130 hours multiplied by their rate of pay. Salaried employees’ monthly wages are equal to their monthly salary. The cost for self-only coverage should not exceed $109.07/month for 2024.
- Federal Poverty Level (FPL) Safe Harbor: Affordability is determined based on the FPL. In 2024, coverage is affordable if the monthly cost for self-only coverage does not exceed 8.39% of the FPL, which translates to $101.93 (48 contiguous states), $127.31 (Alaska), or $117.25 (Hawaii).
Note: FPL amounts may change when the 2024 FPL guidelines are issued, usually in January of the applicable year.
In conclusion, the IRS’s announcement regarding the 2024 ACA affordability indexed amount will impact how employers offer and assess healthcare coverage for their employees. It’s essential for organizations to stay informed and ensure their plans align with these new regulations.
Stay tuned for more updates on employee benefit matters and remember to consult with an attorney or tax professional before making any decisions based on this information.
For more in-depth insights and guidance, please download our PDF
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