Revenue Procedure (Rev. Proc.) 2022-34 was released on August 1, 2022, by the IRS. This documents the contribution percentages for 2023 in order to determine the affordability of an employer’s plan under the Affordable Care Act (ACA). Shared responsibility, or pay or play rules, require applicable large employers (ALEs) to offer affordable health coverage to full-time employees and their dependents or receive a fine. Affordability of health coverage determines whether an ALE will be subject to penalty.
The affordability is determined through the employer shared responsibility penalty for ALEs, an exemption from the individual mandate tax penalty (for those who do not have health coverage), and the premium tax (for low-income affordability individuals to obtain health coverage via an Exchange).
Affordability safe harbors may be used to measure an employer’s affordability of coverage. The three safe harbors used are based on:
- Form W-2 wages from the employer,
- The employee’s rate of pay, or
- The federal poverty line (FPL) for an individual.
It is important to note that this test only applies to the portion of the annual premiums for self-only coverage. It does not involve any additional cost for family coverage. When multiple health coverage options are offered through an employer, the test then applies to the lowest-cost option that simultaneously meets the minimum value requirement.
2023 Affordability Contribution Percentages
Employer-sponsored coverage will be deemed affordable if the employer’s required contribution for self-only coverage does not surpass 9.12% of the employee’s household income for the year regarding the pay or play rules and premium tax credit eligibility. Similarly, self-coverage should not surpass 8.17% of the employee’s household income for the year in relation to an individual mandate exemption.
The 2023 pay or play percentage, 9.12%, is down from 9.61% in 2022, which is notable as it is the largest decrease since the rules were implemented. Meanwhile, the individual mandate exemption percentage, 8.17%, has marginally increased from the 2022 percentage of 8.09%.
As a result of the significant decrease in the affordability percentage for the pay or play rules and premium tax credit, employers be forced to lower their employee contributions for 2023 in order to comply with the adjusted percentage.
For more information on the affordability contribution changes, individual mandate exemption, and premium tax credit, please refer to the attachment. If you have questions, please contact your dedicated Creative Benefits, Inc. team member.