TaxBandits Knowledge Base

How do I determine that the health insurance coverage offered to my employees is affordable?

The coverage you offer is deemed “affordable” if employee contributions for employee-only coverage do not exceed a certain percentage of an employee’s household income ( 9.61% for the 2022 plan year and 9.12% for the 2023 plan year).  

Determining the Employee’s Household Income

Since you don’t know your employee’s exact household income, the IRS offers three safe harbors for employers to use in place of household income when determining coverage affordability. 

• Employee's W-2 wages (salaried employees)-  The assumption is that their household income is the value in Box 1 of their W-2 form for salaried employees.
• Employee’s Rate of Pay (Hourly employees)- For hourly employees, multiply the hourly rate by 130 hours to estimate a monthly income
• FPL (Federal poverty level) for a single individual- Assume an employee’s income equals the federal poverty level. 

Based on the IRS safe harbors, if the employee’s share of the premium for the lowest cost self-only option offered by you is more than 9.12% (2023) of his or her household income, the coverage is “NOT Affordable” for that employee. If this is the case, you may be liable for an employer-shared responsibility penalty under Section 4980H(b) if the employee obtains a PTC for health coverage purchased through the marketplace.