The following is a general description of the different Plan Affordability Safe Harbor options available to employers for PPACA (Patient Protection Affordable Care Act) reporting purposes. The election of a Plan Affordability Safe Harbor is highly recommended, but optional, and must be formally elected by the employer prior to the issuance of the 1095C forms as some of the Affordability Safe Harbor options available alter the codes an employee may receive on the associated 1095C form. The following descriptions and examples are for demonstration purposes only and do not consider the particular facts and circumstances of the employer’s offer of affordable coverage [or lack thereof].
Employers must carefully review their own internal processes to ensure that they qualify for any elected Plan Affordability Safe Harbor. Please note that ACA Track cannot provide legal or tax advice. We advise clients to speak with their employee benefits broker, tax, and/or legal adviser before determining the Plan Affordability Safe Harbor election.
The following Plan Affordability Safe Harbor options are available to employers for the 2025 reporting year. While the election of a Plan Affordability Safe Harbor is not required, it is highly encouraged. Failure to
choose a method will
result in the medical plan being reported as unaffordable on the PPACA filing (1095C form) and may result in penalties being imposed by the IRS. Please note that affordability calculations change annually, and this document describes
the requirements for the 2025 reporting year only.
Federal Poverty Limit (FPL)
The Federal Poverty Limit (FPL) Affordability Safe Harbor Method indicates that the employee’s monthly contribution for single only coverage under the lowest cost plan does not exceed 9.02% of the Federal Poverty Limit of $15,060 annually.
- Employers with plan years beginning January 2025 will meet the FPL safe harbor if they offer their full-time employees at least one plan that costs less than $113.20 ($141.38 for Alaska, and $130.11 for Hawaii) for self-only coverage.
- Employers with plan years beginning July through December 2025 will meet the FPL safe harbor if they offer their full-time employees at least one plan that costs less than $117.64 ($146.95 for Alaska, and $135.22 for Hawaii) for self-only coverage.
Rate of Pay
The Rate of Pay Affordability Safe Harbor Method indicates that the employee’s monthly contribution for single only coverage under the lowest cost plan does not exceed 9.02% of the employee’s rate of pay as of the first day of
coverage eligibility.
Hourly Employees:
The approved calculation for this method is: Employee Rate of Pay (as of benefit eligibility effective date) multiplied by 130, then multiply that sum by .0902; the cost of benefits cannot exceed this sum if using the Rate of Pay Affordability Safe Harbor.
Hourly Employee Example:
Assuming a rate of pay on effective date of benefit eligibility is $15.00 per hour. 15 x 130 = 1950, then 1950 x
.0902 = $175.89
Coverage for Single Only Medical Coverage cannot exceed $175.89 per month to be considered affordable under the Rate of Pay Affordability Safe Harbor.
Salary Employees:
The approved calculation for this method is: Employee Monthly Salary (as of benefit eligibility effective date) multiplied by .0902; the monthly cost of single only medical benefits cannot exceed this sum if using the Rate of Pay Affordability Safe Harbor.
Salary Employee Example:
Assuming annual salary on effective date of benefit eligibility is $50,000. Calculation: $50,000 / 12 = $4166.67 * .0902 = $375.83
Coverage for Single Only Medical Coverage cannot exceed $375.83 per month to be considered affordable under the Rate of Pay Affordability Safe Harbor.
W-2
The W-2 Affordability Safe Harbor Method indicates that the employee's monthly contribution for single only coverage under the lowest cost plan does not exceed 9.02% of the amount entered in Box 1 in the employee’s 2025 W2 Form. Please note that this means that affordability cannot be officially determined until the conclusion of the calendar year.
The approved calculation for this method is: Amount in Box 1 of 2025 W2 multiplied by .0902, then divide the sum by 12 (assuming the employee was benefit eligible for the entire calendar year); the cost of benefits cannot exceed this sum if using the W-2 Affordability Safe Harbor.
If the employee was not eligible for the entire calendar year, then you must first determine the Adjusted W-2 Amount. The approved calculation for finding the Adjusted W-2 Amount is: Number of Months Benefit Eligible divided by Months of Active Employment, then multiply the sum by the amount in box 1 of the employee’s 2025 W-2 form, this is the employee’s Adjusted W-2 Amount. To complete the calculation, multiply the Adjusted W-2 Amount by .0902, then divide that sum by the amount of months the employee was benefit eligible; the cost of benefits cannot exceed this sum if using the W-2 Affordability Safe Harbor.
Example 1:
Assuming employee was benefit eligible for the entire calendar year & Box 1 of 2025 W-2 is $31,200 then:
31200 x .0902 = 2814.24 / 12 = 234.52
Coverage for Single Only Medical Coverage cannot exceed $234.52 per month to be considered affordable under the W-2 Affordability Safe Harbor.
Example 2:
Assuming employee was benefit eligible for 6 months of the calendar year with a 2-month waiting period (actively employed for 8 months of year) before becoming benefit eligible & Box 1 of the 2025 W-2 is
$24,000.
Adjusted W-2 Rate: 24000 x (6/8) = 18000 (18000 x .0902 = 1510.20), then 1623.60 / 6 = 270.60 Coverage for Single Only Medical
Coverage cannot exceed $270.60 per month to be considered affordable under the W-2 Affordability Safe Harbor