An employer-sponsored plan is affordable when the portion of the annual premium an employee pays for self-only coverage does not exceed 9.5% of his/her household income. Under the recent ACA (Affordable Care Act) law, this percentage must be adjusted annually to reflect the rate of premium growth over the rate of income growth for the preceding calendar year.
The Internal Revenue Service (IRS) has increased the required contribution percentage for 2016 that is used to determine whether individuals are eligible for a premium tax credit. An individual may be eligible for a premium tax credit to purchase health coverage through the Health Insurance Marketplace (also known as the Exchange) if, among other things, he or she is not able to get affordable coverage through an eligible employer plan that provides minimum value.
According to the new IRS guidance, the required contribution percentage will increase as follows:
- For plan years beginning in 2015, this percentage increases to 9.56%.
- For plan years beginning in 2016, this percentage increases to 9.66%