The IRS has announced a major update that employers need to know: the Affordable Care Act (ACA) affordability percentage for 2026 is set at 9.96%, the highest level we've seen since the ACA went into effect.
What does this mean for employers?
Under the employer mandate, large employers must offer health coverage that is considered "affordable" and provides minimum value. Starting in 2026, coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.96% of their household income.
This updated threshold gives employers a bit more room in designing cost-sharing structures for employee health coverage. On the flip side, we’re also seeing higher penalties for non-compliance coming in 2026.
2026 ACA Penalties Are Also Increasing
In addition to the affordability update, the IRS also recently released Revenue Procedure 2025-26, which outlines substantial increases to the ACA employer mandate penalties under Section 4980H(a) and Section 4980H(b) for 2026.
|
Year |
Section 4980H(a) Penalty |
Section 4980H(b) Penalty (Unaffordable/inadequate coverage) |
|
2025 |
$2,900 |
$4,350 |
|
2026 |
$3,340 |
$5,010 |
The rising penalty amounts reflect inflation adjustments and add to the importance of maintaining ACA compliance in both affordability and the offer of coverage.
Affordability Percentage by Year
|
Plan Year |
Affordability % |
|
2015 |
9.56% |
|
2016 |
9.66% |
|
2017 |
9.69% |
|
2018 |
9.56% |
|
2019 |
9.86% |
|
2020 |
9.78% |
|
2021 |
9.83% |
|
2022 |
9.61% |
|
2023 |
9.12% |
|
2024 |
8.39% |
|
2025 |
9.02% |
|
2026 |
9.96% |
Key Takeaways
- The 9.96% threshold applies to plan years beginning in 2026
- It represents the highest affordability level since the ACA's implementation
- The change reflects a new methodology that accounts for premium increases in both the individual and employer-sponsored markets
Employers should take this into account when setting contribution levels for 2026 and reviewing their use of affordability safe harbors (Federal Poverty Line, Rate of Pay, or W-2).
Read the full IRS guidance: Revenue Procedure 2025-25.
Need help understanding how this change might affect your organization? Contact us today.
