In Revenue Procedure 2019-29, the Internal Revenue Service (IRS) decreased the affordability percentage from 9.86 percent to 9.78 percent for 2020.
This percentage determines which applicable large employers may face penalties under §4980H(b) for failure to offer affordable coverage as well as which individuals may qualify for subsidized coverage through a public exchange.
Under §4980H, applicable large employers (50 or more full-time equivalents (FTEs)) must offer coverage to full-time employees that is affordable to avoid potential §4980H(b) penalties. In addition, individuals enrolling for coverage through a public exchange will not qualify for subsidized coverage if they are eligible for employer-sponsored group health coverage that is affordable.
Coverage is generally considered “affordable” if the employee contribution for employee-only (single) coverage does not exceed a set percentage (9.78 percent in 2020) of household income. Coverage is also considered “affordable” for purposes of satisfying §4980H(b) requirements so long as the employee contribution satisfies at least one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2).
Required Contribution Percentage
Originally, for 2014, the required contribution percentage for determining affordability was set at 9.5 percent. The percentage is adjusted annually. See applicable percentages for each year in the table below.
The decrease in the affordability percentage (from 9.86 percent in 2019 to 9.78 percent for 2020) may require employers to charge slightly lower employee contributions for the 2020 plan year and still meet affordability requirements under §4980H(b).
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