Affordability Percentages Will Decrease for 2022
On Aug. 30, 2021, the IRS issued Revenue Procedure 2021-36 to index the contribution percentages in 2022 for determining affordability of an employer’s plan under the Affordable Care Act (ACA).
For plan years beginning in 2022, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:
- 9.61% of the employee’s household income for the year for purposes of both the pay or play rules and premium tax credit eligibility; and
- 8.09% of the employee’s household income for the year for purposes of an individual mandate exemption (adjusted under separate guidance). Although this penalty was reduced to zero in 2019, some individuals may need to claim an exemption for other purposes.
For plan years beginning in 2022, the ACA’s affordability contribution percentages are decreased significantly to:
- 9.61% under the pay or play rules
- 9.61% under the premium tax credit eligibility rules
- 8.09% under an exemption from the individual mandate
The updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2022. This is a significant decrease from the affordability contribution percentages for 2021, which were set at 9.83% and 8.27%. As a result, some employers may have to lower their employee contributions for 2022 to meet the adjusted percentage.
January 1, 2022
The updated percentages are effective for taxable plan years beginning Jan. 1, 2022.
Overview of the Affordability Requirement
Under the ACA, the affordability of an employer’s plan may be assessed in the following three contexts:
- The employer shared responsibility penalty for applicable large employers (also known as the pay or play rules or employer mandate);
- An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage; and
- The premium tax credit for low-income individuals to purchase health coverage through an Exchange.
Although all of these provisions involve an affordability determination, the test for determining a plan’s affordability varies for each provision.
The IRS previously adjusted the affordability contribution percentage for 2015 in Rev. Proc. 14-37; for 2016 in Rev. Proc. 14-62; for 2017 in Rev. Proc. 16-24; for 2018 in Rev. Proc. 17-36; for 2019 in Rev. Proc. 18-34; for 2020 in Rev. Proc. 19-29; and for 2021 in Rev. Proc. 20-36. The adjusted affordability contribution percentage for purposes of the individual mandate exemption is announced separately in the Notice of Benefit and Payment Parameters final rule for each year.
This chart illustrates the adjusted affordability percentages for each purpose since 2014. Each provision is described in more detail following the chart.
Download this ACA Compliance advisor that provides a full overview of:
- The Affordability Requirement
- The Adjusted Percentages
- Affordable Employer-Sponsored Coverage
- Employer Shared Responsibility Rules
- Individual Mandate Exemption
- Premium Tax Credit