Pay-or-Play Affordability Percentage Decreased for 2023
On Aug. 1, 2022, the IRS issued Revenue Procedure (Rev. Proc.) 2022-34 to index the contribution percentages in 2023 for determining the affordability of an employer’s plan under the Affordable Care Act (ACA).
For plan years beginning in 2023, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:
- 9.12% of the employee’s household income for the year for purposes of both the pay or play rules and premium tax credit eligibility. This is the most substantial decrease in this percentage since these rules were implemented (down from 9.61% in 2022). It is the lowest that this percentage has ever been set, at 0.38% below the statutory affordability percentage of 9.5%.
- 8.17% of the employee’s household income for the year for purposes of an individual mandate exemption (adjusted under separate guidance). This is a slight increase from 2022, which was set at 8.09%. 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 2023, the ACA’s affordability contribution percentages are updated to:
9.12% under the pay or play rules
9.12% under the premium tax credit eligibility rules
8.17% under an exemption from the individual mandate
August 30, 2021
IRS Rev. Proc. 22-34 substantially decreased the ACA’s affordability contribution percentage for 2023 for purposes of the pay or play rules and premium tax credit.
January 1, 2023
The updated percentages are effective for plan years beginning Jan. 1, 2023.
The updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2023. The updated affordability percentage for the pay or play rules and premium tax credit is the most significant decrease since these rules were implemented. As a result, many employers may have to substantially lower their employee contributions for 2023 to meet the adjusted percentage. The affordability percentage for the individual mandate exemption increased slightly from 2022.
Download the full advisor to learn more about:
- Overview of the Affordability Requirement
- Affordability Adjustments
- Employer Shared Responsibility Rules
- Individual Mandate Exemption
- Premium Tax Credit
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