Under the Affordable Care Act (ACA), employer-sponsored health coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed a specified percentage of household income for the tax year.
For 2025, the affordability threshold is based on the IRS-adjusted percentage (indexed annually), not a fixed historical rate.
Affordability Test Details
- Self-only coverage cost: The employee’s share of the premium for individual coverage (not family coverage) is used for the affordability calculation.
- Household income: The total income of all individuals in your tax household, as reported on your tax return.
- Threshold: If the employee’s cost exceeds 9.78% of household income, coverage is deemed unaffordable.
- Family members: The same test applies to family members. If the employer’s coverage is unaffordable for the employee, it is also considered unaffordable for dependents.
Relevant Tax Forms and Guidance
- Form 1095-C: Employers with 50 or more full-time employees use this form to report health coverage offers and enrollment. You may receive this form if your employer offered coverage.
- Publication 5187: Provides detailed guidance on ACA requirements, including affordability standards and how they affect eligibility for premium tax credits.
- Marketplace determination: If the Marketplace determines coverage is unaffordable based on projected income, it overrides any affordability based on actual tax return income.
Source:
Publication 5187 - Affordable Care Act
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. Tax laws and regulations may change, and individual circumstances may require professional advice from a CPA or tax attorney.