ACA Affordability Threshold Decreases Significantly for 2024  

Employers who are Applicable Large Employers (ALEs) under the Affordable Care Act (ACA) should take note of an important announcement that was made by the IRS on August 23, 2023. In Notice 2023-29, the IRS announced the new affordability benchmark for plans renewing on or after January 1, 2024.

Previous changes have been incremental and have generally trended upwards, allowing employers to collect a larger employee contribution while meeting the affordability requirements under the ACA’s employer shared responsibility rules. However, for 2024 the threshold for employee contributions has decreased significantly, which will have an impact on some employers.

For plan years beginning in 2024, the IRS has announced that coverage will be considered affordable if the employee’s required contribution for the lowest cost self-only health plan offered is 8.39% or less of his or her household income for the taxable year. This is a decrease of roughly 8% from the current threshold of 9.12% and is the second year in a row that the affordability benchmark has fallen below the initial rate of 9.5%. As a result, ALEs will be required to make a larger contribution to the cost of employee-only coverage for their lowest-cost plan to avoid penalty exposure.

Please be advised that this content has been prepared for informational purposes only and should not be relied on for legal or tax advice.  The information is subject to change as guidance develops.