News

Affordability Percentages Will Decrease for 2022

08/30/2021

On Aug. 30, 2021, the IRS issued Revenue Procedure 2021-36 to index the contribution percentages in 2022 for determining the 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:

  • 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
  • 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.

 

Action Steps

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. 

 

Important Dates

  • August 30, 2021: Proc. 21-36 increased the ACA’s affordability contribution percentages for 2022.
  • 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.