Affordability Percentages Will Increase for 2021

The IRS recently issued Revenue Procedure 2020-36 to index the contribution percentages in 2021 for determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2021, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

• 9.83% of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and

• 8.27% 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.

The updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2021. This is a slight increase from the affordability contribution percentages for 2020. As a result, some employers may have additional flexibility in setting their employee contributions for 2021 to meet the adjusted percentage.

Source: HR360