ACA Affordability Crosses 10% for 2027. Here Is What That Does to Your Contribution Strategy.

Every year I see the same thing happen. An employer set their employee contribution a few years ago, it passed the affordability test at the time, and nobody has looked at it since. Then the threshold moves, the group adds a few lower-wage positions, and suddenly the plan is not affordable for the people who can least afford a surprise. 2027 is a year to look.

The new threshold

For plan years beginning in 2027, the IRS affordability percentage is 10.22%. That is up from 9.96% in 2026, and it is the first time the number has gone above 10% since the employer mandate took effect. In plain terms: the employee share of your lowest-cost, self-only plan that meets minimum value cannot exceed 10.22% of that employee's household income.

Since none of us know anyone's household income, you use a safe harbor. There are three.

The safe harbors, with 2027 numbers

The federal poverty level safe harbor is the simplest. For 2027 the mainland cap works out to $135.93 per month for self-only coverage. If your lowest-cost employee contribution is at or below that, you are affordable for everyone, full stop. Many of our clients in hospitality, construction, and healthcare use this one because it removes the guesswork.

The rate-of-pay safe harbor uses the hourly rate times 130 hours, or the monthly salary, and applies 10.22% to that. It works well when you have a wide wage range and want contributions that scale.

The W-2 safe harbor uses Box 1 wages. It is accurate but you do not know for certain until the year is over, which makes it the riskiest of the three for employers with variable hours.

The penalties went up too

The 2027 employer shared responsibility penalties are $3,780 per full-time employee per year if you fail to offer coverage to 95% of your full-time staff (minus the first 30), and $5,670 per affected employee if you offer coverage but it is not affordable or does not meet minimum value. The second one is the one that bites, because it is triggered one employee at a time when someone goes to the marketplace and receives a subsidy.

The mistake I see most

Employers test affordability on their most popular plan instead of their lowest-cost plan. The test is about the cheapest minimum-value option you offer for employee-only coverage. If you offer a buy-down plan, that is what gets tested. If you do not, your base plan is doing double duty, and the contribution on it has to clear 10.22%.

What to do before January

Pull your 2027 contribution schedule and check the employee-only rate on your lowest-cost plan against whichever safe harbor you have documented. If you have not documented one, that is step one. Then confirm the test still passes for your lowest-paid full-time class. If it does not, you have a short window to adjust contributions before the plan year starts.

This is general guidance and not legal advice, and I am glad to work alongside your counsel on it. But I would rather spend twenty minutes with you on this in November than help you answer an IRS letter in 2028.