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ACA Affordability Calculator

Calculate ACA affordability safe harbors to ensure compliance with employer shared responsibility provisions

ACA Affordability Safe Harbors

Under the ACA, coverage is considered affordable if the employee's share of the premium for the lowest-cost self-only plan does not exceed a certain percentage of their household income. Employers may use one of three safe harbors to determine affordability.

Important for All Safe Harbors:

ACA affordability calculations are based on self-only coverage for the employee. The premium amounts used in all three safe harbor methods should NOT include costs for dependents or spouse coverage.

Safe Harbor Trade-offs:

Federal Poverty Line & Rate of Pay: Predictable in advance but typically more expensive for employers

W-2 Safe Harbor: Less expensive for employers but uncertain until year-end - may not provide safe result

Federal Poverty Line

Uses federal poverty guidelines to determine affordability threshold based on employee household size.

Rate of Pay

Uses the employee's hourly rate of pay multiplied by 30 hours per week times 52 weeks per year.

W-2 Safe Harbor

Based on the employee's W-2 wages from the current year for affordability calculations.

Calculator Information

Why Use Affordability Safe Harbors?

  • Protect against Section 4980H(b) penalties
  • Provide legal certainty for compliance
  • Simplify affordability determinations
  • Reduce administrative burden

Important Note

Affordability must be tested annually for each plan year and each eligible employee. Employers can choose different safe harbors for different employee classes.

Federal Poverty Line Calculator

Federal Poverty Line Calculator

Plan Year Note:

Select the year your plan year begins, not necessarily the calendar year. For example, if your plan starts July 1, 2024, select 2024 for calculations through June 30, 2025.

Federal Poverty Line Safe Harbor

The Federal Poverty Line safe harbor allows employers to determine affordability based on federal poverty guidelines adjusted for household size and geographic location.

Key Features

  • • Based on current year federal poverty guidelines
  • • Adjusted for Alaska and Hawaii
  • • Uses household size for calculation
  • • Most predictable safe harbor method

Advantages

  • • Provides certainty and predictability
  • • Easy to calculate and apply
  • • Updated annually by federal government
  • • Consistent across all employee classes
  • • Predictable in advance but typically more expensive than W-2 method

Rate of Pay Calculator

Rate of Pay Calculator

Plan Year Note:

Select the year your plan year begins, not necessarily the calendar year. For example, if your plan starts July 1, 2024, select 2024 for calculations through June 30, 2025.

Rate of Pay Safe Harbor Requirements:

Hourly wages only: Only employees paid an hourly wage are eligible. Per unit rates, per mile rates, or salary conversions may not be used for this safe harbor.

Tips excluded: For tipped employees, use only the base hourly wage. Do not include tips in the Rate of Pay calculation.

• If the employee's hourly wage changes during the plan year (promotion, demotion, position change), apply the Rate of Pay safe harbor month by month using the lowest hourly rate in effect for each specific month. Do not average rates within a month.

• If the employee works multiple positions with different rates in the same month (e.g., restaurant worker doing both server and kitchen duties), use the lowest hourly rate for that month's affordability calculation.

Rate of Pay Safe Harbor

The Rate of Pay safe harbor uses an employee's hourly wage multiplied by 30 hours per week times 52 weeks per year to determine affordability.

Key Features

  • • Only available for hourly employees
  • • Uses fixed 30 hours per week calculation
  • • Based on lowest rate when multiple positions
  • • Excludes tips and non-wage compensation

Advantages

  • • Simple calculation based on hourly rate
  • • Predictable for budget planning
  • • No need to track actual hours worked
  • • Good for variable hour employees

Limitations

  • • Only for hourly wage employees
  • • Cannot use for salaried employees
  • • Must use lowest rate for multiple positions
  • • May result in higher costs than W-2 method

W-2 Safe Harbor Calculator

W-2 Safe Harbor Calculator

Plan Year Note:

Select the year your plan year begins, not necessarily the calendar year. For example, if your plan starts July 1, 2024, select 2024 for calculations through June 30, 2025.

W-2 Safe Harbor Requirements:

Current year wages: Use wages from the current plan year, not prior year. This typically requires estimation until year-end when actual W-2 data is available.

Coverage months: Enter the number of months coverage was offered (regardless of whether the employee enrolled). Coverage months refer to when insurance was available to the employee, not when they were actually enrolled.

Number of months during the plan year that coverage was offered to the employee

W-2 Safe Harbor

The W-2 safe harbor uses an employee's actual W-2 Box 1 wages from the current year divided by the number of months coverage was offered to determine affordability.

Key Features

  • • Based on actual current year W-2 wages
  • • Considers months coverage was offered
  • • Most accurate reflection of employee income
  • • Can be used for all employee types

Advantages

  • • Generally results in lower premium costs
  • • More affordable for employees
  • • Based on actual earned income
  • • Works for all employee types
  • • Most flexible safe harbor method

Challenges

  • • Requires wage estimation during plan year
  • • Uncertain until year-end actual wages known
  • • May not provide safe harbor protection
  • • Complex for mid-year hires
  • • Requires careful tracking of coverage months

Legal Disclaimer

This calculator is provided for informational purposes only and should not be considered legal or tax advice. ACA regulations are complex and subject to change. Please consult with qualified legal and tax professionals for specific guidance regarding your organization's compliance obligations.