The IRS recently announced a new ACA “affordability rate” for 2026 employer-sponsored health coverage. For 2026, the new rate will be increased to 9.96% of an employee’s gross income.
The rule governs how much large employers can be required to contribute to their employee’s health insurance premiums, so even a small change can affect employer contribution strategies. It’s important for both employers and employees to pay attention to new rules and regulations and know how they will be affected in the year ahead.
Who is Subject to the ACA Affordability Rule?
Under the Affordable Care Act (ACA), employers with 50 or more full-time employees have to offer health insurance that meets “minimum essential coverage” and doesn’t cost more than a certain percentage of an employee’s income. This is the “affordability rule” that the IRS applies to decide if employer-sponsored health coverage is affordable for the employee, otherwise the employee may qualify for subsidies to buy a plan through the Health Insurance Marketplace instead.
Employers usually work hard to stay within the affordability rule, because if they don’t, they could face hefty penalties from the IRS.
What the New 2026 Rate Means for Employers
The new 9.96% rate for 2026 is an increase of 2025’s 9.02% rate, meaning employers will have a little more leeway to have employees pay more for their share of health insurance each month while still staying within the affordability guidelines.
The IRS gives employers three different “safe harbors” for figuring out if an employee’s health insurance is affordable:
W-2 Wages Safe Harbor: Employers can use this method when employees have a set annual salary or wage. The employer looks at W-2 wages and makes sure the cost for self-only health coverage is less than the affordability percentage. For example, if an employee makes $85,000 per year, their share of the monthly healthcare premium cannot exceed $705.50 per month. (Calculation: $85,000 × 9.96% = $8,466 per year → ÷ 12 = $705.50)
Rate of Pay Safe Harbor: If employees are hourly or have more variable hours, employers can use this method to calculate affordability. It uses a fixed 130 hours per month to keep the math simple and consistent. For example, if an employee makes $20 per hour, their share of the monthly healthcare premium cannot exceed $258.96 per month. (Calculation: $20 × 130 hours = $2,600, $2,600 × 9.96% = $258.96/month)
Federal Poverty Line (FPL) Safe Harbor: Employers can use this method when they want a simple, one-size-fits-all number to determine if their health coverage is affordable. For 2025, the FPL for a single-person household is $15,650. Using the 2026 affordability rate of 9.96%, this means the employee’s monthly premium can’t exceed about $129.89 to meet the affordability test under this method.
Employers will want to choose one of these methods to calculate affordability metrics for their employees and avoid Employer Shared Responsibility Payment (ESRP) penalties, which are also increasing for 2026.
What the New 2026 Rate Means for Employees
For employees, the increased 9.96% affordability rate means that their employer is allowed to charge a slightly higher portion of health insurance premiums than in previous years, but it doesn’t necessarily mean that they will. Many employers continue to cover 100% of employee premiums, so some workers may see no change at all.
However, employees at companies that share healthcare costs might notice higher payroll deductions in 2026. Employers should communicate their plans well in advance, giving employees plenty of time to understand any changes, assess their options, and make informed decisions about their coverage for the upcoming year.
Preparing for 2026
As 2026 approaches, employers should review their health plan contributions and affordability calculations to ensure compliance and avoid penalties. Meanwhile, employees are encouraged to stay informed about any changes to their premiums and employer matching, so they can make the best decisions for their healthcare needs in the coming year.