ACA Affordability: What California Employers Must Know
Under the ACA, employer-sponsored health insurance is considered "affordable" if the employee's required contribution for employee-only coverage does not exceed 9.02% of their household income (2026 indexed amount). If employer coverage is not affordable (or doesn't meet minimum value), the employee may be eligible for a premium tax credit on the marketplace — and the employer may owe an ACA penalty (the "B penalty").
Affordability Safe Harbors
Because employers don't know employees' household incomes, the IRS provides three safe harbors for measuring affordability without employee income data: W-2 wages safe harbor — employee contribution ≤ 9.02% of Box 1 W-2 wages; Rate of pay safe harbor — employee contribution ≤ 9.02% of (monthly pay rate × 130 hours); Federal Poverty Level (FPL) safe harbor — employee contribution ≤ 9.02% of the federal poverty level for a single individual ($15,060 in 2026), meaning employee contribution ≤ $113/month. The FPL safe harbor is the easiest to calculate and administer — if the cheapest employee-only plan option costs employees no more than $113/month, the employer satisfies affordability regardless of actual employee wages.
Minimum Value
Coverage meets "minimum value" if the plan pays at least 60% of the total allowed costs of covered services — roughly equivalent to a bronze-level plan. Most employer group health plans easily exceed this threshold. Plans with very high deductibles that pay less than 60% of costs (typically deductibles above $9,000) may fail minimum value and expose the employer to ACA penalties.
ACA Penalty for Non-Compliance
Employers who fail to offer affordable, minimum-value coverage face potential IRS penalties: "A penalty" ($2,970/year per full-time employee minus 30) for not offering any coverage; "B penalty" ($4,460/year per employee who receives a marketplace premium tax credit) for offering coverage that is unaffordable or below minimum value. These penalties are assessed per full-time employee, making them significant for larger employers.