In order to avoid a Shared Responsibility Payment under the ACA, employers must offer affordable, minimum value coverage to full-time employees. Coverage is considered “affordable” if the employee contribution is below a specified percentage of income for each employee.
The IRS has announced the 2022 indexing adjustments for the affordability threshold. This was released in Rev. Proc. 2021-36.
2022 Affordability Threshold
The new affordability threshold for 2022 is 9.61%. This is a reduction from the 2021 affordability threshold, which was 9.83%.
Employers who use the Federal Poverty Level safe harbor (as opposed to Rate of Pay or W2 safe harbors) will now be restricted to lowest cost employee only contributions of $103.14 per month in 2022. As a reminder, certain other stipends or surcharges must be included in the affordability determination.
Of Note for Employers
Employers typically cross reference these affordability threshold percentages in designing contributions such that Shared Responsibility Payments can be avoided. Of note, since the threshold was reduced for 2022, if wages were to remain level, maximum contributions may actually be reduced.
Enhanced Premium Tax Credit (for Individuals)
The enhanced premium tax credit applies to individuals with Exchange coverage. While this does not directly impact employers, the expansion of the credit is worth noting for employers who have employees that are not eligible for employer sponsored coverage.
The ACA premium tax credit was expanded by the American Rescue Plan Act of 2021 (ARPA) for taxable years 2021 and 2022. Under standard rules, the tax credit is limited to taxpayers with household income between 100% and 400% of the federal poverty line.
ARPA eliminated the upper income limit for eligibility and increased the amount of the premium tax credit. The revised calculations decreased the percentage of household income that individuals must contribute for Exchange coverage (in all income bands). The 2022 percentage ranges from zero to 8.5%. This reflects the percentage of household income that recipients of the tax credit must pay for Exchange coverage. This is a substantial reduction from prior year percentages (which were 2.06% to 9.78% for 2020 and 2.07% to 9.83% for 2021). Special enhancements to the credit are also included for individuals receiving unemployment compensation in 2021.