There’s a new update from the IRS that you need to review in order to remain compliance for 2026!
On July 18, 2025, the IRS dropped some fresh guidance (Revenue Procedure 2025-25) with a key update for employer-sponsored health coverage under the ACA’s “pay-or-play” rules. If your eyes are already glazing over, don’t worry. Here’s the simple version:
What’s Changing?
For plan years starting in 2026, coverage will be considered “affordable” if an employee’s contribution for self-only coverage doesn’t exceed 9.96% of their household income. That’s a jump from 9.02% in 2025 and marks the highest affordability percentage ever under the ACA. Translation: employers may have a little more breathing room to adjust employee contributions without triggering penalties.
Quick Refresher: What’s the “Affordability Test”?
Under the ACA, large employers (that’s you, ALEs) must offer health plans that are:
- Affordable (according to the IRS’s definition)
- Provide minimum value
- Offered to full-time employees and their dependents
If not, there could be a penalty. But here’s the kicker—“affordable” doesn’t mean the total family plan. It only looks at the lowest-cost plan for self-only coverage that still meets minimum value.
Since most employers don’t know every employee’s household income (shocking, right?), the IRS allows three ways to check affordability using:
- W-2 Safe Harbor
- Rate of Pay Safe Harbor
- Federal Poverty Level Safe Harbor
What This Means for 2026 Open Enrollment
With the increase to 9.96%, employers can bump up the employee contribution just a bit while still staying in the safe zone. That flexibility could help balance costs without putting you at risk of an ACA penalty.
Final Thoughts
This is one of those small regulatory updates that can make a big difference in your open enrollment strategy—especially if you're navigating rising premiums or adjusting plan designs. It’s always smart to review your contribution structures early and check them against these safe harbor tests.
If you need a hand, CBC is here to help you ace compliance (and maybe even have a little fun doing it).
