- On July 28, 2026
The IRS has released the 2027 ACA affordability percentage: 10.22%, continuing the upward trend we’ve seen in recent years. This “required contribution percentage” is the key metric used to determine whether an Applicable Large Employer’s (ALE’s) offer of coverage is “affordable” under the employer mandate.
- 2027 affordability percentage: 10.22% (plan years beginning in 2027)
- 2026 affordability percentage: 9.96%
- 2025 affordability percentage: 9.02%
As the affordability percentage climbs (now well above the statute’s original 9.5% baseline), employers generally have slightly more room to set employee contributions for self-only coverage and still remain within affordability parameters—assuming the offer otherwise meets minimum value and MEC requirements.
Why This Matters
Affordability drives multiple downstream outcomes, including:
- Whether an employer may be exposed to 4980H penalties
- Whether employees may be eligible for premium tax credits (which can trigger employer mandate exposure)
- Whether an IRS Letter 226-J may be generated based on Exchange subsidy data and employer reporting
In short: small affordability/coding mistakes can become big compliance issues.
Timing: Plan Year
A common pitfall is assuming the new percentage applies on January 1, regardless of plan year. It doesn’t. The 10.22% affordability percentage applies to plan years beginning in 2027. Non-calendar-year plans keep using 9.96% until their 2027 plan-year start date. For example:
- A plan renewing 11/1/2026 or 12/1/2026 continues to use 9.96% until it renews again in 2027.
- A plan renewing 1/1/2027 uses 10.22% starting 1/1/2027.
Safe Harbors: Unchanged, but Still Essential
The three affordability safe harbors remain available and unchanged:
- Federal Poverty Line (FPL) Safe Harbor
- Rate of Pay Safe Harbor
- Form W-2 Safe Harbor
Reminder: The safe harbor choice (and how it’s applied) should align with workforce structure and payroll realities.
Why FPL is popular: it’s often the cleanest path for setting a single contribution cap that is designed to be affordable across the workforce. The FPL-based monthly maximum for 2027 calendar-year plans will be clearer once updated poverty guidelines are released, but employers can start modeling now using the framework and anticipated ranges.
- FPL formula (planning purposes): Employee monthly premium for lowest-cost self-only MV plan ≤ (Affordability % × applicable FPL) ÷ 12
Penalties are Increasing Too (4980H)
Along with the affordability threshold update, the employer mandate penalty amounts also increase for 2027.
For reference:
- 2026 penalties
- 4980H(a) (“sledgehammer”): $3,340 per full-time employee
- 4980H(b) (“tack hammer”): $5,010 per full-time employee
- 2027 penalties
- 4980H(a): $3,780 per full-time employee
- 4980H(b): $5,670 per full-time employee
These increases reinforce why affordability design and accurate ACA reporting/coding remain critical—especially when responding to (or preventing) 226-J activity.
Broker/Employer Action Items
- Confirm which affordability percentage applies – Tie the applicable percentage to the plan year start date, not the calendar year.
- Review 2027 contribution strategies early – If clients are considering contribution changes at renewal, evaluate:
- lowest-cost self-only MV plan pricing
- contribution tiers and payroll deductions
- how the approach performs under the selected safe harbor
- Double-check reporting mechanics – Many employer mandate problems aren’t plan design failures, they’re reporting/code failures. Validate that affordability safe harbor codes and offer codes are being applied correctly to avoid mismatches that can lead to IRS notices.
- Model before you move – Even though the percentage increase gives additional flexibility, the “right” contribution level depends on workforce demographics, wage distribution, and the safe harbor in use.
Bottom Line
The affordability threshold increase to 10.22% provides more headroom for employers setting employee contributions for self-only coverage in plan years beginning in 2027—but it also arrives alongside higher 4980H penalty amounts. Now is the time to help clients align contribution strategy, safe harbor selection, and ACA reporting so affordability issues don’t become 226-J issues.
Contact your ExpressLink representative with any questions.