How to find out if the IRS considers your plan "affordable"
The affordability test means that an employers least expensive, single coverage plan cannot exceed 9.5% of "income". There are many safe harbor methods to determine "income" for this test.
- Option 1: Use the employee's box 1 W-2 wages
- Option 2: Federal Poverty Level (Single Level)
- Option 3: Take the employee's hourly rate and multiply that by 130 hours per month
So, again, using one of these three options to calculate income, an employer's least expensive, single coverage plan cannot exceed 9.5% of the calculated income.
For example, if an employee makes $7.25/hour, you calculate 130 hours times $7.25 to see that the employee makes $942.50/month. To be considered an affordable plan, it can cost the employee no more than $89.54/month ($942.50 x 9.5%).