2027 ACA Affordability Percentage: What Employers Need to Know

The Internal Revenue Service just moved the number that decides whether an employer's health plan counts as "affordable" under the Affordable Care Act. The 2027 ACA affordability percentage climbed to 10.22%, and the penalties for getting it wrong climbed with it.

Applicable large employers, generally businesses with 50 or more full-time and full-time-equivalent employees, need this number to set 2027 employee contribution amounts correctly. Get it wrong and the exposure lands on a per-employee penalty that just went up again for the second year in a row.

What Is the ACA Affordability Percentage for 2027?

The ACA affordability percentage is the share of an employee's income the IRS allows an employer to charge for the lowest-cost self-only health plan before that plan counts as unaffordable. For plan years beginning in 2027, that percentage is 10.22%, according to Revenue Procedure 2026-26, published July 21, 2026. An employer whose lowest-cost self-only plan requires an employee to pay more than 10.22% of their income meets the definition of an unaffordable offer under Internal Revenue Code Section 4980H, even if the employer technically offered coverage.

This is the same percentage used to test employer plans, not the separate income-band percentages, ranging from 2.15% to 10.22% for 2027, that determine how much a person buying their own coverage on the ACA marketplace must pay toward a benchmark plan before premium tax credits kick in. Employers only need the single 10.22% figure.

Why Did the Affordability Percentage Jump From 9.96% to 10.22%?

The affordability percentage rose because the federal premium growth measure it's indexed to rose faster than in prior years. The IRS adjusts the percentage annually based on projected premium growth relative to income growth, using National Health Expenditure Account data published by the Department of Health and Human Services. Starting with the 2026 benefit year, HHS revised that measure to also capture rising individual marketplace premiums, not just employer-sponsored insurance costs, and the IRS applied the same updated methodology again for 2027.

The affordability percentage has moved from 9.5% at the ACA's original baseline to 9.96% for 2026 to 10.22% for 2027. A higher percentage technically gives employers more room, since it allows a larger dollar contribution before a plan is considered unaffordable. But it also means an employer that set contributions right at the edge of the 2026 threshold needs to recheck the math before assuming last year's numbers still clear the 2027 bar.

What Are the 2027 ACA Employer Mandate Penalty Amounts?

The 2027 penalties are $3,780 per full-time employee for the Section 4980H(a) "no coverage" penalty and $5,670 per affected employee for the Section 4980H(b) "unaffordable coverage" penalty, according to Revenue Procedure 2026-22. Both figures apply to taxable years and plan years beginning after December 31, 2026, and both are roughly 13% higher than the 2026 amounts.

These penalties trigger under different conditions. The 4980H(a) penalty applies when an applicable large employer fails to offer minimum essential coverage to at least 95% of full-time employees and at least one employee receives a premium tax credit on a marketplace plan, and it is assessed against nearly the entire workforce, not just the employees who went to the marketplace. The 4980H(b) penalty applies when an employer offers coverage to enough employees but that coverage is unaffordable or fails to provide minimum value, and it is assessed only against the specific employees who received a premium tax credit.

Both amounts have climbed sharply since the ACA's employer mandate took effect at original statutory levels of $2,000 and $3,000. The table below shows the trend over the past four plan years.

Source: Internal Revenue Service Revenue Procedures 2024-14, 2025-22, 2025-26, and 2026-22.

How Do the Three ACA Affordability Safe Harbors Work for 2027?

The IRS gives employers three safe harbors to test affordability without knowing each employee's actual household income, since an employer generally cannot see a spouse's earnings or other household resources. Each safe harbor applies the 10.22% figure to a different, employer-known number instead.

The Form W-2 safe harbor measures affordability against the employee's own Box 1 wages for the year, reported after the fact on their W-2. The rate of pay safe harbor uses an hourly employee's regular hourly rate multiplied by 130 hours per month, or a salaried employee's monthly salary, measured at the start of the plan year so the employer does not have to wait for year-end data. The federal poverty line safe harbor uses a fixed federal poverty guideline amount published each January, which stays constant regardless of what an individual employee actually earns. An employer can use different safe harbors for different employee classes, and satisfying just one safe harbor for a given employee protects the employer from a 4980H(b) penalty for that employee, even if the employee's actual household income would have made the same contribution amount unaffordable under the marketplace's household-income test.

Does a Section 125 Election Affect the W-2 Safe Harbor Calculation?

Yes, and this is the interaction employers miss most often. A <a href="/blog/section-125-cafeteria-plan-2026-guide">Section 125 cafeteria plan</a> reduces an employee's Box 1 W-2 wages by the amount of their pre-tax election, which lowers the exact wage figure the W-2 safe harbor multiplies by 10.22% to set the affordability ceiling. An employee with a large pre-tax election for dependent care or a health flexible spending account has lower Box 1 wages than their actual gross pay, which shrinks the dollar amount of contribution the plan can charge that employee and still pass the W-2 safe harbor.

This does not mean Section 125 participation makes a plan unaffordable. It means an employer relying on the W-2 safe harbor for employees who also make large pre-tax elections should run the math using the reduced Box 1 figure, not gross pay, before setting next year's contribution amount. The rate of pay and federal poverty line safe harbors do not have this interaction at all, since neither one is calculated from W-2 wages, which is why many employers with active Section 125 participation lean on one of those two safe harbors instead for their lowest-paid, highest-election employees. For the mechanics of how a Section 125 election actually reads on a paycheck, see our <a href="/blog/what-is-section-125-on-w-2-2026">guide to Section 125 on the W-2</a>, and for the underlying payroll tax math, see our <a href="/blog/maximizing-fica-tax-savings">FICA tax savings breakdown</a>.

What Should Employers Do Before the 2027 Plan Year?

Applicable large employers should recalculate their lowest-cost self-only plan's employee contribution against the 10.22% figure for whichever safe harbor they use, before open enrollment materials go out for 2027 coverage. A contribution amount that cleared 9.96% for 2026 is not automatically safe under the new 10.22% threshold, since the dollar ceiling shifts with both the percentage and the underlying wage, pay rate, or poverty line figure it is applied to.

Employers should also confirm their <a href="/blog/aca-employer-mandate-2026-requirements">full-time employee count and offer rate</a> stay above the 95% threshold that avoids the 4980H(a) penalty entirely, since that penalty applies to the whole workforce and dwarfs the per-employee 4980H(b) exposure. The new 2027 numbers do not change 2026 ACA reporting obligations. Form 1095-C filings due in early 2027 still describe 2026 plan year coverage and are assessed under the 2026 penalty rates if a coding error shows up.

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Frequently Asked Questions

Getting your 2027 contribution amounts right now, before open enrollment materials go to print, is far cheaper than responding to an IRS Letter 226-J after the fact. Summit Health Benefits reviews your affordability math and Section 125 plan design together, at no cost.

Sources: Internal Revenue Service (Revenue Procedure 2026-26 setting the 2027 ACA affordability percentage and premium tax credit percentages; Revenue Procedure 2026-22 setting the 2027 Section 4980H(a) and 4980H(b) employer mandate penalty amounts; prior-year Revenue Procedures 2024-14, 2025-22, and 2025-26).