Affordability Calculator

Employer Medical Insurance Affordability Requirements



To see if your employer medical plan meets the affordability requirements you will need to use one of the ACA safe harbor methods. There are three different safe harbor methods to choose from. Each method has certain industries that it works best in. You only need to meet one of the methods to be deemed in compliance. If you would like more details on the Safe Harbor methods review 54.4980H-5 of the ESRP regulations

Safe Harbor Affordability Calculations


W-2 Wages Safe Harbor

The employee's W-2 wages as reported in Box 1, generally as of the first day of the plan year. You will need to make sure you remain in compliance year to year by reviewing total W-2 wages and compare with employee contributions. In 2021, the employee contributions cannot exceed 9.83% of total W-2 wages on base plan.

W-2 Wages Calculator

x 8.39% /

  • Salary Employees where there is not a lot of fluctuation in yearly compensation
  • The W-2 Box 1 income does not include pretax plan contributions (Section 125 Medical Plan, 401k, HSA Contributions, Etc)

Rate of Pay Safe Harbor

The employee's rate of pay, which is the hourly wage rate multiplied by 130 hours per month as of the first day of the plan year. There are a few exclusions on this option. Eventhough this method uses 130 hours to calculate affordability, employees do not need to work near that amount for this safe harbor calculation to remain in compliance.

Rate of Pay Calculator

( * 130 Hours * 8.39%

  • You cannot use this method for individuals that has pay based on commission, or tips.
  • You must use the lowest hourly rate of pay during the policy year even if they receive an increase in pay midway through the year. If they adverse happens and they receive a reduction in pay you must then use the newer lower rate of pay to determine affordability.
  • Even if employees do not meet the 130 hours month to month you can still use this method to determine affordability.

Federal Poverty Level (FPL) Safe Harbor

The individual Federal Poverty Level (FPL), which is the FPL as of six months prior to the beginning of the plan year, since the FPL isn't published until January for a given year.

Federal Poverty Level Calculation

  • Most frequently used method of calculating affordability
  • Its frequent use is attributed to its ease of implementation and simplification of 1095C reporting
  • The Maximum Employee Contribution on this method is generally lower than others. (Rate of Pay in certain circumstances can be lower)


    • Penalties for Non-Compliance with Safe Harbor Affordability


    If your plan does not meet safe harbor affordability requirements (groups over 50) you will not be fully in compliance with the Employer Pay or Play Mandate. While this penalty is not as large as not complying at all with the mandate it is still could be substantial.

    What triggers the penalty is when an employee receives a premium tax credit from the individual marketplace. Individuals qualify for tax credits if their household is less than 400 percent of the federal poverty level The penalty is computed separately for each month. The IRS will notify you of the penalties by sending you Letter 226-J in the mail.

    The amount of the penalty for each month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,860 ( $321.67 per month). The penalty is the lesser of the amount calculated or the amount that would be owed if the employer did not offer coverage.

    Maximum Penalty - $2,570 divided by 12, multiplied by the number of full-time employees employed during the applicable month, not counting the first 30 full-time employees). Only full-time employees, not full-time equivalents, are counted for purposes of calculating the penalty.