As 2025 comes to a close, employers are preparing for ACA compliance in 2026. The Affordable Care Act affordability threshold plays a central role in ensuring health coverage meets IRS standards, and even small adjustments can significantly impact employer contributions, plan design decisions, and 1095-C accuracy.
For the 2025 plan year, the IRS set the affordability percentage at 8.39%. With such a narrow margin, employers need to review contributions and coverage structures carefully to remain compliant in 2026.
This guide breaks down what the 2025 affordability threshold means, how it affects employers in 2026, and what organizations should review as they finalize their ACA compliance strategy.
Understanding the ACA affordability rule
The ACA affordability rule requires Applicable Large Employers (ALEs) to offer full-time employees access to health coverage that meets minimum value and is considered “affordable.” Affordability is measured based on the employee’s cost for single-only coverage under the lowest-cost plan that meets minimum value.
Because employers typically do not know each employee’s household income, the IRS provides safe harbors that allow affordability to be determined in a consistent, predictable way.
Each year, the IRS adjusts the affordability threshold based on economic factors and an indexing formula. For the 2025 plan year, the affordability limit is 8.39%, a level that requires careful attention to employee contributions and payroll alignment.
ACA employer mandate basics
The employer mandate requires ALEs—organizations with 50 or more full-time or full-time equivalent employees—to offer minimum essential coverage to at least 95% of full-time employees. Failure to meet this requirement may trigger penalties under section 4980H(a).
Even if coverage is offered, employers may still face penalties under 4980H(b) if the coverage does not meet the affordability standard. Accurate calculations and proper coding on Forms 1095-C are critical to staying compliant in 2026.
The 2025 ACA affordability threshold
With the affordability percentage set at 8.39%, employers must ensure employees are not required to contribute more than this amount toward the lowest-cost, single-only plan that meets minimum value.
Even small changes in wages or plan costs can affect affordability calculations. Employers should carefully review contribution strategies to ensure compliance for the 2025 plan year as they finalize records in 2026.
Affordability safe harbor methods for 2025
To account for the lack of household income data, the IRS allows employers to use one of three safe harbor methods:
W-2 safe harbor
Based on Box 1 W-2 wages, this method helps employers with fluctuating wages. It requires careful payroll alignment to ensure contributions remain affordable.
Rate of pay safe harbor
Uses an employee’s hourly rate multiplied by 130 hours per month (or a monthly salary). Many employers favor this method for its predictability across the workforce.
Federal poverty line safe harbor
Simplest approach using the federal poverty line to calculate maximum monthly contributions. Effective for minimizing risk and reducing complexity.
Choosing the right safe harbor can significantly impact compliance and administrative workload.
How affordability affects forms 1095-C in 2026
Affordability directly influences how employers complete Forms 1095-C. Line 16 requires safe harbor codes—such as 2F for W-2, 2G for FPL, and 2H for rate of pay—to indicate how affordability was determined.
Accurate coding is essential. Mistakes can trigger IRS inquiries or penalties, even if coverage was technically affordable. Proper documentation of contributions and safe harbor selection helps reduce compliance risk.
Avoiding ACA penalties in 2026
Common pitfalls include miscalculating employee contributions, entering incorrect 1095-C codes, or failing to maintain adequate records. To minimize risk, employers should:
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Review contribution structures for 2025 plan year compliance
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Audit payroll, HR, and benefits data for accuracy
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Apply safe harbor methods consistently
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Monitor IRS updates for any changes affecting 2025 plan year reporting
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Consider using an ACA filing service to streamline reporting, reduce errors, and ensure timely submission to the IRS
Leveraging an ACA filing service can take the burden off internal teams, ensure accurate 1095-C and 1094-C preparation, and provide peace of mind during the busy filing period. Proactive review and the right tools help avoid costly mistakes in 2026.
Planning ahead: what employers should do now
Even in December, there’s time to take steps that make compliance in 2026 smoother:
Review contribution structures: Ensure the lowest-cost, single-only plan remains within the 8.39% threshold under your chosen safe harbor.
Coordinate with payroll and HR systems: Accurate alignment between payroll deductions, eligibility data, and plan records is critical for reporting accuracy.
Communicate with employees: If contribution adjustments occurred during the 2025 plan year, update documentation and communicate changes clearly to employees.
Use ACA filing services: Partnering with a filing service can simplify submission, reduce errors, and free internal teams to focus on other priorities.
Taking these steps now allows employers to finalize records confidently and minimize the risk of errors or penalties in 2026.
Conclusion
The ACA affordability threshold is a key component of compliance, and the 2025 plan year presents challenges with the 8.39% percentage. Understanding how affordability affects contributions, safe harbor selection, and 1095-C reporting is essential for avoiding penalties.
By reviewing contributions, strengthening documentation, leveraging ACA filing services, and ensuring accurate reporting workflows, employers can approach 2026 well-prepared and maintain compliance with ACA requirements.
