United Benefit Advisors Insight and Analysis Blog

Question of the Month: How is PPACA's "IRS Form W-2 safe harbor" regarding affordability calculated?

Posted by: Danielle Capilla    May 21, 2015 12:00:00 PM

Answer: Under PPACA, coverage is considered affordable if it costs less than 9.5 percent of an employee's household income. Because employers are often unaware of an employee's household income, there are three safe harbors that an employer can use to determine affordability. One is the "IRS Form W-2 safe harbor," and under it coverage is affordable if the employee's contribution for self-only coverage is less than 9.5 percent of his W-2 (Box 1) income for the current year. Box 1 reports taxable income and might be artificially low for an individual with high 401(k), 403(b) or Section 125 deferrals, or who takes unpaid leave. There are no adjustments to account for this.

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Topics: health care, PPACA Affordable Care Act, Affordability, W-2 safe harbor, affordable health care