Tax Central: Affordability test threshold decreases for 2018

September 6, 2017|Terri Lillesand

Large employers may need to review their health care plans and premiums to ensure they meet the decreased 2018 affordability test thresholds.

With open enrollment right around the corner, now is the time to look at your health care plans and pricing offered to employees. The affordability test threshold is decreasing in 2018.

What is the affordability test?

The affordability test was designed to ensure full-time employees and their dependents are offered at least one health plan that provides minimum value at an affordable price. As an employer, you are responsible for ensuring the plan you offer meets the affordability threshold.

Under the ACA, a plan is considered affordable if the employee’s contribution level for self-only coverage does not exceed 9.5% of their household income or one of three employer affordability safe harbors (indexed for years after 2014). If you miss the mark, you could be subject to a penalty if you are a large employer.

2018 affordability benchmark is lower than in 2017

For the first time, the affordability threshold has decreased. It will now be 9.56% for plan years that begin in 2018.

Year Affordability threshold
2015 9.56%
2016 9.66%
2017 9.69%
2018 9.56%

Multiple affordability safe harbors available

As a reminder, there are three affordability safe harbors that define what affordable insurance is. All use the 9.56% as the threshold of the below:

  1. W-2 safe harbor. Employee’s Form W-2 wages—calculated using the box 1 Form W-2 wages for a full-time employee.
  2. Rate of pay safe harbor. Employee’s hourly rate of pay—calculated using the hourly rate of pay for a full-time employee.
  3. Federal poverty line safe harbor. Federal poverty line safe harbor—calculated using the federal poverty line applicable for the employer's plan year.

What are your next steps?

With this drop, you must review your self-only coverage to ensure that at least one of your plans that provides minimum value meets the household income affordability threshold or one of the three employer affordability safe harbors. You may need to reduce the premium amount that employees paid in 2017 to maintain affordability for 2018.

If you have questions determining the affordability of your plan or other questions related to Forms 1094 and 1095, please contact Terri Lillesand or another member of Schenck’s Health Care Reform team at 800-236-2246. Schenck can also assist you with your Form 1095 preparation. Schenck’s Health Care Reform team:


Terri Lillesand, CPA, tax shareholder, is a member of Schenck’s Health Care Reform Act Advisory team. She provides tax compliance and planning for corporate, individual, partnership, non-profit and fiduciary taxpayers.