The Internal Revenue Service has updated an important employee benefits tax compliance document: a list of answers to frequently asked questions about how to apply the rules for the Affordable Care Act premium tax credit.
The government uses the premium tax credit program to provide subsidies that people who have no access to affordable, high-quality health coverage from their employers can use to buy health coverage from the ACA public exchange program.
The FAQ update shows the IRS will treat coverage as affordable in 2025 if the employee’s share of the cost is less than 9.02% of the employee’s wages, the employee’s pay rate or the federal poverty line.
The affordability percentage will increase from 8.39% in 2024, which was the lowest percentage in effect since the premium tax credit system came to life, in 2014. The current level is down from an all-time high of 9.83%, which applied in 2021.
The original percentage, used in 2014, was 9.5%, and is adjusted for inflation every year.
The change in the health coverage affordability percentage may be a hint of what will happen to the Social Security cost-of-living adjustment, retirement plan contribution limits and other health and retirement parameters the IRS adjusts for inflation every year.
The increase is just 0.63 percentage points but means the threshold amount will be 7.5% bigger next than it is this year.