Employers Face 9.96% ACA Affordability Threshold in 2026

The IRS has increased the ACA affordability percentage to 9.96% for 2026, representing a significant jump from the 9.02% threshold that applied in 2025. This change affects every Long Island employer with 50 or more full-time equivalent employees, potentially increasing their health insurance cost obligations by nearly one percentage point while creating new compliance risks for businesses that fail to adjust their coverage offerings accordingly.

Understanding the 9.96% Affordability Threshold

The ACA affordability percentage determines the maximum amount applicable large employers (ALEs) can require employees to contribute toward the cost of health insurance coverage. Under the new 9.96% threshold, Nassau and Suffolk County employers must ensure that employee contributions for the lowest-cost plan offering minimum value do not exceed 9.96% of the employee's household income.

This calculation directly impacts employer penalty exposure under the ACA's employer shared responsibility provisions. When employee-required contributions exceed the affordability threshold, affected employees become eligible for premium tax credits through the Health Insurance Marketplace, triggering potential penalties for the employer.

The Department of Labor's ACA guidance emphasizes that employers must use one of three safe harbor methods to determine affordability compliance: W-2 wages, rate of pay, or federal poverty level calculations.

For Long Island businesses, this increase means higher potential health insurance costs or greater penalty exposure, depending on how they structure their employee contribution requirements.

Financial Impact on Long Island Employers

The increase from 9.02% to 9.96% creates immediate budget implications for Nassau and Suffolk County employers who currently require employee contributions near the previous threshold. Companies must either absorb additional premium costs or risk ACA penalty assessments that can reach $4,350 per employee annually for affordability failures.

Consider a Long Island employer with 75 full-time employees earning an average of $50,000 annually. Under the previous 9.02% threshold, the maximum annual employee contribution was $4,510. The new 9.96% threshold allows contributions up to $4,980 - a difference of $470 per employee annually.

While this might seem beneficial for employers, the calculation complexity and penalty risks often make it more cost-effective to absorb the additional premium costs rather than risk non-compliance with affordability requirements.

Employers who fail to properly calculate affordability face penalties that far exceed the cost of providing compliant coverage, making accurate wage tracking and contribution calculations essential for financial protection.

Safe Harbor Calculation Methods

Long Island employers can use three IRS-approved safe harbor methods to determine ACA affordability compliance, each with distinct advantages and administrative requirements. The choice of method significantly affects both compliance risk and administrative burden for Nassau and Suffolk County businesses.

W-2 Wages Safe Harbor: Uses the employee's W-2 Box 1 wages from the prior year to calculate the 9.96% threshold. This method provides accuracy but requires detailed wage tracking and may not reflect current-year income changes.

Rate of Pay Safe Harbor: Calculates affordability based on the employee's hourly rate or monthly salary at the start of the coverage period. This method works well for employees with stable wages but creates complications for variable-hour workers.

Federal Poverty Level Safe Harbor: Uses 9.96% of the federal poverty level for a single individual, regardless of actual employee wages. This method provides administrative simplicity but may result in higher employer premium costs.

The comprehensive ACA employer mandate guide provides detailed calculations for each safe harbor method, but most Long Island employers benefit from professional guidance to select and implement the most cost-effective approach for their workforce.

Tracking and Documentation Requirements

The 9.96% affordability threshold requires comprehensive tracking of employee wages, coverage offers, and contribution calculations throughout the year. Nassau and Suffolk County employers must maintain detailed documentation to demonstrate compliance during IRS audits or penalty assessments.

Essential documentation includes:

• Monthly wage records for all full-time employees
• Coverage offer details and employee contribution requirements
• Safe harbor method calculations and supporting data
• Employee enrollment decisions and effective dates
• Variable-hour employee tracking and measurement period calculations

The complexity of maintaining ACA-compliant records while managing day-to-day business operations often overwhelms Long Island employers who attempt to handle compliance internally. Professional COBRA, ACA reporting, and 5500 filing services provide the systems and expertise necessary to maintain comprehensive documentation while ensuring accurate affordability calculations.

Inadequate record-keeping can result in penalty assessments even when employers believe they were compliant, making robust documentation systems essential for protection against IRS enforcement actions.

ACA Reporting Implications

The 9.96% affordability threshold directly affects Form 1095-C reporting requirements, with the March 2, 2026 deadline for providing employee statements already approaching. Long Island employers must ensure their reporting accurately reflects the new affordability calculations and any mid-year adjustments made to maintain compliance.

Form 1095-C reporting must include:

• Monthly coverage offer codes reflecting affordability compliance
• Employee contribution amounts for the lowest-cost plan
• Safe harbor method codes used for affordability determinations
• Coverage effective dates and any mid-year changes

The IRS employer shared responsibility provisions require accurate reporting that aligns with actual coverage offers and affordability calculations. Discrepancies between reported information and actual practices can trigger compliance reviews and penalty assessments.

Nassau and Suffolk County employers who made mid-year adjustments to maintain compliance with the 9.96% threshold must ensure their Form 1095-C reporting reflects these changes accurately to avoid creating additional compliance risks.

Penalty Exposure and Risk Management

ACA affordability failures can result in substantial penalties that significantly impact business cash flow and profitability. The penalty structure creates two primary exposure areas: failure to offer coverage (Section 4980H(a)) and failure to offer affordable coverage (Section 4980H(b)).

Affordability penalties under Section 4980H(b) can reach $4,350 per employee who receives premium tax credits through the Health Insurance Marketplace due to unaffordable employer coverage. For a Long Island company with 50+ employees, even a small number of affordability failures can result in penalties exceeding $20,000 annually.

The penalty calculation considers:

• Number of employees receiving marketplace premium tax credits
• Whether the employer's coverage met minimum value requirements
• Accuracy of affordability calculations and safe harbor applications
• Proper documentation and reporting compliance

Nassau and Suffolk County employers cannot rely on employees to understand or properly apply for marketplace coverage. The IRS penalty assessment process focuses on employer compliance with offering affordable coverage, regardless of employee decisions or marketplace interactions.

Implementation Strategy for Long Island Employers

Successfully adapting to the 9.96% affordability threshold requires immediate action from Nassau and Suffolk County employers who want to avoid compliance gaps and potential penalties. The key is implementing systematic processes that ensure ongoing compliance throughout the year.

Critical implementation steps include:

• Reviewing current employee contribution levels against the 9.96% threshold
• Selecting and implementing appropriate safe harbor calculation methods
• Updating payroll systems to track required wage and contribution data
• Establishing monthly monitoring procedures for affordability compliance
• Preparing Form 1095-C reporting systems for the March 2 deadline

The complexity of ACA compliance, combined with the substantial penalty exposure, makes professional support essential for most Long Island employers. Attempting to manage affordability calculations and reporting requirements internally often results in costly errors that could have been avoided with proper guidance.

Comprehensive ACA compliance services help ensure accurate affordability calculations while maintaining the documentation necessary to defend against IRS penalty assessments. The investment in professional support typically costs far less than a single penalty assessment, making it a cost-effective protection strategy.

Long Island employers who establish proper ACA compliance procedures now will avoid the compliance gaps and penalty risks that typically affect businesses attempting to manage these complex requirements without adequate systems and expertise. Professional ERISA compliance and fiduciary responsibility services provide comprehensive support for all aspects of employee benefit plan management, including ACA employer mandate compliance.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This summary is for informational purposes only. Please contact your Benton Oakfield representative to review how these changes impact your specific plan documents.