IRS adjusts ACA employer mandate affordability threshold for 2021

The IRS has announced adjustments to the “affordability” threshold for employer-provided medical coverage for plan years beginning in 2021, for purposes of the Affordable Care Act’s (ACA) employer mandate. The affordability threshold will be 9.83% of household income, up from 9.78% in 2020. The same percentage applies for purposes of the employer mandate’s affordability safe harbors.


Employers subject to the ACA’s employer mandate know that, to avoid potential penalties, they must satisfy what we refer to as the mandate’s tier 1 and tier 2 obligations.

An employer satisfies tier 1 by offering “minimum essential coverage” to at least 95% of its ACA full-time employees (generally, employees averaging at least 30 hours of service per week) and their biological and adopted children through the month they attain age 26.

An employer satisfies tier 2 by ensuring the offer of employee-only coverage to an ACA full-time employee satisfies a minimum actuarial value requirement and is considered “affordable.” Under the ACA as written, employee-only coverage is considered affordable if it doesn’t cost the employee more than 9.5% of the employee’s household income. The IRS adjusts the affordability threshold annually. As noted above, the adjustment for 2021 brings the affordability threshold up to 9.83% of household income (or, for safe harbor purposes, of W-2 wages, the federal poverty level, or rate of pay).

IRS adjusts ACA employer mandate affordability threshold for 2021Download alert (opens a new window)Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.