W-2 Safe Harbor Method

Coverage is deemed affordable if the employee is charged no more than 9.78% of current year wages according to Box 1 of their W-2. Please note that this method is relatively simple to apply, but it uses current year wages which won’t be known until the year is over. That means an employer may not know if coverage is affordable until the year is over.

Example 1. Joe is employed at XYZ Inc. for the entire year and is offered coverage for all 12 months. His wages according to Box 1 of his W-2 are $28,000. XYZ Inc. will be considered to offer affordable coverage provided Joe is not charged more than $228.20 per month for coverage. The formula is ($28,000 x .0978)/12 = $228.20.

Example 2. Joe is hired by XYZ Inc. on May 15, 2020, and is offered coverage after his waiting period on August 1, 2020. His W-2 wages according to Box 1 of his W-2 are $20,000. In this scenario, an adjustment can be made to the W-2 wages used in the affordability calculation since Joe was not employed for the entire year and he was subject to a waiting period before coverage was offered.

Rate of Pay Safe Harbor Method 

Coverage is deemed affordable if the employee is charged no more than 9.78% of their monthly rate of pay at the start of the coverage period. Always use 130 hours when determining the monthly rate of pay for hourly employees regardless of actual hours worked. For non-hourly employees, affordability is tied to the monthly salary at the start of the coverage period. The rate of pay method should not be used for employees who receive wages by virtue of tips or employees who are paid solely by commissions. 

Example 1. Kathy works for XYZ Inc. and makes $15 per hour as of the start of the plan year.  XYZ Inc. will be considered to offer affordable coverage provided Kathy is not charged more than $190.71 per month for coverage. The formula is ($15 x 130) x .0978 = $190.71.  

Federal Poverty Level (FPL) Safe Harbor Method

Coverage is deemed affordable if the employee is charged no more than 9.78% of the most recently published mainland FPL for a household of one. 

Example 1. The most recently published mainland FPL for a household of one is $12,490. XYZ Inc. will be considered to offer affordable coverage to employees who are not charged more than $101.79 per month for coverage. The formula is ($12,490 x .0978)/12 = $101.79.

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