ACA Affordability Percentage 2026: The 9.96% Rule Explained

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Somewhere in your company’s past, somebody set the employee share of your health premiums. Maybe it was three years ago. Maybe it was a broker recommendation, or a spreadsheet someone built and nobody touched again. It felt reasonable, so it stuck.

Here’s the problem: the federal government re-decides what “affordable” means every single year. The number moved again for 2026, and it has been swinging hard. If nobody at your company re-runs that math annually, you’re not compliant. You’re just lucky so far.

Let’s make sure you actually know your number.

First, a Story About Dana

Dana ran HR at a 120-person distribution company. Back in 2022, leadership set employee contributions for the cheapest medical plan at a level that comfortably passed the affordability test. Done, decided, filed away. Premiums crept up each renewal, and the employee share crept up with them. Nobody re-ran the test, because nobody knew it was a test you have to keep taking.

Then the IRS dropped the affordability threshold to its lowest level ever in 2024. The same contribution that passed in 2022 now failed for Dana’s lower-wage warehouse employees. Two of them did the sensible thing: they skipped the company plan, went to the government marketplace, and qualified for subsidized coverage. That subsidy is the tripwire. Eighteen months later, a Letter 226-J showed up proposing a penalty for every month those two employees were subsidized. Dana had never heard of the letter, the test, or the fact that the passing grade changes every year.

Dana didn’t make a bad decision. She inherited a number nobody was watching. That’s the trap, and it’s quiet right up until it isn’t.

What “Affordable” Actually Means in 2026

The $129.89 monthly shortcut that automatically passes the 2026 ACA affordability test — The passing grade moved four times in four years.

Quick note before the numbers: this is the plain-English version to get you oriented — not legal or tax advice. Before you act on any of it, confirm the specifics with your broker, your benefits counsel, or your filing software. My job here is to make it make sense, not to be your lawyer.

If your company is an Applicable Large Employer (50 or more full-time equivalent employees), the ACA says you have to offer coverage that’s “affordable.” But affordable isn’t your opinion, and it isn’t your employees’ opinion. It’s a percentage the IRS sets, and for plan years beginning in 2026 that number is 9.96%. Your employee’s share of the cheapest self-only plan you offer can’t cost more than 9.96% of their income.

Here’s the part that catches everyone: that percentage is not stable. Look at the last few years. In 2023 it was 9.12%. In 2024 it dropped to 8.39%, the lowest it has ever been. In 2025 it climbed back to 9.02%. And for 2026 it jumped to 9.96%, the highest it has ever been. The passing grade moved four times in four years.

For 2026, the move is actually in your favor. A higher percentage means more room before your plan counts as unaffordable. But that’s exactly why this year is dangerous in a different way: if you raise employee contributions to the edge of the new 9.96% ceiling and then the number drops again (it did in 2024, hard), you’re set up to fail a future test you didn’t know you were taking. The lesson isn’t “relax, the number went up.” The lesson is “this number moves every year, and somebody at your company has to move with it.”

One more wrinkle: if your plan year doesn’t start January 1, you use the percentage in effect when your plan year begins. A plan year that started in late 2025 runs on 9.02% until it renews. Don’t mix years.

The $129.89 Shortcut (the Easiest Way to Pass)

Here’s the obvious question: 9.96% of what income? You can’t see an employee’s household income, and the IRS knows that. So they let you measure against things you can see. There are three approved ways, and your broker or filing software will set the right one. The most common is measuring against the employee’s W-2 wages.

But there’s a simpler door, and it’s the one worth knowing by heart. For calendar-year plans starting January 1, 2026, if the employee cost for self-only coverage on your cheapest qualifying plan is $129.89 a month or less, you automatically pass for every employee. No wage math, no per-person testing. One number, whole company covered. (That figure is for the 48 contiguous states and resets each year, so date it: $129.89 is the 2026 amount, up from $113.20 in 2025.)

If your lowest-cost plan is anywhere near that line, getting under it is the cleanest compliance move available. If it’s well above it, that’s fine too. It just means someone has to run the actual math against wages, employee by employee, and document it.

What It Costs to Get This Wrong

ACA affordability penalty math for 2026 — $5,010 per subsidized employee — The quiet penalty that compounds monthly.

The affordability penalty is the quieter of the two ACA penalties, and that’s what makes it sneaky. You offered coverage. You did the right thing in spirit. But if the plan is unaffordable by the IRS’s math and an employee gets a marketplace subsidy because of it, the meter starts.

The 2026 amount is $5,010 per year for each employee who got a subsidy. Not your whole staff, just the ones the gap touched. Dana’s two warehouse employees: 2 × $5,010 = $10,020 a year, and the IRS counts it month by month for every month the subsidy ran. The longer nobody notices, the bigger the letter.

And the letter is how you find out. The IRS compares your filed forms against the list of people who got subsidies, then sends a Letter 226-J proposing the penalty. You get 90 days to respond, and penalties can often be reduced or thrown out if your data tells a better story than theirs. Which leads to the thing nobody connects: your affordability defense lives in your 1095-C filings. The codes on those forms are where you prove what you offered and what it cost. Filing them accurately isn’t paperwork, it’s your receipts. This is exactly what filing software like Tax1099 is for — it generates the 1094-C and 1095-C with the right codes and e-files them, so when the IRS comes asking, your proof is already on record.

How to Set Your 2026 Contributions Without Guessing

The annual ACA affordability re-check loop for benefits administrators — A recurring test, not a one-time setup.

If you’re heading into renewal season and open enrollment planning, here’s the order of operations.

Find your lowest-cost qualifying plan. Affordability is only tested against the cheapest self-only plan that provides real coverage. That’s the only number that matters for this test.
Check it against the $129.89 shortcut first. If your employee share for that plan is at or under $129.89 a month (2026, calendar-year plans), you pass automatically. Done. Put a note on your calendar to re-check next year and move on.
If you’re over the shortcut, run the wage math. Take your lowest-paid full-time employee’s wages and check that the monthly employee share doesn’t exceed 9.96% of them. If it passes for your lowest earner, it passes for everyone. Your broker can run this in minutes. (The IRS lays out the rules on its employer shared responsibility page.)
Document which method you used and the math. If a letter ever comes, “we checked and here’s the worksheet” is a defense. “We assumed” is not.
File your 1094-C and 1095-C with the right codes. The forms are where your affordability proof lives. Tax1099 handles the code logic and e-filing without the enterprise price tag.
Put the re-check on your calendar. Every year. The IRS publishes the new percentage each summer for the following year. The day it drops, re-run your numbers before you finalize renewal contributions. This is a recurring test, not a one-time setup.

What Usually Goes Wrong

Before the list, the pattern: every one of these is a set-it-and-forget-it failure. The math isn’t hard. The forgetting is.

What Usually Goes Wrong

•Contributions were set years ago and never re-tested, while the IRS percentage moved four times in four years.
•Premium increases get passed to employees at renewal without anyone re-running the affordability math on the new amounts.
•The test gets run against average wages instead of the lowest-paid full-time employee, so it passes on paper and fails in reality.
•Non-calendar plan years apply the wrong year’s percentage.
•Nobody documents the method, so when a Letter 226-J arrives there’s nothing to respond with inside the 90-day window.

REAL TALK

“Affordable” isn’t a feeling and it isn’t a decision your company gets to make once. It’s a number the IRS re-sets every single year, and the only companies that stay compliant are the ones where somebody owns the re-check. Be the somebody. It’s twenty minutes a year, and it’s the difference between a calendar reminder and a penalty letter.

Where to Start This Week

Run the test on your current numbers today. Pull your cheapest self-only plan’s employee cost. Under $129.89 a month? You pass 2026 automatically. Over it? Check it against 9.96% of your lowest-paid full-timer’s wages and write down the math.

Get your filing handled. Your affordability proof lives in your 1095-C codes. Tax1099 generates and e-files them with the right codes, so your defense is on record before anyone asks.

If you’re new to all of this ALE business, start with my breakdown of what happens when your company crosses 50 employees — affordability is one of five obligations that switch on, and that post walks all of them.

Heading into open enrollment season? The cleanup that follows in January is its own challenge. Grab the free Post-OE Audit field guide and tracker so you’re ready: get the free guide here.

And if you’d rather have someone who’s done this for two decades pressure-test your whole setup — contributions, filings, the works — that’s what the Benefits Operations Audit is for. Email me and we’ll find out where you stand before the IRS does.