IRS Announces Indexing Adjustments for 2025 ACA Affordability and Premium Tax Credit Determinations

The IRS has released the 2025 indexing updates for key percentages related to the Affordable Care Act (ACA). The required contribution percentage, which helps assess whether employer-sponsored health coverage meets the "affordable" standard under Code § 4980H, will be adjusted from the previous 9.5% baseline to 9.02% for plan years starting in 2025. This adjustment reflects an increase from the 8.39% required for 2024. The percentages used to determine the amount of household income that individuals who are eligible for premium tax credits must contribute toward the cost of Exchange coverage vary across household income bands. The 2025 percentages range from zero to 8.5%. (This is the same as the 2024 range).

Employers should take note of the adjustments to the affordability percentage, as failing to offer affordable, minimum value coverage to full-time employees could lead to employer shared responsibility penalties. For the years 2021 through 2025, the American Rescue Plan Act of 2021 (ARPA) and the Inflation Reduction Act of 2022 (IRA) have broadened the ACA premium tax credit by removing the upper income limit for eligibility and lowering, across all income levels, the percentage of household income required for Exchange coverage. Consequently, these percentages will remain between zero and 8.5% (with no indexing) through 2025. The ARPA and IRA did not change the rules for indexing the required contribution percentage for determining affordability. Additionally, under IRS "family glitch" regulations, the affordability of employer-sponsored coverage for an employee’s family members is now based on the cost for the employee to cover themselves and their family members, rather than just the cost of employee-only coverage.