Determining Affordability of Health Coverage for 2025

Simplify ACA Reporting with Our Affordable and Accurate Solution

Each year, the Department of Health and Human Services (HHS) updates the Federal Poverty Level (FPL) which is important for determining the affordability of employer-sponsored health coverage under the Affordable Care Act (ACA). For Applicable Large Employers (ALEs)—those with 50 or more full-time or full-time equivalent employees—ensuring that their lowest-cost, self-only health plan meets ACA affordability requirements is required to avoid potential Employer Shared Responsibility Penalties (ESRP).

For plan years beginning in 2025, ALEs must offer at least one plan that costs employees less than 9.02% of their household income to be considered affordable. Since employers typically do not know an employee’s household income, the IRS provides three safe harbors for determining affordability:

1. Federal Poverty Level (FPL) Safe Harbor
2. W-2 Safe Harbor
3. Rate of Pay Safe Harbor

This article focuses on the FPL Safe Harbor and how employers can use the new 2025 federal poverty guidelines to determine affordability.

2025 Federal Poverty Guidelines

The IRS just released the new FPL percentages. For the 48 contiguous states and the District of Columbia, the 2025 Federal Poverty Level (FPL) is:

Household Size	Annual FPL
1	$15,650
2	$21,150
3	$26,650
4	$32,150
5	$37,650
6	$43,150
7	$48,650
8	$54,150

For households larger than 8, add $5,500 for each additional person.

How the FPL Safe Harbor Works with Affordability for Employer-Sponsored Health Plans

Under the FPL Safe Harbor, an ALE’s lowest-cost self-only health coverage is considered affordable if the employee’s required contribution does not exceed 9.02% of the FPL for a household of one. The IRS provides employers flexibility in selecting which FPL amount to use based on their plan year start date.

The 2025 FPL Safe Harbor Calculation is:

9.02% × Federal Poverty Level / 12 months

For plan years beginning in 2025, this results in the following affordability thresholds:

Plan Year Start Date	FPL Used	Maximum Monthly Employee Contribution
January 1, 2025	2024 FPL ($15,060)	$113.20
February 1 – June 30, 2025	2024 FPL ($15,060) or 2025 FPL ($15,650)	$113.20 or $117.64
July 1 – December 31, 2025	2025 FPL ($15,650)	$117.64

What This Means for Employers

• For calendar year plans beginning January 1, 2025, the affordability threshold is $113.20/month, calculated using the 2024 FPL.
• For non-calendar year plans beginning February through June 2025, employers may choose to use either the 2024 or 2025 FPL for affordability calculations.
• For plan years beginning on or after July 1, 2025, employers must use the 2025 FPL, which increases the affordability threshold to $117.64/month.

ALEs offering a self-only, lowest-cost plan cannot require employees to contribute more than $113.20 or $117.64 per month (depending on the plan year start date) to ensure affordability under the FPL Safe Harbor.

Why Employers Use the FPL Safe Harbor

Many ALEs prefer using the FPL Safe Harbor because it provides certainty that their plan meets ACA affordability standards, it simplifies compliance by applying a fixed dollar amount for all employees regardless of income, and it reduces the risk of ESRP penalties.

Employers who use the W-2 Safe Harbor or Rate of Pay Safe Harbor should note that these are not affected by changes to the FPL.

Reminders

Review your 2025 contribution strategy to ensure at least one self-only plan is affordable using the correct FPL Safe Harbor threshold.

• For January 2025 plan years, use no more than $113.20/month as the maximum employee contribution.
• For plans starting July 1, 2025, or later, use no more than $117.64/month as the maximum employee contribution.
• Non-calendar year plans starting February–June 2025 should consider using the higher 2025 FPL threshold to maximize affordability.