Most of our clients are not subject to the Affordable Care Act mandate to provide affordable coverage, but many of our individual tax clients are employed by companies that do.  The Tax Advisor, in it’s August 2013 issue, provides details about safe-harbor rules that employers can follow in determining if they are providing affordable insurance.

W-2 Safe Harbor

The W-2 safe harbor allows the employer to measure afforability by making sure the employee contribution to healthcare insurance is no more than 9.5% of the box 1 wages found on the employee’s W-2.

Aaron’s Take:  This is interesting, given that an employee has the power to modify the box 1 number through salary deferrals like 401(k) and SIMPLE IRA contributions. 

Rate-of-pay Safe Harbor

For hourly employees, the employer can multiply the employee’s hourly rate (which may or may not be the ‘taxable’ rate due to wage deferrals mentioned above) by 130.  The employee’s share of health insurance cannot exceed 9.5% of the resulting total.

The same treatment is used for salaried employees.  The employee’s contribution cannot exceed more than 9.5% of the monthly salary.

Poverty Line Safe Harbor

Finally, the federal poverty line safe harbor provides that coverage is affordable if the cost does not exceed 9.5% of the annual fedearl poverty line for a single individual, divided by 12.


If you believe your employer is requiring you to contribute more than the safe-harbor amount for your health insurance, please contact our office and arrange for a consultation.

Source: 'The Tax Advisor' August 2013, Page 503, Proposed Regulations §54.4980H-5(e)(2)(iv)