On July 21, 2026, the IRS released Revenue Procedure 2026-26 to index the contribution percentage in 2027 for determining the affordability of an employer’s health plan under the Affordable Care Act (ACA). For plan years beginning in 2027, employer-sponsored coverage will be considered affordable under the ACA’s “pay-or-play” rules if the employee’s required contribution for self-only coverage does not exceed 10.22% of their household income for the year.
Affordability Test
- 8.39% for plan years beginning in 2024;
- 9.02% for plan years beginning in 2025;
- 9.96% for plan years beginning in 2026; and
- 10.22% for plan years beginning in 2027.
Affordability Percentage for 2027
For 2027, the affordability percentage increases to 10.22%. This means that an ALE’s health coverage for the 2027 plan year will be considered affordable if a full-time employee’s required contribution for self-only coverage under the lowest-cost option does not exceed 10.22% of their household income. This is an increase from the affordability contribution percentage for 2026 and the highest this percentage has ever been. As a result, employers may be able to increase employees’ health coverage contributions for 2027 while still meeting the adjusted affordability percentage.
Complying With the ACA’s Pay-or-Play Rules for 2027
The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or potentially pay a penalty to the IRS. This employer mandate is also known as the “pay-or-play” rules. Small employers who are not ALEs are not subject to the ACA’s pay-or-play rules.
An ALE may be subject to a pay-or-play penalty if at least one full-time employee receives a premium tax credit for purchasing individual health coverage through an Exchange and the ALE:
- Did not offer health plan coverage to at least 95% of full-time employees and their dependents;
- Offered health plan coverage to at least 95% of full-time employees but not to the specific fulltime employee receiving the credit; or
- Offered health plan coverage to full-time employees that was unaffordable or did not provide minimum value.
Depending on the circumstances, one of two penalties may apply under the pay-or-play rules: the 4980H(a) penalty or the 4980H(b) penalty.
The following checklist outlines key steps for employers to comply with the ACA’s pay-or-play rules for 2027.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. © 2026 Zywave, Inc. All rights reserved.
