The law requires that for employee’s who have family income that is less than 4 times the federal poverty level, the cost of family coverage cannot exceed 9.5% of the family’s modified adjusted gross income. Because it is essentially impossible for an employer to determine the family income of it’s employees, the IRS has issued a safe harbor rule that instead permits an employer to use an employee’s W-2 wages instead. The employer may also use the employee’s hourly rate of pay x 130 hours. The employer may also use 100% of the federal poverty level.
Under this rule, the employee’s cost share for employee only coverage cannot exceed 9.5% of the employee’s income. For 2013 the federal poverty level is $11,490 for the 48 states & DC. Four times this works out to be $45,960.
Examples – Assume $5,000 Annual Employee Only Premium
As long as the employee’s share of the employee only premium is less than the numbers above, the coverage will be considered “affordable”.