With each new year, the Affordable Care Act (ACA) updates its rules and regulations to align with the changing economic landscape. One such pivotal component that gets updated annually is the Safe Harbor Percentage. In today's blog, we'll dive into the expected ACA Safe Harbor Percentage for the tax year 2024 and its implications for individuals and employers.

What is the ACA Safe Harbor Percentage?

Before we delve into the 2024 specifics, it's important to understand the concept. The ACA Safe Harbor Percentage refers to the portion of an individual's income they are expected to contribute towards their health insurance. If the cost of insurance exceeds this percentage, individuals may be eligible for tax credits to help offset the cost. On the employer side, if an employee's share of the premium for the lowest-priced plan offered is more than this percentage of their income, the coverage may not be considered affordable. This could potentially expose employers to penalties.

The ACA Safe Harbor Percentage for 2024

For the tax year 2024, the ACA Safe Harbor Percentage will be 8.39%.  The IRS released Rev. Proc 2023-29 published August 23, 2023.  This means that if an individual's contribution to their health insurance premium exceeds 8.39% of their household income, they might be eligible for premium tax credits, which can help in reducing the cost of health insurance purchased through the Health Insurance Marketplace.

For employers, this percentage acts as a benchmark. If their provided coverage requires an employee to contribute more than 8.39% of their income, they risk penalties for not offering "affordable" health insurance.

Implications of the Updated Percentage

* Individuals: The slight increase in the Safe Harbor Percentage from previous years indicates that individuals might be expected to contribute a bit more towards their health insurance before they qualify for tax credits. This might affect decisions regarding the purchase of insurance and the type of plan one might opt for.

* Employers: For businesses, this updated percentage means re-evaluating their current health insurance offerings to ensure they fall within the ACA's affordability guidelines. Companies close to the threshold might need to adjust their plans to avoid potential penalties.

How is the Safe Harbor Percentage Determined?

The Safe Harbor Percentage is indexed annually based on the relative growth rates of insurance premiums and incomes. The Department of Health and Human Services (HHS) and other relevant bodies examine these growth rates, often consulting resources like the NHEA Projections to determine an appropriate percentage.

Final Thoughts

As the landscape of healthcare and insurance in the U.S. continually evolves, it's essential for both individuals and businesses to stay updated on yearly changes. The ACA Safe Harbor Percentage for 2024 serves as a reminder to review your health insurance strategy, ensuring affordability and compliance.

Whether you're an individual assessing potential tax credits or a business aiming to provide affordable health insurance options, understanding and preparing for the Safe Harbor Percentage is crucial. Stay informed, and consider consulting with a financial or HR professional to navigate the intricate waters of health insurance affordability

About SyncStream

SyncStream maintains a tenured, knowledgeable staff who continually monitors changes to the employer mandate regulations and updates solutions as laws evolve. SyncStream removes the burden of ACA compliance and provides penalty risk assessments and suggested corrections to reduce your company’s risk of high IRS penalties. Subject matter experts utilize SyncStream’s user-friendly compliance software to track employee hours, auto-populate forms, audit forms, and e-file for thousands of ALEs. SyncStream’s Full Service Total ACA solution can simplify your ACA compliance needs.