What the New 9.96% Safe Harbor Means for Renewal Season

Employers get more room on contributions in 2026, but the price of getting it wrong just went up too.

Every summer, the IRS quietly resets the ACA affordability safe harbor, the number that shapes how much employers can ask their people to pay for health coverage. Most years, it barely moves. This year, it jumped, and if you’re heading into renewal or open enrollment planning right now, it’s worth understanding exactly what changed and why the stakes are higher than they’ve ever been.

For plan years beginning in 2026, the ACA’s affordability safe harbor percentage rose to 9.96%, up from 9.02% in 2025 (IRS Revenue Procedure 2025-25). That’s the highest this threshold has ever been since the ACA’s employer mandate took effect. At the same time, the IRS also raised the penalties employers face for getting affordability wrong, to $3,340 and $5,010 per employee, depending on the violation (IRS Revenue Procedure 2025-26).

In other words: more flexibility on the front end, more exposure on the back end. Here’s what employers need to know before contribution rates lock in.

What Is the ACA Affordability Safe Harbor?

Under the ACA’s employer mandate, applicable large employers (ALEs, generally those with 50 or more full-time equivalent employees) must offer full-time employees health coverage that is both affordable and provides minimum value, or risk a penalty. “Affordable” is defined as a percentage of the employee’s household income, a number the IRS adjusts annually based on premium growth relative to income growth.

Since employers can’t realistically know every employee’s household income, the IRS allows three versions of the ACA affordability safe harbor to stand in for it. For 2026, all three shift to the new 9.96% threshold, as SHRM has noted for employers preparing their 2026 budgets:

• Federal Poverty Line (FPL) safe harbor: Coverage is affordable if the employee’s self-only contribution doesn’t exceed 9.96% of the federal poverty line, divided by 12. That’s roughly $129.89/month for calendar-year plans in the mainland U.S.
• Rate of pay safe harbor: Based on 9.96% of monthly wages (hourly rate × 130 hours, or monthly salary).
• Form W-2 safe harbor: Based on 9.96% of the employee’s Box 1 W-2 wages for the year.

To put the increase in real terms: a law firm compliance team tracking the ACA’s affordability history notes that the percentage has swung meaningfully in recent years, dropping to 9.12% in 2023 and 8.39% in 2024 before this year’s jump to an all-time high of 9.96%. For an employer with an hourly workforce, that shift can mean tens of dollars more per employee per month before triggering a penalty.

Why the Higher Percentage Is Good News, With a Catch

A higher affordability percentage sounds counterintuitive, but it works in the employer’s favor: the ceiling on what you can charge employees for the lowest-cost, self-only plan just moved up. That means you may be able to hold your contribution dollars steadier, or even shift a slightly larger share of premium cost to employees, without breaching the ACA affordability safe harbor you’ve relied on in past years.

That’s a meaningful cushion heading into a year when premiums are climbing and enhanced ACA marketplace subsidies are set to expire. But the cushion only helps if you actually recalculate. Employers who simply roll forward last year’s contribution strategy without checking it against the new 9.96% threshold could end up either overpaying unnecessarily or, worse, assuming they’re covered when they’re not, particularly if wages or plan costs shifted during the year.

The Other Side of the Ledger: Penalties Are Up Too

Here’s where renewal season gets less forgiving. Alongside the ACA affordability safe harbor increase, the IRS also raised the two employer shared responsibility penalties for 2026, as outlined in the same round of guidance from the IRS:

The “A” Penalty: §4980H(a)

Applies when an ALE fails to offer minimum essential coverage to at least 95% of full-time employees (and their dependents), and at least one employee receives a premium tax credit on the Marketplace. For 2026, this penalty rises to $3,340 per year ($278.33/month) per full-time employee, minus the first 30.

The “B” Penalty: §4980H(b)

Applies when an ALE offers coverage, but that coverage isn’t affordable or doesn’t provide minimum value, and an employee receives a subsidy. For 2026, this penalty rises to $5,010 per year ($417.50/month) per affected employee, a $660 increase from 2025.

Neither penalty is deductible, and both are calculated monthly, which means exposure compounds quickly across a plan year and a full-time workforce. ERISA counsel at Bressler, Amery & Ross has noted that a Letter 226J often marks the start of an expensive, time-consuming dispute process for employers, since a single miscalculation, whether it’s the wrong lowest-cost plan, an outdated safe harbor, or a wage change mid-year, is often what triggers the letter in the first place.

What This Means for Your Renewal Strategy

Whether the 9.96% threshold works in your favor depends entirely on how deliberately you use it. A few things worth checking against the ACA affordability safe harbor right now:

• Re-run your affordability math against 9.96%. Don’t assume last year’s safe harbor selection still clears the bar.
• Confirm which safe harbor you’re actually using. FPL, rate of pay, and W-2 safe harbors can produce different maximum contributions for the same workforce. The “right” one depends on your wage mix.
• Watch for non-calendar-year plan timing. Employers with plan years starting before their 2026 renewal date may still be locked into the 9.02% threshold until their new plan year begins.
• Model the penalty exposure, not just the contribution ceiling. A $660 increase in the B Penalty changes the cost-benefit math on cutting corners.
• Loop in payroll and finance early. Affordability calculations depend on accurate, current wage data. A gap here is one of the most common causes of accidental non-compliance.

None of this changes the fundamentals of good benefits strategy: employers who treat the ACA affordability safe harbor as a box to check once a year are more exposed than employers who build it into how they think about plan design from the start. The threshold will keep moving every year. The habit of checking it shouldn’t.

Frequently Asked Questions

What is the ACA affordability safe harbor for 2026?

The ACA affordability safe harbor for 2026 is 9.96% of an employee’s household income, up from 9.02% in 2025. Since employers can’t verify household income directly, the IRS lets them apply this percentage to one of three proxies instead: the Federal Poverty Line, an employee’s rate of pay, or their Form W-2 wages. As long as the employee’s required contribution for the lowest-cost, self-only plan stays at or below that threshold under whichever safe harbor the employer selects, the coverage is treated as affordable for ACA employer mandate purposes.

Why did the ACA affordability safe harbor go up instead of down?

The IRS recalculates the affordability percentage each year based on the relationship between premium growth and income growth nationally. When premiums grow more slowly relative to income, or when the underlying formula shifts as it did for 2026, the percentage can rise even in a year when healthcare costs are increasing. That’s part of why this year’s jump to 9.96% surprised some employers who expected the threshold to keep tightening the way it had in 2023 and 2024.

What happens if I use the wrong safe harbor calculation?

Using an outdated percentage, the wrong lowest-cost plan, or stale wage data can result in an offer that looks affordable on paper but fails the ACA affordability safe harbor test in practice. If even one employee receives a premium tax credit on the Marketplace as a result, the IRS can issue a Letter 226J proposing the B Penalty, currently $5,010 per affected employee for 2026. Recalculating against the current percentage each renewal cycle is the simplest way to avoid this.