On July 18, the IRS released Rev. Proc. 2025-25, which sets the ACA affordability threshold, formally the required contribution percentage, at 9.96% for plan years beginning in 2026. That's up from 9.02% for 2025 and is the highest the percentage has been since the employer shared responsibility rules took effect.
For employers, a higher percentage means employees can be asked to contribute more before coverage is considered unaffordable. For ICHRA, it means the minimum allowance needed to pass the affordability test goes down, all else being equal.
Why the number jumped
The percentage is indexed each year based on how fast premiums grow relative to income. Rev. Proc. 2025-25 explains that for 2025 and earlier years, premium growth was measured using per-enrollee spending on employer-sponsored insurance. Starting with 2026, HHS adopted a new premium growth measure in its Marketplace Integrity and Affordability final rule (published June 25, 2025) that also captures individual market premium increases. Treasury and the IRS adopted the same measure. The result is a larger adjustment than the old method would have produced.
The 2026 numbers to know
- Required contribution percentage: 9.96% (plan years beginning in 2026)
- Employer shared responsibility payment, "A" penalty (4980H(a)): $3,340 per full-time employee per year, after excluding the first 30, if the employer doesn't offer coverage to at least 95% of full-time employees and at least one receives a premium tax credit
- "B" penalty (4980H(b)): $5,010 per year for each full-time employee who receives a premium tax credit because the coverage offered was unaffordable or didn't provide minimum value (capped at what the A penalty would have been)
The penalty amounts come from Rev. Proc. 2025-26.
What it means for traditional group plans
Affordability for a group plan is measured by the employee's cost for the lowest-cost self-only option that provides minimum value. With the three common safe harbors, the 2026 limits work like this:
- Federal poverty line safe harbor. Employers can use a poverty guideline in effect within six months before the plan year begins. For a January 1, 2026 plan year, that's the 2025 guideline for the 48 contiguous states, $15,650. The maximum monthly employee contribution is $15,650 × 9.96% ÷ 12, or about $129.89 (rounded down to stay safely under the limit).
- Rate of pay safe harbor. For hourly employees: hourly rate × 130 hours × 9.96%. For salaried employees: monthly salary × 9.96%.
- Form W-2 safe harbor. Box 1 wages × 9.96%, prorated for partial years.
Employers that priced 2025 contributions at the FPL limit (about $113.20 per month) have more room in 2026. That doesn't mean they should raise employee contributions; it means they have flexibility if renewal increases force difficult choices.
What it means for ICHRA
For an ICHRA, affordability compares the employee's self-only lowest-cost silver plan premium minus the self-only allowance to the same percentage of income. A higher percentage lowers the allowance needed to pass.
A hypothetical example using the FPL safe harbor and a made-up premium:
- Lowest-cost silver plan for a 45-year-old: $520 per month
- 2025 rules: allowance needed ≥ $520 − $113.20 = $406.80
- 2026 rules: allowance needed ≥ $520 − $129.89 = $390.11
The catch is that the premium won't stay at $520. 2026 individual market rates aren't final yet, insurers are filing increases now, and the enhanced premium tax credits are scheduled to expire after 2025, which affects the market. A lower affordability hurdle can be wiped out by a larger premium increase. Don't finalize 2026 ICHRA allowances until you can run the analysis with actual 2026 premiums, and if you need to set budgets early, use the look-back month safe harbor discussed in our step-by-step affordability guide.
The same number applies to employees
The 9.96% figure also determines whether an employee offered employer coverage can get a premium tax credit instead. Rev. Proc. 2025-25 also publishes the 2026 applicable percentage table that sets how much of their income enrollees are expected to pay for the benchmark plan. Under current law, that table no longer includes the more generous percentages that have been in effect since 2021.
Action items
- Update affordability calculators and contribution models to 9.96% for plan years beginning in 2026.
- Recheck the safe harbor you use. The FPL limit for January 2026 plans is about $129.89 per month.
- Don't lock ICHRA allowances early without accounting for 2026 premium changes.
- Update penalty exposure estimates using $3,340 and $5,010.
- Note non-calendar plan years. A plan year beginning July 1, 2026 uses 9.96%; one beginning July 1, 2025 still uses 9.02%.
The new percentage gives employers a bit more breathing room on paper. Whether that room survives 2026 premium increases is the question to answer with each client this fall.