An ICHRA offer is affordable under ACA employer mandate rules when the employee's remaining monthly cost for the lowest-cost Silver plan in their rating area, after subtracting the employer's monthly ICHRA contribution, does not exceed 9.02 percent of that employee's household income for 2026. That single calculation determines whether an employee can access APTC on the marketplace or must use the ICHRA.
Key Takeaways
- ICHRA affordability is tested at the employee level using the lowest-cost Silver plan in the employee's rating area.
- The 2026 IRS affordability threshold is 9.02 percent of household income.
- An affordable ICHRA offer blocks the employee from collecting APTC on the marketplace.
- The FPL safe harbor lets employers use a fixed dollar threshold rather than individual employee income.
- The benchmark premium changes each plan year, so a prior-year allowance amount needs an annual review.
Why this calculation matters more than the allowance amount
Employers designing an ICHRA often focus on the dollar amount of the monthly allowance. The affordability test redirects that focus to a ratio: the employee's remaining cost as a share of their income. A generous allowance in a low-premium county may produce the same affordability result as a smaller allowance in a high-premium area. The variable that changes the outcome is the local benchmark premium.
The stakes on the affordability determination are real in both directions. An employer whose ICHRA offer is affordable has satisfied the ACA employer shared responsibility requirement for those employees. An employer whose offer is not affordable may face an employer shared responsibility payment if any of those employees receive APTC and the employer has 50 or more full-time equivalents.
From the employee's side, an affordable ICHRA offer blocks access to APTC. An employee who opts out of an affordable ICHRA to shop the marketplace does not qualify for a premium tax credit. If the ICHRA offer is not affordable, the employee can opt out and access APTC if otherwise eligible.
Step 1: Identify the lowest-cost Silver plan in the employee's rating area
The benchmark for the affordability test is the lowest-cost Silver plan available to the specific employee in their county of residence, for their age, for self-only coverage. This is distinct from the second-lowest-cost Silver plan (SLCSP) used to calculate federal APTC.
If an employer has employees in multiple counties or states, each location has its own lowest-cost Silver plan benchmark. An employer with 12 employees in two different states may have 12 different affordability thresholds if each employee is in a different rating area or age band.
The CMS Marketplace public use files include lowest-cost plan data by county and plan type. The ACA minimum value standard is a separate test that runs alongside affordability and also requires plan-level data for employer-sponsored coverage.
Step 2: Calculate the employee's remaining monthly premium cost
Once you have the lowest-cost Silver plan monthly premium for the employee's rating area, subtract the employer's ICHRA monthly allowance. The result is the employee's remaining cost, which is what gets compared to the affordability threshold.
Example: a 40-year-old employee in a mid-size Texas metro area with a lowest-cost Silver plan premium of $420 per month, and an employer ICHRA allowance of $300 per month.
Remaining cost: $420 minus $300 equals $120 per month.
If the employee's household income is $48,000, the 9.02 percent affordability threshold for 2026 is $48,000 times 0.0902 divided by 12, which equals approximately $361 per month. The employee's remaining cost of $120 is well below $361, so the offer is affordable.
If the same employee earned $14,000, the threshold would be $14,000 times 0.0902 divided by 12, or approximately $105 per month. The remaining cost of $120 exceeds $105, so the offer is not affordable for that employee.
Illustrative example. Actual premiums, ICHRA allowances, and affordability thresholds depend on rating area, employee age, and 2026 IRS parameters.
Step 3: Apply a safe harbor if employee income is unknown
Employers rarely know each employee's actual household income. The IRS provides three safe harbors that let employers substitute a proxy for household income in the affordability calculation.
| Safe harbor | Income proxy | Best for | Admin load |
|---|---|---|---|
| W-2 | Box 1 wages from the prior year W-2 | Salaried employees with stable annual pay | Moderate — requires pulling prior-year W-2 wages per employee |
| Rate of pay | Hourly rate times 130 hours, or monthly salary | Hourly workers with variable income | Low for fixed-salary; moderate for hourly workers |
| Federal poverty level | Annual FPL for a single individual (2026: $15,060) | Mixed workforce, employers wanting uniform thresholds | Lowest — one fixed threshold applies to all employees |
The FPL safe harbor is the most common in ICHRA design work because it produces a single threshold that applies across all employees regardless of their income. For 2026, the annual FPL for a single individual is $15,060. Multiplying by 9.02 percent gives $1,358 annually, or approximately $113 per month. That is the maximum employee contribution under the FPL safe harbor.
If the employer sets the ICHRA allowance so that the employee's remaining monthly cost for the lowest-cost Silver plan is at or below $113, the offer satisfies the FPL safe harbor regardless of what the employee's actual household income turns out to be.
How affordability interacts with APTC eligibility
The affordability determination creates a clean fork in an employee's subsidy options. An employee who is offered an affordable ICHRA is ineligible for APTC on the marketplace, even if they opt out of the ICHRA. The logic is that the employer made an adequate offer; the employee choosing not to use it does not restore APTC access.
An employee who is offered an unaffordable ICHRA can opt out. Once they opt out, they can shop the marketplace and may be eligible for APTC based on their household income and the usual APTC eligibility criteria. This is the path for employees in high-premium rating areas where the employer's fixed allowance doesn't clear the affordability bar.
For brokers advising employer clients, the opt-out mechanism means that not all ICHRA designs need to be affordable. An employer with lower-income employees in high-cost markets might intentionally set an allowance below the affordability threshold to give employees maximum subsidy flexibility on the marketplace. The employer takes on the risk of an employer shared responsibility payment if any of those employees collect APTC and the employer is an applicable large employer.
See also: the ACA employer coverage affordability test for how affordability works with traditional employer-sponsored coverage.
Annual review before each plan year
The benchmark Silver plan premium in every rating area resets each plan year. An employer who set an ICHRA allowance in 2024 or 2025 and has not reviewed it since may have an offer that no longer satisfies the affordability test in 2026 if local premiums increased.
The annual review for ICHRA clients should happen before the employer issues the offer for the new plan year. The steps are the same as the initial design: pull the lowest-cost Silver plan premium for each rating area where employees live, apply the current-year IRS affordability percentage, and confirm that the existing allowance still produces a remaining employee cost below the threshold.
For employer clients using the FPL safe harbor, the review is simpler. The FPL adjusts annually based on HHS poverty guidelines, and the 9.02 percent affordability percentage for 2026 is published in IRS Revenue Procedure guidance. Checking the updated FPL safe harbor dollar threshold against the current allowance and the current lowest-cost Silver plan premium covers the annual review for those clients.
ICHRA affordability FAQ
Common questions from brokers running affordability checks before an employer finalizes ICHRA contribution amounts.
What makes an ICHRA offer affordable under IRS rules?
An ICHRA offer is affordable when the employee's remaining out-of-pocket cost for the lowest-cost Silver plan in their area, after the monthly ICHRA allowance, is at or below 9.02 percent of household income for 2026. The lowest-cost Silver plan used in the test is specific to the employee's county and age, not the employer's location.
Which benchmark plan do I use in the affordability test?
The test uses the lowest-cost Silver plan available to the employee in their home county for their age category, based on self-only coverage. The benchmark is not the SLCSP used for federal APTC calculations. You pull the lowest-cost Silver plan from the employee's local marketplace, not from the employer's rating area.
What happens if an employer's ICHRA offer is not affordable?
If the offer is not affordable, the employee can opt out of the ICHRA and apply for APTC on the marketplace, assuming they meet other eligibility criteria. The employer may face an employer shared responsibility payment under the ACA employer mandate if the employee receives APTC and the employer has 50 or more full-time equivalents. For small employers under 50 FTEs, there is no shared responsibility penalty, but the opt-out still affects whether employees can use marketplace subsidies.
What is the FPL safe harbor for ICHRA affordability?
The FPL safe harbor lets an employer satisfy the affordability standard if the monthly ICHRA allowance is at or above the lowest-cost Silver plan premium in the employee's area minus 9.02 percent of the annual FPL for a single individual divided by 12. For 2026, the FPL for a single person is $15,060, so 9.02 percent equals approximately $1,358 annually, or about $113 monthly. If the lowest-cost Silver plan in the employee's area costs $450 per month and the employer wants to use the FPL safe harbor, the allowance needs to be at least $450 minus $113, or about $337 per month.
Does affordability vary by employee location?
Yes. Because the benchmark is the lowest-cost Silver plan in each employee's rating area, an employer with employees in multiple states or counties will have different affordability thresholds for different workers. An allowance sufficient for an employee in a low-premium market may not satisfy the test for an employee in a high-premium area. Employers with geographically dispersed workforces typically set allowances by rating area class, which ICHRA rules allow.
When does an ICHRA allowance need to be reviewed for a new plan year?
Each year when the lowest-cost Silver plan premium in each rating area changes, the employer's allowance needs to be checked against the new benchmark. A fixed allowance that passed the affordability test in 2025 may fail it in 2026 if the benchmark Silver plan premium increased. The review should happen before the offer is issued for the new plan year, typically in the fall before the January 1 effective date.
