FPL Safe Harbor 3

This week, we discuss the third and final safe harbor calculation called FPL Safe Harbor or Federal Poverty Level Safe Harbor.

The Federal Poverty Line (FPL) Safe Harbor is a method for proving ACA affordability based on an employee's annual household income, which is a function of that employee's household size and is adjusted yearly.

The Department of Health and Human Services (HHS) publishes the annual FPL. In the following example (for the 2022 tax year), the 2021 mainland FPL for a household size of 1 is used to prove that an employer offers affordable coverage.

Here’s the 2022 FPL Safe Harbor formula: $12,880 x 9.61% / 12 = $103.15.

Step 1. Take the 2021 FPL for a household size of one, $12,880, and multiply it by 9.61%.

Step 2. Next, divide the product by 12(the number of months in a year).

If the employee contribution for self-only coverage meets or is below $103.15, then the FPL Safe Harbor is completed, and the coverage offered is affordable for the 2022 tax year.

ALEs should note that the FPL Safe Harbor is arguably the simplest to administer because contribution rates can be standardized across entire employee groups.

However, using the FPL Safe Harbor for providing ACA affordability may cost ALEs more due to the monthly premium contribution amount for employees being lower than calculating individual contributions on a per-employee basis.

Several factors can affect the affordability of a plan. Opt-out payments, wellness plans, flex credits, and Health Reimbursement Arrangements (HRAs) are some of the more common considerations that may either increase or decrease the affordability of an employer-sponsored health plan.

If your organization has components like these, you may want to seek an outside expert to help you make sure that the contributions identified on Line 15 of Form 1095-C are accurate.

Choosing an IRS safe harbor for proving ACA affordability can be difficult. Still, employers should know that they do not need to apply one safe harbor across their entire workforce; they should choose what makes the most sense for their organization.

Understanding these 3 Safe Harbor calculations is essential to proving ACA affordability, so please, I encourage you to reach out to me today so that I can go over these calculations with you. You can find all of my contact information on LinkedIn.

When you reach out to me, I will share a cheat sheet with you that you can use to understand and identify the different Safe Harbor calculations.