W-2 Safe Harbor 2
This week we will be discussing the second Safe Harbor, W-2 Safe Harbor, and explain how employers use this specific calculation to prove to the IRS that the healthcare plans they are offering to their workforce are affordable under the ACA.
Providing affordability is critical for complying with this law, and failing to do so can lead you to potential penalties.
We have broken down the W-2 Safe Harbor into examples and provided general formulas to help you calculate ACA affordability accurately.
The W-2 Safe Harbor is a method for proving ACA affordability that involves using an employee's W-2 Box 1, gross income.
To calculate ACA affordability using the W-2 Safe Harbor, use the following formula: W-2 Box 1 Wages multiplied by 9.61% with an adjustment for partial year coverage.
We demonstrate the W-2 Safe Harbor measure using a clear and concise example:
Johnny earns an annual salary of $50,000 as a manager at Parker's Pizza. He worked at Parker's Pizza for 9 out of the 12 months during the 2022 tax year and received an offer of coverage on his first day of employment.
So, here’s the calculation: $50,000 x 9.61% = $4,805.
Next, multiply $4,805 by the product of the number of months of coverage offered (9) by the total number of months in the year for partial coverage (9/12).
This gives you $3,603.75, the maximum annual amount that Johnny's employer can make him pay for self-only coverage.
To determine the amount per month, divide the total by the number of months Johnny received coverage (9).
This will get you $400.42 per month.
Johnny can't pay more than $400.42 per month for his health insurance coverage to be considered affordable.
The assorted wages and rates employers disburse to their employees will be a factor in your result calculation.
Be able to answer yourself when you ask the question, ''Can I clearly explain the different calculations if I am in front of an employer with various ways of paying their employees?".
Hopefully, now you have a better understanding of how to calculate ACA affordability using the W-2 Safe Harbor measure so that you can estimate your health insurance affordability with confidence.