For plan years beginning in 2026, an ICHRA offer is affordable for Marketplace premium-tax-credit purposes when the employee's net monthly cost for the self-only, lowest-cost Silver plan in the employee's area does not exceed 9.96% of one-twelfth of annual household income.
The affordability formula
Start with the monthly premium for the self-only, lowest-cost Silver plan available to the employee in the relevant rating area. Subtract the monthly ICHRA amount available to that employee. The remaining amount is the employee's required contribution for the affordability test. Compare that amount with 9.96% of one-twelfth of the employee's annual household income. source source
The Marketplace uses household income when determining premium-tax-credit eligibility. Employers usually do not know household income, which is why applicable large employers may rely on regulatory safe harbors when testing employer-mandate affordability. The employee's Marketplace determination and the employer's safe-harbor analysis are related but not identical exercises. source source
Illustrative example
Assume the employee's lowest-cost Silver self-only premium is $610 per month and the employer provides a $500 monthly ICHRA allowance. The employee's required contribution is $110 per month. If annual household income is $48,000, one-twelfth is $4,000 and 9.96% is $398.40. In this simplified example, the $110 required contribution is below the threshold, so the offer is affordable for Marketplace premium-tax-credit analysis. A required contribution of exactly $398.40 would also meet the threshold in this calculation; an amount above it would not.
This example is not a universal contribution recommendation. Change the employee's age, rating area, household income, or plan year and the result can change. An employer with a distributed workforce should model all relevant locations and employee groups—not one headquarters ZIP code.
What affordability changes for employees
An affordable ICHRA offer generally prevents Marketplace premium tax credits for the employee and family members offered coverage under the arrangement, even if the employee declines it. An employee-only offer does not automatically disqualify family members who are not offered the ICHRA; they may qualify for a credit if they meet the other requirements. Check who is included in the written offer and give the Marketplace each person's coverage information. source source
When the offer is unaffordable, the employee may accept the ICHRA or opt out and apply for any premium tax credit for which they qualify. A person cannot combine ICHRA coverage and a premium tax credit for the same month. The Marketplace must assess each family member's eligibility. source source
Applicable large employers
Employers averaging at least 50 full-time employees, including full-time equivalents, are generally applicable large employers under the ACA employer mandate. An ICHRA can support mandate compliance when it is offered to enough full-time employees, provides minimum essential coverage through the required individual insurance, and is affordable under the applicable rules. Employer-mandate analysis should be performed with qualified benefits and tax counsel because workforce counting, offer coding, safe harbors, and penalties involve more than the 9.96% number.
For employer-mandate affordability, permitted income safe harbors include W-2 wages, rate of pay and the federal poverty line. The ICHRA-specific location and look-back provisions in the linked 2019 IRS bulletin are proposed regulations with stated taxpayer-reliance terms. They address which lowest-cost Silver premium an employer may use. The bulletin permits reliance during its specified period before final regulations apply; an adviser should confirm the current reliance period and applicable conditions for the employer's plan year. These employer provisions do not replace the employee's Marketplace household-income test. source
Does affordable mean the same thing to employees and employers?
No. Keep three questions separate: the employee’s Marketplace premium-tax-credit test, the employer’s section 4980H affordability analysis, and whether the chosen coverage fits the employee’s budget. The first two are legal analyses; the third also includes doctors, prescriptions and costs when receiving care. source source source
Fictional 2026 example, not a quote or a personal eligibility result. Assume a full-year ICHRA offer to a current, full-time hourly employee of an applicable large employer; a plan year beginning January 1, 2026; $48,000 annual household income; and a constant $20 hourly rate. The employer meets the prerequisites for using an income safe harbor and applies its chosen method consistently. For illustration only, assume the correctly determined self-only lowest-cost Silver premium is $650 per month under both analyses, and the monthly ICHRA amount is $300. In practice, the permitted premium inputs can differ.
| Question | Inputs and calculation | What follows |
|---|---|---|
| Employee Marketplace test | $48,000 household income ÷ 12 × 9.96% = $398.40/month. | $650 − $300 = $350/month, below $398.40. The offer meets this simplified affordability comparison. |
| Employer hourly rate-of-pay screen | 130 × $20 × 9.96% = $258.96/month. | The same $350 required amount exceeds $258.96. This particular safe-harbor screen is not met; that alone does not establish a penalty. |
| Employee’s chosen policy | Assume the employee accepts the ICHRA and chooses qualifying self-only coverage costing $760/month, with the full allowance available for premiums. | $760 − $300 = $460/month before deductibles and other costs. This is a different question from the benchmark test. |
The rate-of-pay method uses 130 hours as a regulatory factor, not the employee’s actual hours or household income. For an hourly employee, the rule uses the lower of the rate at the start of the coverage period and the lowest rate during the month; this example holds both at $20. W-2 and federal-poverty-line safe harbors have their own conditions. source source
Keep the rule status attached. The 2019 ICHRA-specific location and look-back provisions cited here were issued as proposed regulations with reliance allowed for plan years beginning before six months after publication of final regulations. They are not described here as a newly finalized rule. Confirm the applicable reliance conditions and any later rule before using those substitutions. An employer safe harbor does not replace the employee’s Marketplace household-income determination. source
An affordable offer generally blocks premium tax credits for the employee and family members offered the arrangement even if declined. Family members not offered it need their own eligibility review. When an offer is unaffordable, opting out is necessary to seek an otherwise available premium tax credit; accepting ICHRA and using that credit for the same month are not interchangeable options. source source
What should you check next?
- Employee: take the written offer and accurate household information to the Marketplace; then compare your chosen policy’s net premium, network and out-of-pocket costs.
- Employer: record the safe harbor, correct reference premium, offer population and supporting evidence. A failed rate-of-pay screen needs further review, not an automatic penalty conclusion.
- Both: use the employer-and-employee cost example to see why a lower company budget need not lower the employee’s cost.
For the household-budget question, compare low-use and high-use years in our worked example of premiums and costs of care. An out-of-pocket maximum excludes premiums and some other expenses; do not add the deductible to it again.
How affordability should shape plan design
- Model the full workforce. Use employee ages, work locations, eligibility classes, and family tiers instead of an average employee.
- Separate compliance from competitiveness. A contribution can pass an affordability test and still leave the benefit unattractive relative to the current group plan or labor market.
- Test employee segments. Older employees and higher-cost rating areas can require materially different employer funding.
- Plan for changes. Premiums, the federal percentage, employee census, and household circumstances change each year.
- Explain the tax-credit tradeoff. Employees need to understand that an affordable offer can eliminate Marketplace subsidies.
Common affordability mistakes
A defensible 2026 workflow
- Confirm the plan-year start date and applicable percentage.
- Validate the employee census, permitted classes, ages, locations, and eligibility.
- Obtain the correct lowest-cost Silver premium data.
- Model multiple contribution strategies.
- Run employer-mandate safe-harbor analysis where applicable.
- Assess employee premium and out-of-pocket exposure beyond the minimum test.
- Document methodology and retain the data used.
- Explain the employee premium-tax-credit consequence before enrollment.
Frequently asked questions
What is the ICHRA affordability percentage for 2026?
The required contribution percentage is 9.96% for plan years beginning in calendar year 2026.
Which premium is used for ICHRA affordability?
The test uses the employee's self-only, lowest-cost Silver plan available in the relevant area, reduced by the ICHRA amount available to the employee.
Can an employee use an unaffordable ICHRA and a premium tax credit?
No. The employee must choose. To use an available premium tax credit, the employee must decline the ICHRA for the coverage period.
Does affordable mean the employee will consider the benefit affordable?
Not necessarily. The legal affordability test does not measure deductibles, other out-of-pocket costs, preferred-provider access, or the employee's broader household budget.
Sources and evidence
Review dates are recorded for each source above. Company pages are useful for confirming how a product is described, but they do not prove service quality or customer results.