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 is less than 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.
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 makes the employee and household members ineligible for Marketplace premium tax credits, even if the employee declines to use the ICHRA. When the offer is unaffordable, the employee may accept the ICHRA or decline it and use any premium tax credit for which the household qualifies. The employee cannot combine both for the same month. 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.
The IRS safe-harbor framework lets employers use permitted proxies rather than actual household income. Common concepts include W-2 wages, rate of pay, and the federal poverty line. For ICHRA, additional rules address the lowest-cost Silver premium used in the calculation and permitted location or prior-year data conventions. source
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.