ICHRA affordability, explained.
One test decides whether your employees keep their premium tax credits and whether your offer satisfies the employer mandate. For 2026 it runs on one number — 9.96% — and one benchmark plan. Here is the whole mechanism.
The three moving pieces.
The percentage
For plan years beginning in 2026, the required-contribution percentage is 9.96% of household income (Rev. Proc. 2025-25). The IRS resets this figure annually.
The benchmark plan
Affordability is measured against the lowest-cost silver plan for self-only coverage in the employee's rating area — a real filed premium that varies by county and, outside community-rated New York, by the employee's age.
The test
Take that lowest-cost silver premium, subtract the monthly allowance you offer, and compare what's left to 9.96% of the employee's monthly household income. At or under the line, the offer is affordable; over it, the employee may opt out and keep their premium tax credit.
A worked example.
Hypothetical — for the arithmetic only
- 1. An employee earns $4,000 a month. 9.96% of that is $398.40 — the most the plan can cost them for the offer to be affordable.
- 2. Suppose the lowest-cost silver plan for self-only coverage in their rating area is $450 a month— a hypothetical premium; the real one comes from that county's filings.
- 3. $450 − $398.40 = $51.60. A monthly allowance of at least $51.60 makes this offer affordable for this employee.
- 4. Run the same arithmetic for every employee — each with their own benchmark premium — and the highest required allowance sets your affordability floor.
The safe harbors.
The ICHRA-specific harbors live in IRS proposed regulations (REG-136401-18) that were never finalized — employers may currently rely on them. Educational summary, not legal or tax advice.
Location safe harbor
Use the lowest-cost silver plan at the employee's primary worksite rather than tracking each home address.
Look-back safe harbor
For a calendar-year ICHRA, use the prior year's lowest-cost silver premium, so budgets can be set before the new year's rates land.
Income safe harbors
Because employers don't know household income, the familiar W-2, rate-of-pay, and federal-poverty-line safe harbors stand in for it on the employer-mandate side.
Affordability questions, answered.
What percentage makes an ICHRA affordable in 2026?
9.96% of household income, set by Rev. Proc. 2025-25 for plan years beginning in 2026. The employee's required contribution — the lowest-cost silver plan's self-only premium minus the monthly allowance — must not exceed that share.
Which plan is the affordability benchmark?
The lowest-cost silver plan for self-only coverage in the employee's rating area. It's a real filed premium, so it differs by county — and in New York, where premiums are community-rated, it doesn't vary by age at all.
Are the ICHRA affordability safe harbors final rules?
No. The location and look-back safe harbors exist in IRS proposed regulations (REG-136401-18, September 2019) that were never finalized — employers may currently rely on them, and that reliance posture is worth confirming with your own counsel each year.
What happens if the offer is unaffordable for someone?
That employee may opt out of the ICHRA and keep their marketplace premium tax credit. For employers subject to the federal mandate, an unaffordable offer to a full-time employee who then takes subsidized Exchange coverage can trigger the §4980H(b) amount — $5,010 per such employee for 2026 (Rev. Proc. 2025-26).
Does a bigger allowance always fix affordability?
Mechanically yes — the allowance offsets the benchmark premium dollar for dollar — but the right allowance is a budget decision across your whole team. Computing the affordability line for every employee at once, from real filed premiums, is exactly what the audit does.
Your affordability floor, from real filings.
Insurf, Inc. is not a licensed insurance agency, does not sell insurance, and receives no commissions; enrollment applications are submitted by an individually licensed insurance producer. This page is an educational overview with a hypothetical example — not an offer of coverage, not a recommendation to buy any plan, and not financial, tax, legal, medical, coverage, or insurance advice.