ICHRA affordability & compliance in 2026.

If you're an Applicable Large Employer (50+ full-time-equivalent employees), your ICHRA has to clear the ACA's affordability bar to satisfy the employer mandate. The rules didn't change for 2026 — but the number did. Here's what you need to know, in plain terms.

What "affordable" actually means

An ICHRA is affordable when the employee's remaining cost for the lowest-cost silver plan (LCSP) in their area — after subtracting your monthly allowance — is no more than 9.96% of their household income in 2026. That's up from 9.02% in 2025, which is good news: a higher percentage means a smaller allowance can still clear the bar.

Put simply: the bigger your allowance and the lower the local silver premium, the easier it is to be affordable.

The three IRS safe harbors

You almost never know an employee's true household income — so the IRS lets you prove affordability using a safe harbor instead. Use any one and you're protected from the penalty for that employee:

• Federal Poverty Line (FPL). The simplest. For 2026, if an employee's share of the LCSP is no more than $129.90/month, the offer is affordable — full stop. Most employers design to this.
• Rate-of-Pay. Bases affordability on 9.96% of the employee's monthly rate of pay (hourly rate × 130 hours, or monthly salary). Useful for hourly workforces.
• W-2. Uses 9.96% of the employee's W-2 Box 1 wages. Straightforward for salaried teams with stable pay.

What happens if you get it wrong

For an ALE that offers coverage that isn't affordable, the ACA's "B Penalty" applies — roughly $417.50 per month ($5,010 per year) per employee who receives a premium tax credit on the exchange. It's assessed per affected employee, so a systematic design error can add up quickly. This is exactly the kind of thing you don't want to discover at tax time.

How Choice handles it for you

• We pull the correct LCSP for each employee's location and run the affordability math against your chosen safe harbor.
• We design your allowance (and class structure) so your offer clears the 2026 threshold before you launch.
• We generate the plan documents and produce ACA / ERISA / HIPAA reporting — including the 1095-C detail your filing needs.
• We re-test at renewal, because silver-plan pricing and the threshold both move year to year.

Under 50 FTEs? Affordability testing doesn't apply to you the same way — but a QSEHRA or ICHRA can still be a great fit. Either way, ask us and we'll tell you where you stand.

This guide is general information, not tax or legal advice. Figures reflect IRS guidance for plan year 2026; confirm specifics for your situation with your advisor.