The step-by-step process to calculate ACA affordability using W-2 wages is as follows:
- Get the employee’s W-2 Box 1 wages (this is the taxable income reported on their W-2 form).
- Multiply the Box 1 wages by the ACA affordability percentage for the year (9.02% for 2025).
- Adjust for partial-year employment or coverage: If the employee was employed or covered for less than 12 months, multiply by the fraction of months worked/covered over 12.
- Divide the result by the number of months the employee was employed or offered coverage to find the monthly maximum premium the employee should pay.
- If the employee’s share of the lowest-cost self-only health coverage premium is less than or equal to this monthly amount, the coverage is considered affordable by the W-2 safe harbor.
Example:
- Annual Box 1 wages = $50,000
- Multiply by 9.02% = $4,510
- Employee worked 9 months out of 12: $4,510 x 9/12 = $3,382.50
- Monthly affordable premium = $3,382.50 ÷ 9 = $375.83
- Employee contribution must be $375.83 or less to be considered affordable.
