Category: Welfare Benefis

The 2027 ACA Affordability Threshold is Rising to a Record 10.22% — Reset Employee Contributions Before Fall Open Enrollment

For Applicable Large Employers and sponsors of group health plans.

The IRS has set the Affordable Care Act affordability threshold at 10.22% of household income for plan years beginning in calendar year 2027 — the highest figure since the employer mandate took effect, and the first time it has ever exceeded 10%. For applicable large employers (ALEs), this is favorable: you may charge employees more for self-only coverage in 2027 than in any prior year without creating exposure under Code section 4980H(b). Consequently, you should re-do your affordability calculations before you set 2027 contribution rates — which, for calendar-year plans, means over the next 60 to 90 days.

Authority: Revenue Procedure (Rev. Proc. 2026-26, issued July 21, 2026), effective for taxable years and plan years beginning in calendar year 2027.

What Changed

The required contribution affordability percentage under Code section 36B(c)(2)(C)(i)(II) is 10.22% for plan years beginning in 2027, up from 9.96% for 2026 and 9.02% for 2025. Rev. Proc. 2026-26 also updates the section 36B(b)(3)(A)(i) applicable percentage table used to compute individual premium tax credits; the 2027 percentages range from 2.15% to 10.22%.

Two consecutive large increases reflect a change in methodology, not a policy shift toward employers. Beginning with the 2026 benefit year, HHS revised the premium growth measure to capture increases in individual market premiums in addition to employer-sponsored insurance premiums (HHS Marketplace Integrity and Affordability rule, 90 Fed. Reg. 27074 (June 25, 2025)). The IRS applied that revised measure again for 2027. Employers should not plan on the trend continuing indefinitely.

The Three Affordability Safe Harbors for 2027

Because ALEs do not know an employee’s household income, the final regulations at Treas. Reg. section 54.4980H-5(e)(2) permit affordability to be measured under any of three safe harbors, applied on a reasonable and uniform basis to any reasonable category of employees. The table below assumes a calendar-year 2027 plan and the lowest-cost self-only option providing minimum value.

Safe Harbor2027 Maximum Employee ContributionHow It Is Determined
Federal Poverty Line (FPL)$135.92 / month (48 states + D.C.) $169.90 / month (Alaska) $156.36 / month (Hawaii)10.22% x mainland FPL for a single individual, divided by 12, using the FPL in effect within six months before the first day of the plan year. For calendar-year 2027 plans, that is the 2026 HHS guidelines ($15,960).
Rate of PayHourly: 10.22% x (hourly rate x 130 hours) e.g., $20.00/hour = $265.72 / month e.g., $16.00/hour = $212.57 / month Salaried: 10.22% x monthly salaryDeterminable prospectively at the start of the plan year. For hourly employees, use the lower of the rate at the start of the year or the lowest rate during the year; may not be used for tipped or commission-only employees.
Form W-210.22% x Box 1 wages for the calendar year e.g., $60,000 Box 1 = $6,132 / year ($511.00 / month)Tested retrospectively after year-end, per employee, per employer. Requires the employee contribution to remain a consistent dollar amount or a consistent percentage of pay for the full year.

Authority: final regulations (Treas. Reg. section 54.4980H-5(e)(2)) for the safe harbor structure; dollar figures derived from Rev. Proc. 2026-26 and the 2026 HHS poverty guidelines ($15,960 mainland; $19,950 Alaska; $18,360 Hawaii).

For Calendar-Year Plans, the FPL Figure Is Already Locked

For a plan year beginning January 1, 2027, the applicable poverty guideline is the 2026 HHS poverty figure — $15,960 for a single individual — published in January 2026. The 2027 guidelines will not be published until roughly January 2027, after the plan year has already begun. For calendar-year plans, $135.92 per month is therefore a final figure, not a placeholder that will rise later this year.

Non-calendar-year plans are different. A plan year beginning, for example, July 1, 2027 may use the 2027 guidelines once published, which will almost certainly produce a higher monthly limit. Those plans generally benefit from waiting for the updated figure where the plan year start date permits it.

Non-Calendar-Year Plans Continue to Apply 9.96%

The required contribution percentage applies on a plan-year basis, not a calendar-year basis. A plan year that began in 2026 continues to use 9.96% for the entire plan year, including the months of that plan year that fall in 2027. A plan year beginning October 1, 2026 uses 9.96% through September 30, 2027 and picks up 10.22% only on October 1, 2027.

Employers with non-calendar-year plans sometimes want to raise contributions on January 1 to capture the higher percentage early. That does not work for affordability purposes, and a mid-plan-year contribution increase carries separate consequences — including participant notice obligations and the possibility that participants become entitled to change their cafeteria plan elections. Treat any mid-year change as a plan design decision requiring its own analysis.

Why this Matters

Rev. Proc. 2026-22 (Revenue Procedure, issued May 4, 2026) sets the 2027 employer shared responsibility amounts: $3,780 per full-time employee annually ($315.00 monthly) under section 4980H(a), and $5,670 per affected employee annually ($472.50 monthly) under section 4980H(b). Both are roughly 13% above the 2026 amounts and nearly double the original $2,000 and $3,000 statutory baselines. An affordability failure is assessed per affected employee per month, and the IRS communicates proposed liability through Letter 226-J.

Action Items

  1. Confirm your plan year. Determine whether 10.22% applies to your 2027 plan year, or whether 9.96% continues to apply into 2027 because the plan year began in 2026.
  2. Re-run affordability modeling under all three safe harbors. Do not assume the safe harbor you used for 2026 remains optimal. A record percentage changes the relative outcomes, particularly for lower-wage populations where the rate of pay and FPL results can diverge substantially.
  3. Set the 2027 employee contribution for the lowest-cost self-only minimum value option before open enrollment materials are finalized. For calendar-year plans using the FPL safe harbor, use no more than $135.92 per month in the mainland states and D.C., $169.90 in Alaska, and $156.36 in Hawaii.
  4. Verify minimum value separately. Affordability and minimum value are independent requirements. A plan that clears 10.22% still fails section 4980H(b) if it does not provide minimum value.
  5. Document the safe harbor selection. Record which safe harbor applies to which category of employees, and confirm the categories are reasonable and applied uniformly. That documentation is what supports your Form 1095-C line 16 coding if the IRS proposes liability.
  6. Coordinate with your 1095-C reporting vendor before year-end so the affordability safe harbor codes match the contribution structure you actually adopt.
  7. If you sponsor a non-calendar-year plan and intend to use the FPL safe harbor, calendar the publication of the 2027 HHS poverty guidelines and confirm whether your plan year start date permits use of the higher figure.

A note on scope: plans with individual coverage HRA (ICHRA) arrangements, multiemployer plan contributions, opt-out or cash-in-lieu payments, wellness incentives, or flex credits have additional adjustments to the employee’s required contribution that this alert does not address. Those features can move a plan from affordable to unaffordable independent of the 10.22% figure and warrant a separate, plan-specific review.

This alert is provided by ERISA Benefits Law Group, PLLC for informational purposes only and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal counsel. If you have questions about how these developments affect your practice, please contact us directly.

ERISA Benefits Law Group, PLLC | Phoenix & Tucson, Arizona | erisabenefitslaw.com

IRS Announces COLA Adjusted Retirement Plan Limitations for 2026

The Internal Revenue Service released Notice 2025-67 announcing cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2026.

Highlights Affecting Plan Sponsors of Qualified Plans for 2026

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $23,500 to $24,500.
  • The catch-up contribution limit for individuals aged 50 or over is increased from $7,500 to $8,000.
  • The new special catch-up contribution limit for individuals who attain age 60, 61, 62, or 63 in 2025 is $11,250.
  • The Roth catch-up wage threshold for 2024, which is used to determine whether an individual’s catch-up contributions for 2025 must be designated Roth contributions, is increased from $145,000 to $150,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $350,000 to $360,000.
  • The limitation on annual additions to defined contribution plans under Section 415(c)(1)(A) is increased from $70,000 to $72,000.
  • The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $280,000 to $290,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains at $160,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $230,000 to $235,000.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $16,500 to $17,000.
  • The limit on annual contributions to an IRA increased from $7,000 to $7,500. The additional catch-up contribution limit for individuals aged 50 and over increased from $1,000 to $1,100.

The IRS previously updated Health Savings Account limits for 2026. The following chart summarizes various significant benefit Plan limits for 2024 through 2026:

Type of Limitation202620252024
415 Defined Benefit Plans$290,000$280,000$275,000
415 Defined Contribution Plans$72,000$70,000$69,000
Defined Contribution Elective Deferrals$24,500$23,500$23,000
Defined Contribution Catch-Up Deferrals$8,000 ($11,250 for age 60-63)$7,500
($11,250 for age 60-63)		$7,500
SIMPLE Employee Deferrals$17,000$16,500$16,000
SIMPLE Catch-Up Deferrals$3,850 ($5,250 for age 60-63)$3,850
($5,250 for age 60-63)		$3,500
Annual Compensation Limit$360,000$350,000$345,000
SEP Minimum Compensation$800$750$750
SEP Annual Compensation Limit$360,000$350,000$345,000
Highly Compensated$160,000$160,000$155,000
Key Employee (Officer)$235,000$230,000$220,000
Income Subject To Social Security Tax  (FICA)$184,500$176,100$168,600
Social Security (FICA) Tax For ER & EE (each pays)6.20%6.20%6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays)1.45%1.45%1.45%
SECA (FICA Portion) for Self-Employed12.40%12.40%12.40%
SECA (Med. HI Portion) For Self-Employed2.90%2.90%2.90%
IRA Contribution$7,500$7,000$7,000
IRA Catch-Up Contribution$1,100$1,000$1,000
HSA Max. Contributions Single/Family Coverage$4,400/$8,750$4,300/ $8,550$4,150/ $8,300
HSA Catchup Contributions (age 55)$1,000$1,000$1,000
HSA Min. Annual Deductible Single/Family$1,700/$3,400$1,650/
$3,300		$1,500/ $3,200
HSA Max. Out Of Pocket Single/Family$8,500/$17,000$8,300/
$16,600		$8,050/ $15,000

IRS Announces 2026 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2026 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2026, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $4,400 (up from $4,300 in 2025), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $8,750 (up from $8,550 in 2025).

High deductible health plans. For calendar year 2026, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,700 for self-only coverage or $3,400 for family coverage (up from $1,650 and $3,300 in 2025), and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,500 for self-only coverage or $17,000 for family coverage (up from $8,300 and $16,600 in 2025).

Rev. Proc 2025-19

Department of Labor Adds Self-Correction to Voluntary Fiduciary Correction Program

The Department of Labor (DOL) published significant updates to its Voluntary Fiduciary Correction Program (VFCP) on January 15, 2025. These updates are designed to make it easier for employers and plan fiduciaries to avoid potential DOL civil enforcement and penalties if they voluntarily correct certain fiduciary breaches.

Key Changes – Addition of Self-Correction Features

The updated VFCP adds two new self correction categories, which better align the DOL’s VFCP with the IRS’s Employee Plans Compliance Resolution System (EPCRS), so that common issues subject to correction under both programs (to gain relief from both IRS and DOL enforcement) can be now be self-corrected. Previously, many failures that could be self-corrected under the IRS’s EPCRS required a formal VFCP application.

New Self-Correction Tool for Delinquent Contributions and Loan Payments

The most significant update to the VFCP is the introduction of a new self-correction tool, which employers and other plan officials can use to remedy delays in transmitting participant contributions and participant loan repayments to retirement plans. These are the most common fiduciary breaches requiring correction under both EPCRS and VFCP.

The VFCP imposes six broad requirements for self-correction of delinquent participant contributions or loan repayments involving retirement plans:

1. $1,000 Earnings Limit. The amount of Lost Earnings on the delinquent participant contributions or loan repayments must be $1,000 or less

2. 180 Limit. The delinquent participant contributions or loan repayments must have been remitted to the plan within 180 calendar days from the date of withholding from participants’ paychecks or receipt by the employer.

3. Lost Earnings Calculation Requirement. The Lost Earnings must be calculated using the DOL online calculator, starting from the “Date of Withholding or Receipt” (NOT from the earliest date the contributions could have been made to the plan)

4. SCC Notice Electronic Filing. The employer or other self-corrector must electronically file a Self-Correction Component Notice with the DOL, which must include: 

  • the name and an email address for the self-corrector;
  • the plan name; 
  • the plan sponsor’s nine-digit employer identification number (EIN);
  • the plan’s three-digit number (PN); 
  • the Principal Amount; 
  • the amount of Lost Earnings and the date paid to the plan; 
  • the Loss Date (for purposes of the SCC, the Date(s) of Withholding or Receipt); and 
  • the number of participants affected by the correction. 

5. Penalty of Perjury Statement. A plan fiduciary with knowledge of the transaction that is being self-corrected and each Plan Official seeking relief under the program must sign a penalty of perjury statement.

6. Self-Correction Checklist and Document Retention. Self-correctors must prepare a SCC Retention Record Checklist and collect a list of documents, and provide the completed checklist and required documentation to the plan administrator. The checklist and documents include:

  • A brief statement explaining why the employer retained the participant contributions or loan repayments instead of timely forwarding such amounts to the plan;
  • Proof of payment, showing the actual date the plan received the corrective payment;
  • Lost Earnings printout from the DOL online Calculator;
  • A statement describing policies and procedures (if any) that the employer put into place to prevent future delinquencies of participant contributions or loan repayments;
  • A copy of the SCC Notice Acknowledgement and Summary page received from EBSA after electronic submission of the SCC notice; and
  • The required Penalty of Perjury statement

Also Note: Self-correction does not relieve plans from reporting delinquent participant contributions on the plan’s Form 5500 or Form 5500-SF, as applicable.

Self-Correction for Certain Participant Loan Failures Self-Corrected Under the Internal Revenue Service’s Employee Plans Compliance Resolution System (EPCRS.)

The updated VFCP also adds a new Self-Correction Component for participant loan failures, which allows self-correction of the following transactions, provided that they are eligible for, and have been self-corrected under, the IRS’s EPCRS:

  • Loans, the terms of which did not comply with plan and Code provisions concerning amount, duration, or level amortization, or loans that defaulted due to a failure to withhold loan repayments from the participant’s wages;
  • The failure to obtain spousal consent for a plan loan;
  • Loans that exceed the number permitted under the terms of the plan; and
  • Any eligible inadvertent failure relating to a participant loan that is self-corrected in accordance with EPCRS

Other VFCP Changes

The updated VFCP makes some additional changes, that will make it easier for employers to use the program, including

Expanded Scope of Eligible Transactions: The VFCP now covers a wider range of transactions that can be corrected. This includes transactions that were previously ineligible, such as certain types of excess contributions.

Clarification of Existing Corrections: The DOL has clarified the types of transactions that are already eligible for correction under the VFCP. This will help employers and plan officials determine whether they can take advantage of the program.

Simplified Procedures: The DOL has simplified the administrative and procedural requirements for using the VFCP. This will make it easier and less time-consuming for employers and plan officials to correct fiduciary breaches.

Updated Class Exemption: The DOL has amended the VFCP class exemption to reflect the changes to the program.

The updated VFCP goes into effect on March 17, 2025.

IRS Announces COLA Adjusted Retirement Plan Limitations for 2025

The Internal Revenue Service released Notice 2024-80 announcing cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2025.

Highlights Affecting Plan Sponsors of Qualified Plans for 2025

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $23,000 to $23,500.
  • The catch-up contribution limit for individuals aged 50 or over remains at $7,500.
  • The new special catch-up contribution limit for individuals who attain age 60, 61, 62, or 63 in 2025 is $11,250.
  • The Roth catch-up wage threshold for 2024, which is used to determine whether an individual’s catch-up contributions for 2025 must be designated Roth contributions, remains $145,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $345,000 to $350,000.
  • The limitation on annual additions to defined contribution plans under Section 415(c)(1)(A) is increased from $69,000 to $70,000.
  • The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $275,000 to $280,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $155,000 to $160,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $220,000 to $230,000.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $16,000 to $16,500.
  • The limit on annual contributions to an IRA increased remains at $7,000. The additional catch-up contribution limit for individuals aged 50 and over remains at $1,000.

The IRS previously updated Health Savings Account limits for 2025. The following chart summarizes various significant benefit Plan limits for 2023 through 2025:

Type of Limitation202520242023
415 Defined Benefit Plans$280,000$275,000$265,000
415 Defined Contribution Plans$70,000$69,000$66,000
Defined Contribution Elective Deferrals$23,500$23,000$22,500
Defined Contribution Catch-Up Deferrals$7,500
($11,250 for age 60-63)		$7,500$7,500
SIMPLE Employee Deferrals$16,500$16,000$15,500
SIMPLE Catch-Up Deferrals$3,500
($5,250 for age 60-63)		$3,500$3,500
Annual Compensation Limit$350,000$345,000$330,000
SEP Minimum Compensation$750$750$650
SEP Annual Compensation Limit$350,000$345,000$330,000
Highly Compensated$160,000$155,000$150,000
Key Employee (Officer)$230,000$220,000$215,000
Income Subject To Social Security Tax  (FICA)$176,100$168,600$160,200
Social Security (FICA) Tax For ER & EE (each pays)6.20%6.20%6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays)1.45%1.45%1.45%
SECA (FICA Portion) for Self-Employed12.40%12.40%12.40%
SECA (Med. HI Portion) For Self-Employed2.90%2.90%2.90%
IRA Contribution$7,000$7,000$6,500
IRA Catch-Up Contribution$1,000$1,000$1,000
HSA Max. Contributions Single/Family Coverage$4,300/ $8,550$4,150/ $8,300$3,850/ $7,750
HSA Catchup Contributions (age 55)$1,000$1,000$1,000
HSA Min. Annual Deductible Single/Family$1,650/
$3,300		$1,500/ $3,200$1,500/ $3,000
HSA Max. Out Of Pocket Single/Family$8,300/
$16,600		$8,050/ $15,000$7,500/ $15,000

IRS Announces 2024 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2024 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2024, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $4,150 (up from $3,850 in 2023), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $8,300 (up from $7,750 in 2023).

High deductible health plans. For calendar year 2024, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage (up from $1,500 and $3,000 in 2023), and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage (up from $7,500 and $15,000 in 2023).

Rev. Proc 2023-23

IRS Announces 2023 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2023 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2023, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,850 (up from $3,650 in 2022), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,750 (up from $7,300 in 2022).

High deductible health plans. For calendar year 2023, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,500 for self-only coverage or $3,000 for family coverage (up from $1,400 and $2,800 in 2022), and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,500 for self-only coverage or $15,000 for family coverage (up from $7,050 and $14,100 in 2022).

Rev. Proc 2022-24

IRS Announces COLA Adjusted Retirement Plan Limitations for 2022

The Internal Revenue Service today released Notice 2021-61 announcing cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022.

Highlights Affecting Plan Sponsors of Qualified Plans for 2022

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,500 to $20,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,500.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains is increased from $13,500 to $14,000.
  • The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $230,000 to $245,000.
  • The limitation for defined contribution plans under Section 415(c)(1)(A) is increased for 2022 from $58,000 to $61,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $290,000 to $305,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $185,000 to $200,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,165,000 to $1,230,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $230,000 to $245,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $130,000 to $135,000.

The IRS previously updated Health Savings Account limits for 2021. See our post here.

The following chart summarizes various significant benefit Plan limits for 2020 through 2022:

Type of Limitation202220212020
415 Defined Benefit Plans$245,000$230,000$230,000
415 Defined Contribution Plans$61,000$58,000$57,000
Defined Contribution Elective Deferrals$20,500$19,500$19,500
Defined Contribution Catch-Up Deferrals$6,500$6,500$6,500
SIMPLE Employee Deferrals$14,000$13,500$13,500
SIMPLE Catch-Up Deferrals$3,000$3,000$3,000
Annual Compensation Limit$305,000$290,000$285,000
SEP Minimum Compensation$650$650$600
SEP Annual Compensation Limit$305,000$290,000$285,000
Highly Compensated$135,000$130,000$130,000
Key Employee (Officer)$200,000$185,000$185,000
Income Subject To Social Security Tax  (FICA)$147,000$142,800$137,700
Social Security (FICA) Tax For ER & EE (each pays)6.20%6.20%6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays)1.45%1.45%1.45%
SECA (FICA Portion) for Self-Employed12.40%12.40%12.40%
SECA (Med. HI Portion) For Self-Employed2.90%2.90%2.90%
IRA Contribution$6,000$6,000$6,000
IRA Catch-Up Contribution$1,000$1,000$1,000
HSA Max. Contributions Single/Family Coverage$3,650/ $7,300$3,600/ $7,200$3,550/ $7,100
HSA Catchup Contributions$1,000$1,000$1,000
HSA Min. Annual Deductible Single/Family$1,400/ $2,800$1,400/ $2,800$1,400/ $2,800
HSA Max. Out Of Pocket Single/Family$7,050/ $14,100$7,000/ $14,000$6,900/ $13,800

IRS Announces 2022 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2022 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2022, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,650 (up from $3,600 in 2021), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,300 (up from $7,200 in 2021).

High deductible health plans. For calendar year 2022, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage (unchanged from 2021), and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,050 for self-only coverage or $14,100 for family coverage (up from $7,000 and $14,000 in 2021).

Rev. Proc 2021-25

ARPA Includes Voluntary Extension and Expansion of FFCRA Paid Leave

The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, includes a voluntary 6-month extension of the refundable tax credits available to employers for providing Emergency Paid Sick Leave (EPSL) and Emergency FMLA (EFMLA) under the Families First Coronavirus Response Act (FFCRA). For employers that want to take advantage of the extension, the ARPA also expands the EPSL and EFMLA paid leave entitlements that must be provided. 

Background

The FFCRA paid leave provisions, which required employers with fewer than 500 employees to provide paid EPSL and EFMLA paid leave, originally expired on Dec. 31, 2020. The tax credits covering the cost of EPSL and EFMLA paid leave were extended through March 31, 2021 (see our post here), helping employers to voluntarily continue providing such paid leave for employees who did not use up all of their paid leave entitlement by December 31, 2020. 

The ARPA Extension and Expansion

An employer’s decision to extend EPSL and EFMLA paid leave is entirely voluntary. Employers are, therefore, not required to take any action in response to this aspect of the ARPA.

However, employers wishing to take advantage of the refundable tax credits will need to comply with the EPSL and EFMLA requirements, as modified by the ARPA. Employers should note the following key points in this regard:

  • The employer must provide every employee with a new grant of 10 days of Earned Paid Sick Leave as of April 1. This is 80 hours for full time employees and is pro rated for part time employees, as under the original FFCRA.
  • The qualifying reasons for leave are expanded. There were originally 5 qualifying reasons for an employee to take EPSL, including
    • three “personal” reasons: the employee is (1) subject to government quarantine or (2) has been advised by a health care provider to self-isolate or (3) is experiencing COVID-19 symptoms and is seeking a diagnosis, and
    • two “caring” reasons: the employee is (4) caring for someone who is subject to one of the three “personal” COVID-19 issues or (5) is caring for a child whose school or place of care is closed  or unavailable due to COVID-19 precautions.
    • EFMLA paid leave (i.e. paid leave after the first two weeks of EPSL) was only available for the two “caring” reasons).
    • The ARPA expands the qualifying reasons for paid leave in two ways:
  • The ARPA makes the three “personal” qualifying reasons for paid EPSL leave also available for paid EFMLA leave.
  • The ARPA adds three new “personal” reasons for taking paid EPSL and EFMLA leave: 
    • the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID–19 and such employee has been exposed to COVID–19 or the employee’s employer has requested such test or diagnosis, or 
    • the employee is obtaining immunization related to COVID–19 or 
    • the employee is recovering from any injury, disability, illness, or condition related to immunization related to COVID-19 
  • The tax credit is available on paid leave taken with respect to the period from April 1 to September 30, 2021. An employer that elects to extend the EPSL and EFMLA paid leave can claim the credit for qualifying leave paid “with respect to the period beginning on April 1, 2021, and ending on September 30, 2021.” This covers leave taken between April 1 and September 30, even if the wages are paid after September 30 (i.e. on the last payroll covering the period up through September 30, 2021)
  • The aggregate amount of EFMLA wages that can be subject to the credit increased from $10,000 per employee to $12,000.
  • The first 10 days of EFMLA leave is now paid leave. Under the original FFCRA the first 10 days of EFMLA leave was unpaid (because it was paid as EPSL). Accordingly, the total available paid EFMLA leave is extended to 12 weeks (from 10). The law therefore appears on its face to require payment of both EPSL and EFMLA leave concurrently during the first 10 days, but this is unlikely the intention. More likely, the intention is to provide an additional 10 days of paid leave in total, on top of whatever an employee had “left over” when their EPSL and EFMLA leave entitlement otherwise expired (December 31, 2020 unless voluntarily extended to March 31, 2021).
  • The employer need NOT have voluntarily extended its EPSL and EFMLA leave policies to March 31, 2021 in order to take advantage of the new extension. expired on 
  • The employer must comply with all of the requirements of the FFCRA paid leave law (notice, documentation of leave requests and approvals, no retaliation for taking leave, etc…)
  • The ARPA explicitly denies a double tax benefit to the employer, providing that the employer’s gross income shall be increased by the amount of the tax credit received.
  • The extension includes a non-discrimination provision that disallows the credit for any employer that discriminates “with respect to the availability of the provision of qualified sick leave wages” in favor of:
    • highly compensated employees (within the meaning of Code section 414(q)), 
    • full-time employees, or 
    • employees on the basis of employment tenure with the employer. 
  • The credit does not apply to amounts that are taken into account as payroll costs in connection with certain specified relief programs:
    • a covered loan under section 7(a)(37) or 7A of the Small Business Act,
    • a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or
    • a restaurant revitalization grant under section 5003 of the American Rescue Plan Act of 2021. 

Next Steps

Employers wishing to adopt this latest extension and expansion of the FFCRA paid leave program will need to revise their policies and related leave request and leave determination forms and procedures. If you used ERISA Benefits Law’s model EPSL/EFML Policies, Leave Request Form and Leave Determination Form to administer your FFCRA paid leave program in 2020, email your contact at the firm to get details on how we can assist you in efficiently updating those documents to implement the extension.