The IRS has released Rev. Proc. 2026-26, setting the ACA required contribution percentage at 10.22% for plan years beginning in 2027. That's up from 9.96% for 2026 and 9.02% for 2025, the third consecutive increase and the first time the percentage has exceeded 10%.
Here's what employers and brokers need to know as 2027 planning gets underway.
Why it went up again
The percentage is indexed to the relationship between premium growth and income growth. Rev. Proc. 2026-26 explains that, as for 2026, Treasury and the IRS used the premium growth measure HHS adopted in its 2025 Marketplace Integrity and Affordability rule, which captures individual market premium increases as well as employer coverage. Because premiums have been growing faster than incomes, the percentage keeps rising.
The same revenue procedure publishes the 2027 applicable percentage table used to calculate premium tax credits. It runs from 2.15% to 10.22% of household income, and there's still no premium tax credit for households above 400% of the federal poverty level.
The 2027 numbers
- Required contribution percentage: 10.22% (plan years beginning in 2027)
- 4980H(a) "A" penalty: $3,780 per full-time employee per year (after excluding 30), up from $3,340
- 4980H(b) "B" penalty: $5,670 per year for each full-time employee who receives a premium tax credit, up from $5,010
The penalty amounts come from Rev. Proc. 2026-22.
Group plans: the safe harbor limits
For traditional group coverage, affordability is based on the employee's cost for the lowest-cost self-only plan that provides minimum value. Under the IRS safe harbors for 2027 plan years:
- Federal poverty line. Employers can use a poverty guideline in effect within six months before the plan year begins. For a January 1, 2027 plan year, that's the 2026 guideline for the 48 contiguous states, $15,960. The maximum monthly employee contribution is $15,960 × 10.22% ÷ 12, about $135.92 (rounded down).
- Rate of pay. Hourly rate × 130 hours × 10.22%, or monthly salary × 10.22%.
- Form W-2. Box 1 wages × 10.22%.
Compared with 2026, the FPL safe harbor limit rises by about $6 per month. Employers facing large 2027 renewals may use that room to shift a little more cost to employees while staying affordable, but they should weigh the effect on retention and enrollment.
ICHRA: the hurdle drops, but premiums are rising faster
For an ICHRA, affordability compares the employee's self-only lowest-cost silver plan premium minus the self-only allowance to the same percentage of income. A higher percentage means a smaller allowance can pass.
A hypothetical example with a made-up premium, using the FPL safe harbor:
- 2026: lowest-cost silver plan $560; allowance needed ≥ $560 − $129.89 = $430.11
- 2027: if the premium rises 14% to $638, allowance needed ≥ $638 − $135.92 = $502.08
The affordability percentage increase is worth about $6 per month. A double-digit premium increase is worth much more. KFF's July 8 analysis of preliminary filings from 77 Marketplace insurers in 16 states and DC found a median proposed increase of 14% for 2027, with most requests between 10% and 20%. Those are early, proposed rates, but they point to a second year of significant increases.
The practical upshot: most ICHRA allowances will need to go up for 2027 to keep pace with premiums, even with the higher affordability percentage. Employers using the look-back month safe harbor for a calendar-year plan can test affordability using January 2026 premiums, which gives them a fixed reference point for budgeting, but employees will still be paying 2027 prices.
Timing for January 2027 ICHRAs
- ICHRA notices for January 1, 2027 plan years are due 90 days in advance, by early October.
- Final 2027 individual market rates generally become public on HealthCare.gov when window shopping opens before open enrollment.
- Plan the sequence: set allowances using the look-back month safe harbor (or a conservative premium assumption), deliver notices on time, then help employees choose plans once 2027 rates are available.
What to do now
- Update calculators to 10.22% for plan years beginning in 2027 and $3,780 / $5,670 for penalties.
- Recheck group plan contributions against the 2027 safe harbor limits, especially if the lowest-cost plan is changing at renewal.
- Model ICHRA allowances with premium increases, not just the new percentage.
- Watch non-calendar plan years. A plan year that begins July 1, 2027 uses 10.22%; one that began July 1, 2026 uses 9.96%.
- Calendar the early-October notice deadline for January ICHRAs.
If you're running these numbers across a full census, Choice Arrangement Deck's affordability engine applies the IRS safe harbors employee by employee and can help you find allowances by class that stay affordable.
The rising percentage gives employers a little more room on paper. In a year of double-digit individual market increases, the real work is in the allowance modeling.