CHOICE Arrangement affordability in 2027: what the new 10.22% threshold changes

On July 21, 2026, the IRS released Revenue Procedure 2026-26. It sets the ACA affordability percentage at 10.22% for plan years beginning in 2027, up from 9.96% in 2026. The threshold has never crossed 10% before.

If you sponsor a CHOICE Arrangement with a January 1 plan year, this percentage sets the minimum allowance you can offer each employee without employer-mandate exposure. For workforces spread across states, there is more work here than the headline suggests.

The numbers

A higher percentage loosens the test. Employees can be asked to pay more of the benchmark premium before an offer becomes unaffordable.

How the test works

A CHOICE Arrangement is affordable for an employee if:

lowest-cost silver plan premium − monthly allowance ≤ 10.22% × monthly household income

The benchmark is the self-only premium for the lowest-cost silver plan available to that employee on the exchange, at the employee’s age on the first day of the plan year. The test runs employee by employee. Premiums are age-rated everywhere except New York and Vermont, so a $500 allowance can pass for a 28-year-old and fail for a 61-year-old at the same company.

Two safe harbors make the premium side workable. You may use the lowest-cost silver plan at the employee’s primary worksite instead of their home address. And a calendar-year CHOICE Arrangement may use the premium from January of the prior calendar year. For a January 1, 2027 plan year, that means January 2026 premiums, which are already published. You do not have to wait for 2027 rates.

Both safe harbors come from proposed regulations issued September 30, 2019. The final version was withdrawn in the January 2021 regulatory freeze and never published, so the proposed rules remain the operative guidance, and the IRS permits employers to rely on them.

One boundary to respect: these safe harbors protect the employer. An employee’s premium tax credit eligibility is a separate test, run against the lowest-cost silver plan where the employee lives and actual plan-year premiums. An offer can clear your safe harbor and still leave a particular employee able to opt out with a credit.

You also do not need to know household income. Three safe harbors stand in for it:

• Federal poverty line. Affordable if the employee’s share is at or below 10.22% of the FPL for one person, divided by 12. For calendar 2027 plans, using the 2026 guidelines: $135.92 in the lower 48 and DC, $169.90 in Alaska, and $156.36 in Hawaii. Round down.
• Rate of pay. 130 hours × hourly rate × 10.22%. An employee at $20 per hour caps out at $265.72 per month.
• W-2. 10.22% of current-year Box 1 wages. Prior-year W-2s are not allowed, so this one requires projecting.

Before January 1

1. Pull January 2026 lowest-cost silver premiums, by age, for every rating area where you have employees. CMS publishes a look-up table for federal-exchange states; state-based exchanges publish their own rate data.
2. Test each employee against your elected safe harbor at 10.22%.
3. Set allowances at or above the highest required minimum in each class, or vary by age and location within the class.
4. Send the CHOICE Arrangement notice 90 days before the plan year starts. For January 1, 2027, that is October 3, 2026.
5. Record the safe harbor elected for each class. You will need it for Form 1095-C reporting in early 2028.

Under 50 employees

The employer mandate does not reach you, so there is no ALE penalty exposure. Affordability still decides one thing: an affordable offer makes employees ineligible for premium tax credits whether or not they enroll. An unaffordable offer lets them opt out and keep a credit they qualify for.

With the enhanced credits gone, subsidies again stop at 400% of the poverty line, so fewer employees have a credit at stake than two years ago. Put it in your employee communications either way.

FAQ

Does 10.22% apply to a plan year that started July 1, 2026?

No. A plan year uses the percentage in effect on its first day. A July 2026 plan year runs on 9.96% until it renews.

Which benchmark premium applies to a July 1, 2027 plan year?

January 2027. Non-calendar-year plans look back to January of the current calendar year.

Can different employees get different safe harbors?

By class, yes. One income safe harbor per CHOICE Arrangement class, applied uniformly within it.

Where do I find the lowest-cost silver plan for a location?

Choose a good CHOICE Arrangement platform or consultant, or refer to the CMS employer look-up table that covers states on the federal exchange. State-based exchange states publish rate data through their own marketplaces.

Sources

• IRS Revenue Procedure 2026-26 (July 21, 2026)
• IRS Revenue Procedures 2025-25 and 2024-35
• Proposed Treasury Regulations under Code section 4980H, including § 54.4980H-5(f) (September 30, 2019); IRS Q&A on individual coverage HRAs and the affordability safe harbors, which permits reliance on the proposed rules
• HHS 2026 Poverty Guidelines (January 15, 2026)
• KFF, 2026 marketplace premium data and What We Know So Far About 2026 ACA Marketplace Enrollment, Premiums, and Deductibles (July 2026)