Recently, the 2026 federal poverty level (FPL) was announced as $15,960 (up from $15,650 in 2025). Changes to the annual FPL will impact Affordable Care Act (ACA) affordability calculations for employers using the FPL safe harbor, described in more detail below.
Background
Under the ACA, applicable large employers (ALEs) – employers averaging 50 or more full time and full time equivalent employees in the prior year – must offer affordable, minimum value coverage to full time employees and their dependents to avoid potential penalties. For 2026 plan years, ALEs must offer at least one plan that costs employees less than 9.96% of their household income (see our earlier post, 2026 ACA Affordability Rate Increases to 9.96%). Because employers rarely know household income, ALEs can instead determine compliance using one of the three safe harbors: Federal Poverty Level (FPL), W 2, or Rate of Pay.
For more on the affordability safe harbors, see the IRS Q&A on Affordability. 
FPL Affordability Safe Harbor & Non-Calendar Year Plans
Under the FPL safe harbor, coverage will be affordable if the cost to employees for self-only coverage on the lowest-cost plan offered is less than 9.96% of the FPL (which is determined annually). The FPL safe harbor amount is calculated based on the following formula: 
Monthly Safe Harbor Amount = [9.96% x Federal Poverty Level (FPL)] / 12 
Example: 9.96% x $15,960 (2026 FPL) = $1,589.61
$1,589.61/12 = $132.46 (monthly amount)
Importantly, employers may use the federal poverty guidelines in effect six months before the start of the plan year when applying the FPL safe harbor. Because the updated federal poverty guidelines are typically released after the calendar year has already begun, calendar year plans generally rely on the prior year’s figures. This approach gives employers enough lead time to set premium rates ahead of open enrollment. Below is an example of how a calendar year plan would calculate affordability using the 2025 FPL.
Example: 9.96% x $15,650 (2025 FPL) = $1,558.74
$1,558.74/12 = $129.89 (monthly amount)
As a result, the FPL safe harbor is calculated differently for calendar year plans than for non-calendar year plans:
- Employers with plan years beginning January 2026 will meet the FPL safe harbor if they offer their full-time employees at least one plan that does not exceed $129.89 ($162.26 for Alaska & $149.31 for Hawaii) for self-only coverage.
- Employers with plan years beginning February through June 2026 have the option of using either the 2025 or 2026 FPL to calculate the FPL safe harbor (and should set contributions accordingly). Practically speaking, non-calendar year plans benefit from using the higher 2026 FPL amount for the 2026 plan year.
- Employers with plan years beginning July through December 2026 will meet the FPL safe harbor if they offer their full-time employees at least one plan that does not exceed $132.46 ($165.58 for Alaska & $152.38 for Hawaii) for self-only coverage.
While the 2025 FPL can be used to determine the FPL safe harbor for plan years that begin before July 1, 2026, the 2026 FPL must be used for plans that begin on or after July 1, 2026.
Note that Rate of Pay and W-2 safe harbors are calculated the same regardless of plan year start.
Employer Takeaway
With the flexibility to use the FPL in place six months prior to the start of the plan year, the FPL safe harbor amount will depend on plan year start, as described above. As such, ALE employers who rely on the FPL safe harbor to meet the ACA affordability requirements should keep this in mind when developing their plan contribution strategy.
Note for Sequoia One Clients: The Sequoia One plan year begins on July 1, 2026; therefore, Sequoia One clients who are ALEs can comply with the ACA affordability requirements under the FPL safe harbor by offering at least one plan that does not exceed $132.46 ($165.58 for Alaska & $152.38 for Hawaii) for self-only coverage. ACA affordability will be discussed with clients when setting annual contribution strategy.
Additional Resources
- Annual Update of the HHS Poverty Guidelines
- HHS Federal Poverty Level
- Sequoia Foreword: 2026 ACA Affordability Rate Increases to 9.96%
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.•
