For a plan year starting January 1, 2026, the federal poverty level safe harbor caps an employee’s monthly contribution for the cheapest self-only minimum-value plan at $129.89. Charge that amount or less, code the 1095-C correctly, and the IRS treats your coverage as affordable under Section 4980H(b), even if a worker’s actual household income would say otherwise.
The 2026 Calculation
Three inputs drive the number:
- The federal poverty guideline in effect six months before the plan year starts. For a January 1, 2026 plan year, that is the 2025 guideline of $15,650 for a single person in the 48 contiguous states and D.C.
- The IRS affordability percentage for plan years beginning in 2026, which is 9.96%.1Internal Revenue Service. Revenue Procedure 2025-25
- The employee’s required monthly contribution for the lowest-cost self-only plan you offer that meets minimum value (covers at least 60% of expected costs).2Internal Revenue Service. Minimum Value and Affordability
Multiply the guideline by the percentage, then divide by 12:
$15,650 × 0.0996 = $1,558.74 ÷ 12 = $129.89 per month
That single ceiling applies to every full-time employee, regardless of wages or hours. A worker earning $80,000 and one earning $25,000 both get tested against $129.89.
Non-calendar-year plans use whichever poverty guideline was published six months before their start date. If your plan year begins July 1, 2026, look to the guideline in effect as of January 1, 2026.
Is the FPL Safe Harbor the Right Choice
You have three affordability safe harbors, and you can apply different ones to different employees in the same year.3Internal Revenue Service. Minimum Value and Affordability – Section: Affordability The FPL version produces the lowest permissible employee contribution of the three, which means the employer picks up a larger share of the premium. What you get in exchange is administrative simplicity: one flat ceiling, no per-employee math, and a straightforward code on the 1095-C.
The FPL safe harbor tends to make financial sense when a large portion of the workforce is at or near minimum wage. The rate-of-pay safe harbor, which multiplies each hourly employee’s rate by 130 hours and applies the 9.96% threshold, allows a higher employee charge as wages rise; it works well when the lowest-paid employees earn well above minimum wage, but breaks down for tipped, commissioned, or piecemeal workers. The W-2 safe harbor uses Box 1 wages, but because final W-2 amounts aren’t known until December, you are estimating all year, and it must be applied for the full calendar year for each employee.
What the Safe Harbor Protects You From
The FPL safe harbor is a defense against the Section 4980H(b) penalty. That penalty applies when an applicable large employer offers coverage, but a full-time employee receives a premium tax credit through the Marketplace because the employer’s coverage was unaffordable or failed minimum value. For 2026, the amount is $5,010 for each employee who actually receives the subsidy.4Internal Revenue Service. Revenue Procedure 2025-26 Total 4980H(b) exposure is capped at what the employer would have owed under 4980H(a).5Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act
Meeting the safe harbor is a guaranteed defense, not a best guess. The IRS treats the coverage as affordable for 4980H(b) purposes regardless of what the employee’s household actually earned.
One boundary matters. The FPL safe harbor does nothing to protect against the Section 4980H(a) penalty, which is triggered by failing to offer minimum essential coverage to at least 95% of full-time employees and their dependents. For 2026, the (a) penalty runs $3,340 per full-time employee for the year (calculated monthly at $278.33), minus the first 30 employees.4Internal Revenue Service. Revenue Procedure 2025-26 Affordability isn’t the issue there; the offer itself is.
Reporting It on Form 1095-C
Two lines on each employee’s 1095-C carry the safe harbor information.
On Line 14, enter the code describing your offer of coverage for each month. For most ALEs offering minimum-value coverage to the employee and dependents, that is Code 1E, or another applicable 1-series code that matches the offer.6Internal Revenue Service. Instructions for Forms 1094-C and 1095-C
On Line 16, enter Code 2G for each month you relied on the FPL safe harbor. Code 2G specifically tells the IRS you tested affordability against the federal poverty line.6Internal Revenue Service. Instructions for Forms 1094-C and 1095-C
This is where most penalty notices originate. Without 2G on Line 16, the IRS has no way to know you used a safe harbor at all. Its automated systems will then compare the employee’s premium to their tax-return income, and if that comparison fails, you get a proposed assessment even though your math was correct. Check that 2G appears in every month you relied on the FPL benchmark.
If an employee’s required contribution changed mid-year, confirm the ceiling was met for each month independently. You can mix safe harbors across months for the same employee, but every month must pass whichever test you applied.
If You Get a Letter 226-J
Letter 226-J is the initial IRS notice proposing an employer shared responsibility payment.7Internal Revenue Service. Understanding Your Letter 226-J It lists a response deadline, the employees flagged, and the proposed penalty. Many of these notices trace back to a missing 2G or a mis-entered Line 16, not to coverage that was genuinely unaffordable, so pulling the right records usually resolves the assessment.
Keep copies of your filed Forms 1094-C and 1095-C, along with the underlying safe harbor calculations, the applicable poverty guideline, and plan documents, for at least three years from the filing due date.6Internal Revenue Service. Instructions for Forms 1094-C and 1095-C Records for the 2025 tax year, filed in early 2026, should be held through at least March 2029.
If you spot an error in your own filing before or after a notice arrives, prepare a corrected Form 1095-C with the “CORRECTED” box checked, submit it with your Form 1094-C, and furnish a corrected copy to the employee.6Internal Revenue Service. Instructions for Forms 1094-C and 1095-C A wrong or missing Line 16 code is exactly the kind of mistake worth fixing quickly.