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The IRS moved the affordability goalposts again — and this year the shift is significant. For plan years beginning in 2026, the ACA affordability threshold increased to 9.96%, up from 9.02% in 2025. That's the largest single-year jump in recent years, and it creates a specific set of problems for PEO administrators managing ALE compliance across multiple client groups.
Here's what you need to work through before renewal season locks in.
Under the ACA employer mandate, Applicable Large Employers must offer coverage where the employee-only premium doesn't exceed a set percentage of household income. At 9.96%, a worker earning $40,000 annually can now be required to pay up to $332/month for self-only coverage before it's considered "unaffordable" — up from $301/month at the 9.02% threshold.
That sounds like breathing room. For PEOs, it creates two distinct problems.
Problem one: clients who held contributions flat. If a client didn't recalibrate their employee contribution amount when the threshold changed, they may have passed inadvertent cost savings to employees — fine for employee relations, but a documentation gap that needs to be closed. Plan documents, SPDs, and 1095-C coding should reflect the deliberate contribution decision, not just a default carry-forward.
Problem two: clients who tried to capture the full new ceiling. Any client that increased employee contributions to the new 9.96% limit without running the safe harbor calculation correctly — across every wage band, every safe harbor method in use, and every funding arrangement you administer — is carrying exposure they probably don't know about. The math isn't forgiving when headcounts fluctuate mid-year.
The employer mandate penalties indexed up alongside the threshold:
For a PEO administering a client with 200 full-time employees, a single missed §4980H(b) finding can run into the hundreds of thousands. Multiply that across a book of business and the stakes are clear.
Standard ACA compliance guidance is written for single employers. PEOs live in a more complicated structure.
ALE status aggregation. Under the ACA, related entities are aggregated to determine ALE status. For PEOs operating under a co-employment model, the question of which entity counts toward which threshold — and which safe harbor calculations apply — requires careful documentation at the client level. If a client is close to the 50-FTE threshold, a handful of new hires mid-year can change their ALE status retroactively for reporting purposes.
Safe harbor selection consistency. The IRS requires safe harbors to be applied uniformly and consistently across all employees in a given category. PEOs managing multiple clients with different payroll structures — hourly, salaried, variable hour — need to confirm that the safe harbor method elected for each client group is documented, consistently applied, and hasn't drifted during plan year.
1095-C accuracy at scale. Every client's Forms 1095-C need to reflect the correct affordability codes under the new 9.96% threshold. With electronic filing deadlines in the rearview (March 31, 2026 for the 2025 tax year), the 2026 tracking cycle is already underway. Now is the time to confirm your payroll and benefits systems are using the updated threshold — not the 9.02% figure that was correct last year.
Before Q3 renewal conversations begin, work through this checklist for every client group in your book:
The 9.96% threshold gives employers slightly more room than they had in 2025. But "more room" is only useful if it's been calculated correctly, documented deliberately, and reflected accurately in plan filings. Clients who haven't had this conversation with their PEO yet are carrying compliance risk they don't know about — and that gap is your opportunity to demonstrate exactly the kind of proactive oversight they're paying you for.
