The W-2 safe harbor is one of three IRS-approved methods that applicable large employers (ALEs) can use to determine whether their health coverage is “affordable” under the ACA’s employer mandate.
Under this method, the employer looks at the employee’s Box 1 wages on their W-2 form and ensures the employee’s required contribution for self-only coverage does not exceed the annual affordability percentage (e.g., 9.02% for 2025) of those wages.
Example:
If an employee’s Box 1 W-2 wages for the year are $40,000, then the maximum affordable premium they can be required to pay is:
$40,000 Ă— 9.02% = $3,608 annually, or $300.67 per month
This method is straightforward but requires that the employer:
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Use W-2 income from that calendar year
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Calculate affordability after the end of the year, since wages aren’t finalized until then
Because it’s based on actual income, it may not be as predictable as other safe harbors, but it’s often used when employers want a more accurate affordability check for variable-income employees.