Short answer: Take the monthly premium for the lowest-cost silver plan for self-only coverage in the employee’s home rating area, subtract the monthly self-only allowance, and compare what is left with one-twelfth of household income times the required contribution percentage: 9.96% for 2026 and 10.22% for 2027.
The test in 26 CFR 1.36B-2(c)(5):
- Use the lowest-cost silver plan (not second-lowest) for self-only coverage, at the employee’s age, in the rating area where the employee lives, at the non-tobacco rate.
- Subtract the monthly self-only ICHRA (CHOICE Arrangement) amount, even if the employee has family coverage. Carryover from prior years does not count.
- The offer is affordable if the remainder is no more than household income times the percentage, divided by 12.
Example for 2026: lowest-cost silver premium $500 per month, allowance $300 per month, remainder $200 per month. Household income $36,000 times 9.96% is $3,585.60, or $298.80 per month. $200 is less than $298.80, so the offer is affordable and the employee cannot get a premium tax credit.
If the offer is unaffordable, the employee must affirmatively opt out to stay eligible for a credit; simply not using the HRA is not an opt-out. An applicable large employer runs a separate employer mandate test, which may use safe harbors such as the employee’s worksite.