While many of us have been crossing our fingers behind our backs, hoping that the Affordable Care Act’s employer reporting and shared responsibility penalties would be repealed, many small businesses have crossed the threshold to applicable large employer (ALE) status as a result of hiring or business ownership changes. A business that averaged 50 or more full-time employees (including full-time equivalent employees) in 2016 is an ALE for reporting and penalty purposes in 2017.
Determining whether your business is an ALE is a simple five-step process: First, for each month in 2016, count the number of employees who were employed to work on average at least thirty hours per week. Count all full-time common law employees (including seasonal employees) who work for all entities treated as part of the same controlled group or affiliated service group. Second, for each month of 2016, add the total number of hours for all other employees not counted in step one and divide each monthly sum by 120 – the result is the number of full-time equivalents for each month. Third, add the results of steps one and two to obtain twelve sums – one for each month of 2016. Fourth, determine the average of the sums obtained in step three by adding them up and dividing by twelve (do not round up). If the result is less than fifty, you’re not an ALE. If the result is fifty or more, there’s another step: you still might not be an ALE if you had more than fifty employees for no more than four months during 2016 and you exceeded fifty in those months because you had seasonal employees.
If your business has crossed the threshold to ALE status, consider your vulnerability to the (nondeductible) employer penalties: If you didn’t offer group health coverage to at least 95% of your full-time employees (and their children) and a full-time employee obtains subsidized “Marketplace” coverage for a given month, the business will be subject to a penalty equal to $188.33 per full-time employee in excess of 30 for that month (Penalty A). Alternatively, if you did offer group health coverage to at least 95% of your full-time employees (and dependents) but a full-time employee declined your coverage and instead obtained subsidized Marketplace coverage for a given month, the business will be subject to a penalty for that month equal to the lesser of the Penalty A amount or $282.50 for each full-time employee who had subsidized Marketplace coverage (Penalty B). An employee can obtain subsidized Marketplace coverage and trigger the employer penalty for a given month if you didn’t offer group health coverage that meets the minimum value and affordability tests.
An ALE that escapes the penalty still is subject to the ACA’s employer reporting requirements. The IRS has devoted a webpage to reporting resources for employers.