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Employer Aggregation Rules under the ACA

Employer aggregation rules

Companies with a common owner or that are otherwise related under certain rules of section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determining ALE status.  If the combined number of full-time employees and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE and is subject to the employer shared responsibility provisions, even if separately the employer would not be an ALE.

Example – Employers are aggregated to determine ALE status:

  • Corporation X owns 100 percent of all classes of stock of Corporation Y and Corporation Z.
  • Corporation X has no employees at any time in 2018.
  • For every calendar month in 2018, Corporation Y has 40 full-time employees and Corporation Z has 60 full-time employees. Neither Corporation Y nor Corporation Z has any full-time equivalent employees.
  • Corporations X, Y, and Z are considered a controlled group of corporations.
  • Because Corporations X, Y and Z have a combined total of 100 full-time employees for each month during 2018, Corporations X, Y, and Z together are an ALE for 2019.
  • Corporation Y and Z are each an ALE member for 2018.
  • Corporation X is not an ALE member for 2019 because it does not have any employees during 2018.

There is an important distinction for employers to keep in mind regarding these aggregation rules.  Although employers with a common owner or that are otherwise related generally are combined and treated as a single employer for determining whether an employer is an ALE, potential liability under the employer shared responsibility provisions is determined separately for each ALE member.

Also, a special standard applies to government entity employers in the application of the aggregation rules under section 414.  Because section 414 relates to common ownership and ownership isn’t a typical arrangement for government entities, and because specific rules under section 414 of the Code for government entities haven’t yet been developed, government entities may apply a good faith reasonable interpretation of section 414 to determine if they should be aggregated with any other government entities.

See Q&A #s11 and 44 on the employer shared responsibility provisions questions and answers page for more information.

 

Sources:

  • https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer
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