Originally posted by Michael Gomes on http://www.healthcareexchange.com/blog/michael-gomes/employer-mandate-and-controlled-groups
The Patient Protection and Affordable Care Act (PPACA) requires large employers – those with 50 or more full-time employees and full-time equivalents – to offer their employees the opportunity to enroll in coverage that is both affordable and provides minimum value. While determining whether an employer is subject to this employer mandate is complicated in its own right, this determination can get even more complex when several employers are commonly owned.
Bundling Multiple Employers
All employees of companies within the same controlled group must be aggregated to determine whether the commonly owned employers are subject to the employer mandate. For purposes of determining common ownership, PPACA adopts the controlled group rules set forth in sections 414(b) and 414(c) of the Internal Revenue Code. The controlled group rules are quite complex and fact-specific. Under those provisions, there are three types of controlled group relationships: (1) parent-subsidiary; (2) brother-sister; and (3) a combination of the two.
What is a Parent-Subsidiary Group?
A parent-subsidiary group exists when:
- One or more chains of corporations are connected through stock ownership with a common parent corporation;
- 80% of the stock of each corporation (except the common parent) is owned by one or more corporations in the group; and
- The parent corporation owns 80% of at least one other corporation.
What is a Brother-Sister Group?
A brother-sister controlled group is a group of two or more corporations in which five or fewer common owners own a controlling interest of each group and have effective control. Two terms are key here – controlling interest and effective control. A controlling interest generally means 80% or more of the stock of each corporation. Effective control is defined as more than 50% of the stock of each corporation, but only to the extent that such stock ownership is identical with respect to such corporations.
What is a Combined Group?
A combined group consists of three or more organizations where (1) each organization is a member of either a parent-subsidiary or brother-sister group, and (2) at least one corporation is the common parent of a parent-subsidiary, and is also a member of a brother-sister group.
Employer Mandate Applicability
When calculating penalties under the employer mandate, the first 30 full-time employees are excluded. Therefore, if a single employer does not offer coverage or offers coverage to less than 95 percent of its full-time employees, and an employee receives a premium tax credit, the employer must pay a penalty of $2,000 for each full-time employee minus the first 30.
For employers that offer coverage for some months but not others during a calendar year, the penalty will be computed separately for each month in which the employer did not offer coverage and at least one full-time employee received a premium tax credit. In such a case, the employer would be liable for a penalty of 1/12th of $2,000 for each full-time employee employed for the month minus the first 30.
If an employer offers coverage to 95 percent or more of its full-time employees, but a full-time employee nonetheless receives a premium tax credit on the basis of the coverage not being affordable or not providing minimum value, the employer must pay a penalty equal to 1/12th of $3,000 for each full-time employee who received a premium tax credit for the month. The amount paid under this scenario cannot exceed the amount the employer would have had to pay if it did not offer coverage – that is, 1/12th of $2,000 for each full-time employee minus the first 30.
However, when multiple employers fall under the same controlled group, this 30 full-time employee exclusion must be proportionally allocated based on each employer’s number of full-time employees. Therefore, it will be important for entities to carefully analyze application of these controlled group rules, both to figure out whether they are subject to the employer mandate and if so, their potential liability.
The take away from the “Control Group” protocol is that many small employers might be bundled into a large group for purposes of PPACA’s employer mandate. Brokers are encouraged to work with their clients to make sure that they are proactively determining whether or not the obligation to offer affordable and provides minimum value coverage or pay a penalty extends to any grouping of companies with related ownership.
The views expressed in this post do not necessarily reflect the official policy, position, or opinions of Shirazi Benefits. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.