Determining ALE status
Your status as an ALE is determined each calendar year, based on the number of employees working for you. Under the Affordable Care Act, a full-time employee works 30 hours or more per week, and 50 full-time workers qualifies as an ALE.
Part-time workers' hours are combined to determine how many full-time employees they equal. For example:
- Two part-time employees each working 15 hours/week would count as one full-time employee.
- Seasonal employees may also be included if your company has 50 or more employees longer than 120 days in a calendar year and the additional employees are hired seasonally.
"Your ALE status for a tax year depends on the number of employees you had in the previous year," says accountant Martin Schwab of Rochester, Michigan. "If you had 60 full-time or full-time equivalent employees in 2023, you are an ALE for the 2024 tax year."
Employer shared responsibility
Once your business qualifies as an ALE, you're required to offer health insurance to your employees and their dependents that meets a minimum standard, defined by the Obamacare legislation. A company that doesn't offer health insurance to 95% or more of its employees may be required to pay a penalty.
A company may also be liable for the penalty, called the employer shared responsibility payment, if insurance coverage isn't affordable as defined under Obamacare. This may be revealed if at least one employee applies for and receives a Premium Tax Credit to help pay for coverage through an online health care Marketplace. However, the employer shared responsibility payment provision is being introduced in steps, so penalty exemptions may be available.
Defining affordable coverage
Obamacare defines an upper limit of affordability as 9.5% of an employee's annual household income. Since you're not in a position to know an employee's household income, the IRS provides some rules of thumb called "safe harbors," based on information you do have on those working for you. If the health insurance offered by your business complies with one or more of these safe harbors, you're meeting your employer shared responsibility. There are three affordability safe harbors:
- the Form W-2 safe harbor, based on employee wages reported in Box 1
- rate-of-pay safe harbor, based on employee wages at the beginning of a health insurance coverage period
- the federal poverty line safe harbor, where the employee's health insurance contribution doesn't exceed 9.5% of the federal poverty line for a given year
Use of any or all of these safe harbors is optional, but they must be applied consistently across your workforce. If your business offers more than one health insurance option, the affordability measure applies only to the lowest cost option.
Health coverage minimum value
The health care coverage you provide to your employees has to meet Affordable Care Act standards for you to meet your responsibility as an employer. The rough guideline is that a plan covers at least 60% of the total cost of benefits for health care services covered under the plan.
To aid you in determining how your health insurance option compares, the IRS and Department of Health and Human Services provide a minimum insurance value calculator. The calculator is set up as a spreadsheet, where you enter details of your plan, largely using check boxes, showing how your plan stacks up to Obamacare requirements.
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