These examples are provided to assist you to understand how the provision works and how the payment is determined.
Tax year 2019, the employer is not an educational organization, and was in existence for the entire previous calendar year.
The employer determines applicable large employer (ALE) status by counting full-time employees (and equivalents) for each month of the previous year. If the employer employed an average of at least 50 full-time employees (including full-time equivalent employees), then the employer is an ALE.
This employer employed:
- 48 full-time regular (not seasonal) employees for each month of the year,
- Part-time employees with a total of 147 hours each month of the year, and
- Part-time seasonal employees with 2,581 hours each month January through May. No part-time seasonal employees during the rest of the year.
This employer has an average of 58 full-time equivalent employees during the year and is subject to the Employer Shared Responsibility Provision. The employer will need to offer coverage to its full-time employees (and their dependents) to avoid being subject to the payment under section 4980H(a).
If the employer does not offer coverage or offers coverage that does not provide minimum value or is not affordable to one or more full-time employees, the employer may be liable for one of two payments:
- The payment under section 4980H(a) – if the employer does not offer coverage to at least 95% of the employer's full-time employees (and their dependents).
- The payment under section 4980H(b) – if the does offer coverage to at least 95% of the employer's full-time employees (and their dependents), but at least one full-time employee receives the premium tax credit because the employee did not receive an offer or received an offer that did not provide minimum value or is not affordable to that employee.
With an estimated 48 full-time employees, the payment under section 4980H(a) could be $45,000 for the year. The payment under 4980H(b) could be $45,000 (assuming that all 48 full-time employees receive the premium tax credit). The payment under section 4980H(b) is capped at the amount of potential liability under section 4980H(a).
Because you may not know whether an employee is receiving the premium tax credit, the estimator allows you to enter different numbers of employees for each month to explore different payment scenarios. For example, you may reduce the number of full-time employees reported in the 4980H(b) Compare column by the number of full-time employees who have received offers providing minimum value that are deemed affordable under one of the applicable affordability safe harbors.
Continue with the same facts as in Example 1, but change the entries in the 4980H(a) and (b) "Compare" columns to the figures below.
|Month||4980H(a) Compare||4980H(b) Compare||4980H(a) Payment||4980H(b) Payment|
|58 average||16 average||$81,249 total||$41,873 total|
Employers will be subject to only one payment. If this employer does not offer coverage to at least 95% of its full-time employees (and their dependents), the employer could potentially be liable for the payment under section 4980H(a) in the amount of $81,249. If the employer is not subject to the payment under section 4980H(a), the employer could be liable for a payment under section 4980H(b) of up to $41,873 (assuming that every full-time employee listed in the section 4980H(b) Compare column receives the premium tax credit).
Employee Full-time Status Determination
The following examples focus on the optional Step 4 - Employee Status. They discuss the determination of full-time status under the Monthly Measurement and Look-back Measurement methods.
For an employer who is not an educational employer that was in existence the prior calendar year and whose tax year begins in January, 2016.
The employer is measuring the hours of an employee that is resuming services after an absence. The employee's prior period of employment was for 3 years and the employee was absent for 6 weeks. Because the employer is not an educational employer and the employee was absent for less than 13 weeks, this employee is treated as an ongoing employee.
This employer may choose to measure the employee's hours in one of two ways: by calendar months or by using the weekly rule. This employer uses the weekly rule and specifies that the first day of the calendar month is included in the first week of the weekly periods.
That means the periods the employee's time is measured on begins December 27, 2015 (the Sunday before January 1, 2016). The last day of the month is not included in the periods, unless the last day falls on a Saturday (for example: April 30, 2016 and December 31, 2016 are both Saturdays). Additionally, some periods will have 4 weeks while others have 5.
To count hours for the periods with 4 weeks: if the employee has at least 120 hours of service, the employee is full-time for that month. For periods with 5 weeks: if the employee has at least 150 hours of service, the employee is full-time for that month.
The employer measures on these periods:
- 150 hours for December 27, 2015 - January 30, 2016
- 120 hours for January 31, 2016 - February 27, 2016
- 120 hours for February 28, 2016 - March 26, 2016
- 150 hours for March 27, 2016 - April 30, 2016
- 120 hours for May 1, 2016 - May 28, 2016
- 120 hours for May 29, 2016 - June 25, 2016
- 150 hours for June 26, 2016 - July 30, 2016
- 120 hours for July 31, 2016 - August 27, 2016
- 120 hours for August 28, 2016 - September 24, 2016
- 150 hours for September 25, 2016 - October 29, 2016
- 120 hours for October 30, 2016 - November 26, 2016
- 150 hours for November 27, 2016 - December 31, 2016
If the employee has at least as many hours listed for each period, the employee is a full-time employee for that month and the employer will need to offer the employee coverage to avoid potentially being subject to the payment under section 4980H(a).
For an employer who is not an educational employer and was in existence the prior calendar year.
This employer uses a standard measurement period of 12 months beginning January 1, 2016. The employer does not use payroll periods for the standard measurement method. The employer uses an optional administrative period of 31 days and the stability period is also 12 months.
For an ongoing employee, the employer would measure the hours of service for each month during the standard measurement period of January 1, 2016 – December 31, 2016. If the employer averages at least 30 hours of service during this period, the employer will need to make an offer of coverage by February 1, 2017 – the beginning of the stability period.
This employer hires a new employee on June 7, 2016, that is a variable hour employee (the employer cannot determine at the time of hiring whether this employee will average 30 or more hours of service per week). For this employee, the employer will use an initial measurement period to measure the employee's hours of service. The initial measurement period can begin on any day from the employee's hire date through July 1, 2016. The employer chooses to measure beginning July 1, 2016, and decides that the initial measurement period and the stability period will be 6 months – the initial measurement period is then July 1, 2016 – December 31, 2016.
If this employee averages at least 30 hours of service per week during that period, the employer will need to make an offer of coverage no later than January 9, 2017 – the beginning of the stability period associated with the initial measurement period. The stability period begins on January 9, 2017, because the days between the employee's hire date and the start of the initial measurement period are included in the employer's administrative period (June 7, 2016 – June 30, 2016).