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Examples

These examples are provided to assist you to understand how the provision works and how the payment is determined.

Example One

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).

Example Two

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.

Month4980H(a) Compare4980H(b) Compare4980H(a) Payment4980H(b) Payment
58 average16 average$81,249 total$41,873 total
January603$6,250$937
February735$8,958$1,562
March459$3,125$2,812
April30100
May540$5,0000
June0000
July15050$25,000$15,625
August5612$5,416$3,750
September452$3,125$625
October9090$12,500$12,500
November121200
December8713$11,875$4,062

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.

Example Three - Monthly Measurement Method

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).

Example Four - Look-back Measurement Method

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).

KEY TERMS

Administrative Period

Under the look-back measurement method, an optional period you select that is no longer than 90 days that begins immediately after the end of a measurement period and ends immediately before the start of the associated stability period.

The administrative period also includes the period between a new employee's start date and the beginning of the initial measurement period, if the initial measurement period does not begin on the employee's start date.

Affordable Coverage

Generally, coverage is affordable for an employee if the employee's required contribution of the annual premium for self-only coverage does not exceed 9.5% (as adjusted for inflation) of the employee's household income for the year. For more information, see Minimum Value and Affordability on IRS.gov.

An offer of coverage is also deemed affordable for purposes of the provision if the offer satisfies one of the affordability safe harbors listed in the ESRP final regulations. For additional details about the affordability safe harbors, see Q&A on the ESRP at IRS.gov.

Aggregated Group

A group of commonly owned or otherwise related or affiliated employers, which must combine their employees to determine whether they together constitute an applicable large employer. All employers that are treated as a single employer under IRC section 414(b), (c), (m), or (o) are treated as members of an aggregated group.

Applicable Large Employer Member

An employer that, together with one or more other employers, is a member of an aggregated group that is an applicable large employer.

For example, parent corporation A had 40 full-time employees in the preceding calendar year; subsidiary B, which is wholly owned by A, had 10 full-time employees in the preceding calendar year; and subsidiary C, which is also wholly owned by A, had 5 full-time employees in the preceding calendar year. Together, employers A, B, and C form an aggregated group that is an applicable large employer because the group employed on average 55 full-time employees in the preceding year. A, B, and C is each an ALE member, and each is therefore separately subject to the requirements of the employer shared responsibility provision.

Applicable Large Employer (ALE)

With respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. Employees of all members of an aggregated group are combined together for purposes of determining if the group is an applicable large employer, and if each member of the aggregated group is therefore an ALE member.

If you, as an employer, were not in existence throughout the preceding calendar year, you would be an applicable large employer for the current calendar year if you reasonably expect to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year and you actually employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the calendar year.

Employee Resuming Service

An employee resuming services is an employee with a prior period of employment (such as a rehire or after a period of leave) and may be treated as either a new or ongoing employee according to the rehire and continuing employee rules.

Full-Time Employee

Generally, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week.

For this purpose: 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, and this 130 hours of service equivalency applies for both the look-back measurement method and the monthly measurement method for determining full-time employee status.

Full-Time Equivalent Employee (FTE)

A combination of employees, each of whom individually is not treated as a full-time employee because he or she is not employed on average at least 30 hours of service per week with an employer, who, in combination, are counted as the equivalent of a full-time employee solely for the purposes of determining whether the employer is an applicable large employer.

The number of full-time equivalent employees for each calendar month is determined by calculating the aggregate number of hours of service for that calendar month for employees who were not full-time employees (but not more than 120 hours of service for any employee) and dividing that number by 120.

Hours of Service

The hours for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

Certain hours are excluded from hours of service; for more information, see the ESRP Regulations.

Initial Measurement Period

Under the look-back measurement method, a period of at least three but not more than 12 consecutive months that is used to determine the full-time status of your new employees. A new employee that averages at least 30 hours of service per week during the initial measurement period is treated as a full-time employee through the end of the associated stability period that follows.

Look-Back Measurement Method

One of the two methods for determining whether an employee is a full-time employee (the other is the monthly measurement method). Under the look-back measurement method for ongoing employees, each ongoing employee's full-time employee status during a stability period is determined based on hours worked during the associated measurement period.

If the employee was employed on average at least 30 hours of service per week during the associated measurement period, then the employee is a full-time employee during the subsequent stability period, regardless of the employee's number of hours of service during the stability period, so long as he or she remains an employee.

Minimum Essential Coverage

For the employer shared responsibility provision, minimum essential coverage has the same meaning as in the individual shared responsibility provision.

Minimum essential coverage means coverage under a government-sponsored program, an eligible employer-sponsored plan, a plan in the individual market, a grandfathered health plan, or other health benefits coverage.

See the Individual Shared Responsibility Provision regulations for more information.

Minimum Value

An eligible employer-sponsored plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to the employee under the plan (as determined under guidance issued by the Secretary of Health and Human Services) is at least 60 percent. For more information, see Minimum Value and Affordability on IRS.gov.

Monthly Measurement Method

One of the two methods for determining whether an employee is a full-time employee (the other is the look-back measurement method). Under the monthly measurement method, each employee's status as a full-time employee is determined by counting the employee's hours of service for each calendar month.

New Employee

Under the look-back measurement method, a new employee is an employee who has been employed for less than one complete standard measurement period.

Ongoing Employee

Under the look-back measurement method, an ongoing employee is an employee who has been employed for at least one complete standard measurement period.

Seasonal Employee

A seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less.

This term is used for determining the full-time status of employees if the employer is using the look-back measurement method.

Seasonal Worker

A seasonal worker means a worker who performs labor or services on a seasonal basis as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1), and retail workers employed exclusively during holiday seasons.

This term is used in whether the seasonal worker exception applies for determining your applicable large employer status.

Section 4980H(a) Applicable Payment Amount

With respect to any calendar month, 1/12 of $2,000, as adjusted for inflation. The adjusted amount is $2,160 for 2016 and $2,260 for 2017.

If this liability is owed under section 4980H(a) for a calendar month, the amount of the payment is calculated by multiplying the section 4980H(a) applicable payment amount by the total number of full-time employees that you employ in that calendar month, with certain adjustments (for instance, the number of full-time employees is generally reduced by 30, and certain full-time employees in a limited non-assessment period may also be excluded).

Section 4980H(b) Applicable Payment Amount

With respect to any calendar month, 1/12 of $3,000, as adjusted for inflation. The adjusted amount is $3,240 for 2016 and $3,390 for 2017.

If liability is owed under section 4980H(a) for a calendar month, the amount of the payment is calculated by multiplying the section 4980H(b) applicable payment amount by the number of full-time employees who receive the premium tax credit in that month, with certain adjustments (for example, full-time employees in a limited non-assessment period may be excluded).

Stability Period

Under the look-back measurement method, a period you select that immediately follows and is associated with a standard measurement period or an initial measurement period (and if elected, the administrative period associated with that standard measurement period or initial measurement period).

The full-time status of an employee during the stability period is determined based on the employee's average hours of service in the associated measurement period.

Standard Measurement Period

Under the look-back measurement method, the standard measurement period is a period of at least three but not more than 12 consecutive months that is used to determine the full-time status of your employees. Each employee who averages at least 30 hours of service per week during the standard measurement period is treated as a full-time employee for each month during the associated stability period that follows.

Alternatively, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week. Thus, an employee that averages at least 130 hours of service per month in the standard measurement period is treated as a full-time employee during the associated stability period that follows.

Variable Hour Employee

Under the look-back measurement method, if an employer cannot determine, based on the facts and circumstances at an employee’s start date, whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employee’s hours are variable or otherwise uncertain, the employee is a variable hour employee.