Issue

The Applicable Large Employer (ALE) status under the Affordable Care Act is something that needs to be considered on an annual basis – and it can sneak up on an institution.  Remember you “qualify” in one year to be an ALE in the next year.  In Capin Crouse’s 2016 “Tax Trends” survey 58.29% of respondents said they were an “ALE”.

Situation

Marathon Bible College (MBC) is growing.  MBC is a private college that is exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  Their CFO called us to inquire about at what point MBC might “cross the line” and become an ALE.  This would mean that MBC would then be required to operate and report as a “large employer” under the ACA and subject to the employer shared responsibility provision (ESRP) rules.

We are enthused to tell the CFO about a new tool just posted by the Taxpayer Advocate’s office.  The “Employer Shared Responsibility Provision Estimator” is a step-by-step approach to determining ALE status and estimating what your annual payment requirements might be for a given year.  The website contains a valuable list of Resources and a great list of Key Terms.  It can be found here.

There is a caution that boldly states, “Important: This estimator is designed only for 2016 and forward.”

Rules

From the Estimator Webpage Introduction:

The Taxpayer Advocate Service developed the Employer Shared Responsibility Provision (ESRP) Estimator to help employers understand how the provision works and learn how the provision may apply to them.

The provision applies to applicable large employers – generally, that means employers that had an average of at least 50 full-time employees (including full-time equivalent employees – FTEs), during the preceding calendar year.

If you are an employer, you can use the estimator to determine:

  • The number of your full-time employees, including FTEs,
  • Whether you might be an applicable large employer, and
  • If you are an applicable large employer, an estimate of the maximum amount of the potential liability for the employer shared responsibility payment that could apply to you based on the number of full-time employees that you report if you fail to offer coverage to your full-time employees.

From the “Key Terms” list on the Webpage:

“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.”

“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.”

Our Commentary:  You will need to calculate your number of “Full-time employees” and the number of hours of “Part-time” (all other) employees by month in order to provide the necessary data for the calculator.  For help with this see “Tax Tips” from December 16, 2015 and refer to the “Key Terms” list on the website.  In addition, we found the input cells to be somewhat difficult to navigate.  Overall, however, this can be a valuable tool for the Christian College arena.

 

Bottom Line

There are many factors that come into play with regard to ALE status.  Your institution should be careful and deliberate about monitoring this as penalties for failure to report may be excessive.  It would be wise to consult with a qualified tax advisor on these issues.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.