ALE Determination

[Chaz]

I understand that the monthly threshold hours that an employee must work is fewer that 130  for purposes of an ALE avoiding the shared responsibility penalty for not offering that employee coverage.

But what is the monthly threshold for full-time status to determine whether an employer is an ALE?  120 or 130?

IRS Publication 5208 states that the threshold is 130 hours:

"Under the ACA, a full-time employee for any calendar month is one who has, on average, at least 30 hours of service per week, or at least 130 hours per calendar month."

https://www.irs.gov/pub/irs-pdf/p5208.pdf.

But, when asked this specific question in the 2014 JCEB Q/As, an IRS representative stated that the threshold was 120:

"The Service representative disagrees with the notion of using either the 130-hour monthly equivalency or 30 hours per week for the applicable large employer determination.  For the applicable large employer status, an employer does not use 130 hours.  The statute requires employers to use 120 hours.  So, for purposes of counting employees for purposes of the large employer determination, an employer counts how many employees worked at least 120 hours in a month.  Each employee who works at least 120 hours counts as one full-time employee.  It does not matter if the employee worked 121 hours or 250 hours that month, the employee counts as one employee."

https://www.americanbar.org/content/dam/aba/events/employee_benefits/technicalsessions/2014_irs_qa.pdf

(Note that my reading of the statute indicates that it does not say 120 hours per month; it says 30 hours per week.)

I recognize that Publication 5208 is more authoritative than an IRS representative speaking for himself, but can anyone point to anything that specifically states the rule?  Perhaps the IRS's thinking changed?

Thanks!

 

 

[Peter Gulia]

Nothing the Treasury department or its Internal Revenue Service has published says taxpayers may rely on an IRS Publication. And a court has held taxpayers may not rely. Adler v. Commissioner of Internal Revenue, 330 F.2d 91, 93, 64-1 U.S. Tax Cas. (CCH) ¶ 9388 (9th Cir. Apr. 2, 1964) (Responding to a taxpayer’s argument that he relied on a statement in the IRS’s Publication 17, the court observed: “Nor can any interpretation by taxpayers of the language used in government pamphlets act as an estoppel against the government, nor change the meaning of taxing statutes[.]”).

Further, an IRS Publication is not a source one may use to form a substantial-authority interpretation. See 26 C.F.R. § 1.6662-4(d)(3)(iii) https://www.ecfr.gov/current/title-26/part-1/section-1.6662-4#p-1.6662-4(d)(3)(iii).

Although not the statute, a taxpayer or practitioner might consider 26 C.F.R. § 54.4980H-2(c)(2) https://www.ecfr.gov/current/title-26/part-54/section-54.4980H-2#p-54.4980H-2(c)(2). “The number of FTEs for each calendar month in the preceding calendar year 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. In determining the number of FTEs for each calendar month, fractions are taken into account; an employer may round the number of FTEs for each calendar month to the nearest one hundredth.”

This is not advice to anyone.
 

[Chaz]

Hi Peter,

Thanks.  You have accurately cited the rule for calculating FTEs for non-full time employees (aggregate the hours and divide by 130) but that isn't the same for determining the number of employees who work full-time (and who are not included in the FTE calculation. 

Your point about relying on an IRS publication is well-taken but it does say what it says.

[Peter Gulia]

Yes, I wasn't seeking an answer to your question, only one of several bits of information a practitioner might consider in developing one's reasoning toward an interpretation.

[Brian Gilmore]

Here's why it's confusing--

1. To determine ALE status, the threshold is 120 hours of service for full-time or full-time equivalent status.
2. To determine whether an employee of an ALE is full-time for purposes of §4980H ACA employer mandate penalty liability, the 30 hours/week monthly equivalency threshold is 130 hours of service (under the monthly measurement method or look-back measurement method).

It's not really worth trying to understand the why--but those are clearly the rules.  So use 120 when determining ALE status.  Once they're an ALE, you forget about 120 and only use 130.

Here's the cites--

Treas. Reg. §54.4980H-2:

(c) Full-time equivalent employees (FTEs) —(1) In general. In determining whether an employer is an applicable large employer, the number of FTEs it employed during the preceding calendar year is taken into account. All employees (including seasonal workers) who were not employed on average at least 30 hours of service per week for a calendar month in the preceding calendar year are included in calculating the employer's FTEs for that calendar month.

(2) Calculating the number of FTEs. The number of FTEs for each calendar month in the preceding calendar year 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. In determining the number of FTEs for each calendar month, fractions are taken into account; an employer may round the number of FTEs for each calendar month to the nearest one hundredth.

Treas. Reg. §54.4980H-1(a):

(21) Full-time employee —(i) In general. The term full-time employee means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer. For rules on the determination of whether an employee is a full-time employee, including a description of the look-back measurement method and the monthly measurement method, see § 54.4980H-3. The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H and not for the purpose of determining status as an applicable large employer under § 54.4980H-2.

(ii) Monthly equivalency. Except as otherwise provided in paragraph (a)(21)(iii) of this section, 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 monthly equivalency applies for both the look-back measurement method and the monthly measurement method for determining full-time employee status.

 

Here's an overview on how to perform the calculation:

2024 Newfront ACA Employer Mandate & ACA Reporting Guide

[Chaz]

Quote

 

Thanks for this.  You set forth what has been my understanding all along.  Maybe I am missing something, though, because the regs you cite are either with respect to calculating FTEs or for determining whether an ALE needs to offer coverage to an individual and don't discuss the threshold for full-time employees who are not considered in calculating FTEs.

Here's a fuller excerpt from Publication 5208:

Steps to determine your status as an ALE

1. Determine how many full-time employees you had each month of the prior calendar year. Under the ACA, a full-time employee for any calendar month is one who has, on average, at least 30 hours of service per week, or at least 130 hours per calendar month. There are exceptions for seasonal workers and employees with medical coverage under TRICARE or the Department of Veterans Affairs.

2. Determine how many full-time equivalent employees you had each month of the prior calendar year. To do this, combine the number of hours of service of all non-full-time employees for the month and divide that total by 120. Make sure you do not include more than 120 hours of service per employee. The same exceptions above for seasonal workers and workers with coverage under TRICARE or the Department of Veterans Affairs apply when determining the number of full-time equivalent employees.

Peter and you accurately describe #2 above but not #1(?) 

Is Publication 5208 incorrect or am I missing something?

 

[Brian Gilmore]

Interesting, I see your point now.  The IRS appears to do the same thing here: https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer

That one is a mystery to me.  It doesn't make sense that the ALE status FTE determination would be based at 120 if the full-time definition for the same purpose wasn't also based on the same 120 threshold.  On top of the basic confusion/complexity of the dual thresholds for the same determination, you would also have a weird situation for 120-130 hour employees where they would seem to be counted as a non-full-time employee but greater than 1 FTE.  The ABA IRS response you quoted is the way I have always understood it to work.

[Peter Gulia]

Consider whether the 130 and 120 measures are truly irreconcilable. If an employee works fewer than 130 hours yet more than 120 hours, Treasury’s rule tells an employer to count no more than 120 of those hours, divide by 120, and count one full-time-equivalent employee.

The Treasury’s explanation of the rulemaking suggests some possibility that a choice to use 120 hours might relate in part to information-reporting and other administration needs, with a recognition that some months have as few as 28 days. https://www.govinfo.gov/content/pkg/FR-2014-02-12/pdf/2014-03082.pdf.

Consider that on this point the Treasury regulations might not have been made under Congress’s delegation. If so, a Federal court need not defer to the Treasury’s interpretation.

Yet, an employer that takes a tax-reporting position or a tax-return position (including deciding not to file an excise tax return) that does not follow the regulations would want a lawyer’s or other IRS-recognized practitioner’s carefully written advice to show good faith and reasonable cause for the positions taken.

This is not advice to anyone.