Designated Governmental Entity (DGE)
A Designated Governmental Entity (DGE) will be part of or related to a federal or state government agency or any Indian tribal government.
What is a Designated Governmental Entity?
As a federal or state government agency or Indian tribal government, a Designated Governmental Entity (DGE) will have slightly different reporting requirements under the ACA (Affordable Care Act) employer mandate. Most of the time, a designated governmental entity will not owe taxes and typically gives and receives charitable grants. However, it is important to understand that these entities differ from a 501(c)(3) charitable organization — they are not considered private businesses, and they are not a charity. Some examples of various types of government entities include:
- State housing finance agencies
- Public housing authorities
- State universities
- School districts
- Irrigation districts
- Fire control districts
- Elementary districts
A designated governmental entity could be any number of types of businesses working on behalf of a government agency. For unemployment insurance tax purposes, entities such as these can opt to make payments instead of contributions, or be experience rated, through the Unemployment Insurance Bureau.
What it takes to qualify as a DGE
To qualify, DGEs who want to be experience-rated entities will typically need to:
- File quarterly wage reports with unemployment insurance and report the total wages for all employees
- Pay the administrative tax fund (ATF) equal to 0.09% of the total wages paid per quarter
- Pay contributions tax on the total wages paid each quarter of the fiscal year
According to the IRS, the Governmental Unit must ensure that among the multiple Forms 1094-C filed by or on behalf of the Governmental Unit, one is designated as the Authoritative Transmittal and reports aggregate employer-level data for the Governmental Unit, as required in Parts II, III, and IV of Form 1094-C.
Why are Designated Governmental Entities important to small businesses?
Consider a scenario where a county is an Applicable Large Employer (ALE) — meaning it has 50 or more full-time or full-time equivalent (FTE) employees — and it also includes other ALE members. This might consist of the:
- School district
- Police district
- Fire and rescue departments
The same basics apply to other levels of government, such as local or state government offices and their designated governmental entities. For example, a school district might designate the state to report on behalf of teachers and report on the rest of the full-time employees. In that case, the state or the school district will need to file an authoritative transmittal reporting all the employer-level data for the school district’s full-time employees.
ALE leaders must know how to accurately complete all employee reporting, which will often differ from standard ACA requirements. DGEs can also make sales-tax-exempt purchases on behalf of the governmental body. The DGEs can be a designated agent of a:
- State government
- Agency
- Board
- Commission
This arrangement is often used with contractors for specific construction projects done explicitly for the government. These contractors can only make tax-exempt purchases for a particular project.
What is the history of Designated Governmental Entities?
Designated governmental entities have been around for almost as long as governments themselves. The reason for the designation is almost exclusively tax benefits. This benefit applies either to:
- How the DGE reports them
- For making tax-exempt purchases
Summary
A designated governmental entity is often a business or agency that is part of or related to a governmental agency. These DGEs file taxes for another governmental unit and complete a wide range of functions through various parts of the government.
