Affordable Care Act

ACA Fact Sheet–Controlled Group Overview

Recent Insight

The Affordable Care Act includes the employer-shared responsibility provisions under Section 4980H of the Internal Revenue Code (IRC), which assesses a tax penalty to applicable large employers (ALEs) who fail to offer affordable and minimum value coverage to 95% of its full-time employees. Penalties are only assessed if one or more full-time employees obtain subsidized coverage through a health care Marketplace.

An ALE employs a monthly average of at least 50 full-time equivalent (FTE) employees during the preceding calendar year. IRC Section 4980H also includes a provision under which companies that have a common owner or are otherwise generally related, referred to as a “controlled group,” must be combined for purposes of determining whether they collectively employ at least 50 FTEs.1 If the combined total meets the 50-FTE threshold, then each separate company will be considered an ALE subject to the ACA’s employer-shared responsibility provisions, even those companies that individually do not employ enough employees to meet the FTE threshold on their own.

If your company is commonly owned with other entities, you should first determine if your company is part of a controlled group. Note that a controlled group may include TriNet clients as well as companies that do not use TriNet services.

TriNet strongly recommends that you consult with an attorney or tax advisor to determine if your company is part of a controlled group. Here are some guidelines for your general reference.

Primary Controlled Group Types

1. Parent-subsidiary controlled group. When one or more companies are connected through stock ownership with a common parent corporation that meet all the following:

  • 80% of the stock of each company (except the common parent) is owned by one or more corporations in the group
  • The common parent company owns 80% of at least one other company

2. Brother-sister controlled group. A group of two or more companies where five or fewer common owners (including individuals, estates or trusts) own directly or indirectly2 (through the attribution rules under the Code) a controlling interest of each group and have effective control:

  • Controlling interest—at least 80% of each company (but only if such common owner owns stock in each company)
  • Effective control—more than 50% of the stock of each company, taking into consideration the ownership only to the extent such ownership is identical with respect to each company

For example, two of the shareholders of Company A also own a percentage of Company B:

Shareholder Company A Company B Identical Ownership
Mary 40% 40% 40%
Bob 45% 50% 45%
Jane 0% 10% 0%
John 15% 0% 0%
      85%

Company A and Company B are a brother-sister controlled group because 1) five or fewer shareholders own more than 80% of each corporation (85% of Company A and 90% of Company B), and 2) the same five or fewer shareholders own more than 50% of both corporations, taking into account identical ownership.

3. Combined group. A group of three or more corporations that meet all of the following:

  • Each company is a member of either a parent-subsidiary or brother-sister group
  • At least one company is the common parent of a parent-subsidiary and is also a member of a brother-sister group

Note that employers who file as qualified separate lines of business (QSLOBs) for other employee benefits purposes (such as non-discrimination testing) cannot rely on the QSLOB rules for purposes of the ACA employer shared responsibility provisions.

This general summary overview of the controlled group rules is intended for informational purposes only, and is not and shall not be construed as providing legal, tax or accounting advice. The controlled group rules are complex, and clients are advised to consult with a tax or legal professional for a determination of their control group status (if applicable).

1 All entities under Code section 414(b), (c), (m) or (o) are treated as a single employer for purposes of calculating whether each entity is an ALE.

2 Attribution is the concept of treating a person as owning an interest in a business that is not actually owned by that person. When there is a brother-sister controlled group, the various attribution rules apply with certain family and business relationships under certain circumstances, e.g., spouse, child, parent and grandparent.

TriNet does not provide legal, tax or accounting advice.

Related Articles

Is the ACA dead or alive? And what does this mean for the businesses caught in the crosshairs?
In order to avoid potential penalties, it is important for applicable large employers (ALEs) to understand how to determine which employees are considered “full-time” under the...
Is your company facing a potential employer shared responsibility tax penalty under the Affordable Care Act (ACA)? The ACA requires ALEs to offer health coverage to at least 95%...