Identifying full-time employees who change jobs within an employer group

By Alistair M. Nevius

The IRS recently issued guidance under the Patient Protection and Affordable Care Act, P.L. 111-148, on how to measure the lookback period for an employee under the lookback measurement method when the measurement period applicable to the employee changes. The lookback measurement method is used to determine whether an employee is a full-time employee for purposes of the large-employer health coverage shared-responsibility penalty under Sec. 4980H. A change in the measurement period might occur when an employee transfers within the same applicable large employer (ALE) from a position to which one measurement period applies to a position to which a different measurement period applies. It may also occur if the ALE member modifies the measurement method applicable to employees within a permissible employee category (e.g., hourly employees). Notice 2014-49 contains a proposed approach for the application of the lookback measurement method in these situations.

Under Sec. 4980H, an applicable large employer is subject to a penalty if its employer-sponsored health coverage does not provide “minimum essential coverage” or is unaffordable relative to the employee’s household income and at least one full-time employee has been certified as having enrolled in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee. An employer is an “applicable large employer” for a calendar year if, during the preceding calendar year, it employed on average at least 50 full-time employees. Compliance with these rules requires employers to be able to identify full-time employees. Final regulations issued in February 2014 (T.D. 9655) dealt with the issue of identifying full-time employees, but did not address situations in which an employee transfers between positions to which different lookback measurement periods apply. The regulations also did not discuss the effect of an employer’s changing the measurement method for a category of employees. Notice 2014-49 addresses these issues.

Under the proposed rule, in general, if an employee is in the stability or administrative period (i.e., the employee has worked a full standard or initial measuring period) and thus his or her full- or part-time status for the first position has been determined as of the date of transfer, the employee retains his or her status through the end of the associated stability period. For an employee who is not in a stability period or administrative period at the time of transfer, the employee’s status is determined using the measurement period that applies to the second position, but hours of service in the first position are included.

Until further guidance is issued (and at least through the end of calendar year 2016), employers can rely on Notice 2014-49.

For a detailed discussion of the issues in this area, see “IRS Issues Additional PPACA Guidance on Identifying Full-Time Employees,” by William P. O’Malley, CPA, J.D., in the April 2015 issue of The Tax Adviser.

Alistair M. Nevius, editor-in-chief, The Tax Adviser

The Tax Adviser is the AICPA’s monthly journal of tax planning, trends, and techniques. AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year. Call 800-513-3037 or email for a subscription to the magazine or to become a member of the Tax Section.


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