8858 / How does an employer determine whether it is an applicable large employer and subject to the ACA employer shared responsibility provision?

Only employers who are “applicable large employers” are subject to the ACA employer shared responsibility provisions. An applicable large employer is one with at least 50 full-time equivalent employees (FTEs). These employers must offer health insurance coverage meeting specified requirements or pay a $2,000 per full-time worker penalty (after its first 30 employees) if any of its FTEs receive a federal premium subsidy through a state health insurance exchange (which would occur because the employee was not being offered sufficient coverage through the employer) (see Q 8844).

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Planning Point: A small employer does not become an applicable large employer merely due to its participation in an association health plan, through which it offers health coverage to employees, even if more than 50 full-time employees are covered by the association health plan as a whole.

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Whether or not the employer is an applicable large employer that is subject to the shared responsibility provisions is based upon the number of FTEs employed by the employer in the preceding tax year (so that the employer’s status as a large employer for 2025 is based on its FTEs during 2024).²

FTEs are determined based on each employee’s hours of service. An employee is a full-time employee if he or she averages at least 30 hours of work per week.³ However, an employee who averages 130 hours of work per month is treated as an employee who works at least 30 hours per week and, as such, is a full-time employee.⁴

An employer must also count as FTEs certain employees who do not work an average of 30 hours per week. This number is determined by dividing the total number of hours of service worked by employees who are not full-time employees in any month by 120. The resulting number must be added to the number of full-time employees as determined in the preceding paragraph.⁵

Seasonal employees are taken into consideration, but if any employer exceeds 50 FTEs for 120 days or fewer during the year and the employees in excess of 50 employed during the 120-day period are seasonal workers, the employer will not be treated as an applicable large employer.⁶ The preamble to the regulations and IRS Q&A addressing the issue define “seasonal worker” as one who performs services on a seasonal basis as defined by the Secretary of Labor, and retail workers employed exclusively during holiday seasons, but also note that the employer is entitled to apply a reasonable, good faith interpretation of the term seasonal worker.

Employers should note that an optional “look-back” measurement period is available, but only for purposes of calculating the employer mandate penalty assessments. The look-back measurement cannot be used for purposes of determining whether the employer is an applicable large employer that is subject to the shared responsibility provisions.⁷.

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Planning Point: For tax years beginning in 2024 and thereafter, applicable large employers will be required to file required ACA Forms 1095-B, 1095-C, 1094-B, 1094-C electronically. All employers will be required to file these tax forms electronically if they file at least ten returns of any type during the calendar year (the ten-return limit includes common forms, such as Form W-2 and Form 1099). Previously, the business was only required to file electronically if they filed at least 250 returns of the same type (so that aggregation among different types of returns was not required).

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