HR 30 - Defining Full-Time Worker For ACA Has Costs

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Written by Annette Nellen | Posted in Affordable Healthcare Act

The Affordable Care Act (ACA) imposes a penalty on “applicable large employers” starting in 2014 (changed to 2015 by the Administration). An ALE is an employer with 50 or more full-time or full-time equivalent workers. A full-time worker is one who works on average, 30 hours per week, or 130 hours per month.

There have been proposals to increase the threshold from 30 to 40, including this week – H.R. 30 of the new 114th Congress. Full-time employee is relevant in determining if an employer is an ALE, but more significantly, it is relevant in describing which employee the ALE has to offer coverage to (as well as the employee’s dependents up to age 26), in order to avoid the employer mandate penalty (IRC Section 4980H). An ALE only owes a penalty if one of its full-time employees obtains a Premium Tax Credit. The change from 30 to 40 means there are fewer employees the ALE has to offer coverage to and reduced exposure for such employees obtaining a PTC.

Sounds good for the ALEs. But, the cost to the government could be high. With fewer employees offered coverage from their employer (who wants to avoid a penalty), more employees are eligible to obtain Medicaid or insurance in the Marketplace (federal or state exchange). Many of those getting insurance in the Marketplace would be eligible for a PTC. Of course, when the employer offers coverage and subsidizes it (also necessary for the ALE to fully avoid penalty exposure), there are costs in that the employer deducts what it pays for the insurance and that income is excluded by the employee.

The Congressional Budget Office has a report on H.R. 30 which goes into more details on this issue.

What do you think?

Original Post By: Annette Nellen

Annette Nellen

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.