Worker Classification Impacts ACA Excise Tax– February 26, 2015 by Maura Corrigan

Common-law employees do count

A reminder to employers who are now calculating whether or not they are an “applicable large employer” for purposes of the shared responsibility payment effective this year under the Affordable Care Act. The Act considers all common-law employees as employees who should be included in the denominator of the calculation of the % of full-time employees who are offered coverage to the total full-time employee count.

If you are treating those that would otherwise be treated as an employee for payroll tax purposes as an independent contractor or a leased employee, you may have a problem and that problem can result in very expensive consequences.

By way of example, ABC Company employs 250 full-time employees. It also treats 50 full-time individuals as independent contractors. It offers 185 of the 250 full-time employees health care coverage, so they meet the 70% threshold in place for 2015. However, the government may find that 40 of the 50 independent contractors are really employees and, as a result, the business has only covered 64% of its total full-time workforce (185 divided by 290). This employer would be subject to a $2,000 per full-time employee non-deductible shared responsibility payment of $580,000 in 2016 if at least one employee secures a premium tax credit on the state exchange.

Companies need to look very closely at their treatment of workers or this could result in some very unintended consequences. Review the 20 factor tests under Rev. Rul. 87-42, and develop policies and procedures for vetting the hiring process or the independent contractor hiring process through a centralized person or persons.

For help calculating your potential excise tax liability, contact Maura Corrigan at or contact a member of your service team.

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