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How Should ALEs Complete Form 1095-C During Initial Measurement?

02.12.2020

Question: We’re a retail business and an applicable large employer (ALE) under the Affordable Care Act. Many of our new hires have variable work schedules, and it’s unclear at the time of hire whether they’ll be full-time employees.

We use the look-back measurement method and offer coverage (which is affordable and provides minimum value) to full-time employees under our fully insured health plan at the end of the initial measurement period. But how do we complete Form 1095-C for new employees in an initial measurement period — before we know their full-time status?

Answer: Good question. ALEs can determine full-time employee status for purposes of employer shared responsibility under Internal Revenue Code Section 4980H using either the monthly measurement method or, as you’re doing, the look-back measurement method.

The look-back measurement method is well suited to ALEs with workforces like yours that experience substantial variability in work schedules. Hours are calculated during measurement periods ranging from three to 12 months, and those calculations are used to lock in an employee’s full- or part-time status during a corresponding stability period. Under this method, an initial measurement period applies to newly hired employees for whom it’s not reasonably possible, at the time of hire, to determine whether they’ll work full-time hours. These are often referred to as “variable-hour employees.”

Because you don’t offer coverage to variable-hour employees during their initial measurement period, you or your tax professional will have to enter Code 1H on line 14 of Form 1095-C. However, the initial measurement period will be treated as a limited nonassessment period under Sec. 4980H(b) so long as:

  • Variable-hour employees are otherwise eligible for your group health plan during the initial measurement period (that is, they satisfy all eligibility criteria except for completion of an eligibility waiting period)
  • Minimum-value coverage is offered to full-time employees by the first day of their initial stability period

This status allows you to enter Code 2D on line 16 and will protect you from Sec. 4980H penalties with respect to these employees, even though you didn’t offer them coverage.

A Form 1095-C doesn’t have to be completed for an employee who was in a limited nonassessment period for all months of employment during a calendar year. For example, if you use a 12-month initial measurement period, and an employee was hired on March 1, 2018, you wouldn’t need to complete a 2018 Form 1095-C for that employee, because the employee wouldn’t have achieved full-time status for any month during the 2018 calendar year.

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