IRS Releases Fact Sheets on Obamacare

Recently, the IRS released two fact sheets dealing with Obamacare's impact on individuals and on employers. 

The fact sheet describing the impact on individuals can be found here and covers topics from the premium tax credit to the penalty for failure to enroll (technically known as the "Individual Shared Responsibility Provision").

The fact sheeting dealing with employers can be found here and largely discusses how the number of employees impacts the employer's obligations under the act. 

How to Avoid the Obamacare Employer Mandate (without firing or reducing employee hours)

Recent headlines have publicized the growing list of companies all over the U.S. either firing workers or reducing their hours (or both) in an attempt evade the employer mandate that is part of Obamacare.  Although the mandate has been delayed until 2015 it seems the lay-offs and change in employee hours has continued.

Under Obamacare, companies with more than 50 full-time employees are required to provide health insurance for their employees by 2015 or face stiff penalties. As a result, complanies have sought to reduce the level of full-time employees to below this magic number of 50.  Assuming that all requirments are met, this may be a tenable strategy for some businesses. (However, businesses should only engage in such a strategy after consulting with professionals as there are complex regulations that define what a full-time employee is and who may be "considered" a full-time employee, even though they work "part-time".

Another strategy, not broadly discussed, is whether a business can simply divide itself up into several smallers businesses composed of different parts and operations (with each business having less than 50 employees) in order to avoid the employer mandate.  Not surprisingly, as a general rule, this strategy will not work because the law has "controlled group" provisions that focus on who actually controls the company or companies, as oppossed to their lines of business. (See Sec. 4980H(c)(2)(C)(i).)  Thus, if a company divides into three smaller companies, the law will look at each of the three companies as a whole and will count their employees as being employed by a single employer for purposes of counting the number of full-time employees.  In addition, the law also has family attribution rules that will attribute ownership in some businesses to members of their family. (See Sec.1563(e).)  Thus, a husband and wife couldn't evade the rule by setting up two different entities, each owned individually with say, 30 employees, as the law would consider the ownership of the wife, to be the husband's and vice-versa--resulting in a single employer with more than 50 employees. 

However, there appears to be at least one circumstance where there is some wiggle room--where siblings own businesses.  That's right, under the law, there is no famlly attribution between siblngs. Thus, if you have a brother and a sister that own a business with 80 employees, in theory, the busienss could then divide, with the brother owning one business with 40 employees and the sister owning another business with the other 40.  In this situation, under the current proposed regulations, there should be no attribution between these two businesses and thus, each could have avoided the employer mandate.  Obviously, whether a family business would want to engage in such drastic measures to avoid the mandate depends on a whole host of factors, many of which are not tax related.