The one idea: If you own more than one business, the IRS may combine them. A 35-employee company plus a 20-employee company can together become a 55-employee Applicable Large Employer, subject to the ACA mandate.
Here’s a trap that catches small-business owners: you own a landscaping company with 35 employees and a nursery with 20. Neither looks big enough for the ACA employer mandate. But under IRS “common ownership” rules, they may be combined into 55 employees, making you an Applicable Large Employer (ALE).
Where the rules come from
The ACA didn’t invent these; it borrowed existing tax rules. Section 414(b) and (c) (controlled groups) combine businesses under common control. Section 414(m) (affiliated service groups) catches related entities that provide services together. Section 414(o) is the IRS catch-all to stop owners from structuring around the rules. In plain terms: if businesses are tied together by ownership or control, they may count as one employer for the ACA.
Why it gets complicated
There’s no single bright line like “50% always counts.” The IRS looks at structure, relationships, and control. Entity type matters. Multiple entities (a dentist who owns both the practice and a management company) can combine even with separate tax IDs. Family attribution can merge a husband’s company and a wife’s company. Shared employees through one admin company can create an affiliated service group.
The percentages that do matter
Parent-subsidiary: more than 80% ownership usually combines the businesses. Brother-sister: when the same five or fewer people own at least 80% of each company and have more than 50% effective control, they may be aggregated. Family attribution can add relatives’ interests together (a husband’s 30% plus a wife’s 30% treated as 60%).
What aggregation triggers
Being combined can push you over the 50-FTE threshold (ALE status), trigger Forms 1094-C and 1095-C reporting, and expose you to Section 4980H penalties if you don’t offer coverage to eligible full-time employees. The consequences can apply across the whole group.
Why it matters to you
This is a flag-it-early issue. If a client owns or co-owns more than one business, shares ownership with family across entities, or has businesses that serve each other or share staff, don’t assume “under 50 = exempt.” Raise it, and point them to a tax advisor or attorney to confirm. (This isn’t legal or tax advice.)
Key takeaways
- Separate businesses can be treated as one employer under IRS rules.
- Ownership percentages, family ties, and shared services all factor in.
- Aggregation can create ALE status, 1094-C/1095-C reporting, and Section 4980H penalties.
- Don’t assume exemption from headcount alone; get professional review.
Check yourself
An owner has a 35-employee landscaping company and a 20-employee nursery and owns 100% of both. Is he an ALE?
Almost certainly. Common ownership combines them into 55 employees, over the 50-FTE threshold, making him an Applicable Large Employer subject to the mandate and reporting.