Common Ownership Rules for Health Insurance: Controlled Groups and ALE Status

Common ownership rules for health insurance treat your separately incorporated businesses as a single employer under the Affordable Care Act. If the combined full-time workforce across every related entity reaches 50 or more, each entity in the group is an Applicable Large Employer and must offer compliant coverage or pay a penalty. The rules come from controlled group provisions originally written for retirement plans, and the IRS applies the same framework to the ACA employer mandate. Ownership structures you set up years ago for tax or liability reasons can decide your health coverage obligations today.¹

When Separate Businesses Get Combined

Three categories of ownership trigger aggregation under IRC Sections 414(b), 414(c), and 414(m). If any one of them applies, the businesses involved are treated as a single employer for the ACA.

Parent-Subsidiary

A parent-subsidiary controlled group exists when one company owns at least 80% of the voting power or total share value of another. Ownership can run through a chain. If Corporation A owns 80% of Corporation B, and B owns 80% of Corporation C, all three form one group. The parent does not have to hold each subsidiary directly, so long as every link in the chain hits 80%.

Brother-Sister

Brother-sister groups cover two or more businesses owned by the same small set of people. The test has two prongs. First, five or fewer individuals, estates, or trusts must own at least 80% of each business. Second, the overlapping ownership among those same people must exceed 50% when you count only the smallest stake each person holds across the entities. That second prong, the “identical ownership” test, is where a lot of owners miss a controlled group that actually exists, because it looks at each person’s lowest percentage across all the companies being compared.

Affiliated Service Groups

Section 414(m) reaches professional practices and service businesses that share management, provide services to one another, or regularly work together in delivering services to clients. A law firm that uses a commonly owned staffing company, or a medical practice that shares administrative resources with a related billing entity, can be aggregated even without 80% ownership overlap.

Family Ownership Can Tie Businesses You Didn’t Expect

You don’t have to personally hold stock in a business to be treated as an owner of it. Section 1563’s constructive ownership rules attribute a family member’s shares to you. Stock held by your spouse, children, grandchildren, and parents can be treated as yours when the IRS is deciding whether businesses form a controlled group. Two spouses who each run their own company may find those companies combined, even if neither spouse holds a share in the other’s business.

A narrow spousal exception exists. Stock owned by one spouse is generally not attributed to the other if the non-owning spouse has no direct ownership in the business, is not a director or employee, and no more than 50% of the company’s income comes from passive sources like rents, royalties, or investments. The SECURE 2.0 Act of 2022 also introduced changes affecting how spouses with separate businesses are treated under these aggregation rules. Because family attribution can create relationships that aren’t visible on any single company’s corporate records, mapping out family holdings across every related entity is the first thing to do before counting employees.

Counting Employees Across the Group

Once you’ve identified every entity that belongs in the group, add up the workforce. Each entity counts its monthly full-time employees and full-time equivalents. A full-time employee is anyone averaging at least 30 hours of service per week, or 130 hours per month.² Part-time hours are converted to full-time equivalents by dividing combined monthly hours by 120.

If the group’s combined average over the prior calendar year reaches 50 or more full-time employees including equivalents, every entity in the group becomes an Applicable Large Employer. The designation attaches to the whole group, not just the entities with the most workers. A subsidiary with three employees carries the same mandate as its parent with 200.¹ Businesses that didn’t exist for a full prior calendar year estimate their expected workforce to determine ALE status.

What You Have to Offer Once You’re an ALE

ALE status means offering coverage that clears two separate tests: minimum value and affordability.

A plan provides minimum value if it covers at least 60% of the total allowed cost of benefits expected to be incurred under the plan. The IRS and HHS publish a minimum value calculator for checking plan designs.³

Coverage is affordable if the employee’s required contribution for the lowest-cost self-only plan doesn’t exceed a set percentage of household income. For the 2026 plan year, that threshold is 9.96%. Because employers rarely know an employee’s household income, the IRS allows three safe harbors: W-2 wages, rate of pay, or the federal poverty line for a single individual.³

Penalties Are Assessed Entity by Entity

ALE status is determined at the group level, but penalties hit each member individually. Two separate penalties apply under Section 4980H.

If an ALE member fails to offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and at least one of those employees receives a Premium Tax Credit through the Marketplace, the 4980H(a) penalty for 2026 is $3,340 per year for each full-time employee. The first 30 employees are subtracted from the count, but that reduction is allocated across the entire controlled group, not applied to each entity separately.
If an ALE member offers coverage but it fails the affordability or minimum value test, and at least one full-time employee gets a Premium Tax Credit, the 4980H(b) penalty applies for each employee who actually received a credit. It is assessed monthly and generally lower per employee than 4980H(a), but it can still add up quickly across a group.

Information return failures carry separate costs. For the 2026 tax year, the penalty for each incorrect or late return exceeds $300 per form. Across a controlled group with hundreds of employees, those filing penalties alone can reach six figures.

Reporting as a Group

Every ALE member in the group files its own Forms 1094-C and 1095-C. Form 1095-C goes to each full-time employee and reports whether coverage was offered, what it cost, and whether the employee enrolled. Form 1094-C is the transmittal that accompanies the batch sent to the IRS.⁴

One designated member files the “Authoritative Transmittal,” the version of Form 1094-C that reports data for the entire group. On Line 21 of that form, you check the box indicating membership in an Aggregated ALE Group. Part IV requires the name and Employer Identification Number of every other ALE member in the group. That is how the IRS connects related entities and checks that each is meeting its obligations.⁵

For the 2025 coverage year, ALEs must deliver Form 1095-C to employees by March 2, 2026. You can mail or hand-deliver the form, or post a clear notice on your website informing employees that the form is available on request. If you use the notice option, the notice must stay posted until October 15, 2026, and you must furnish the actual form within 30 days of any employee’s request.⁶

If your controlled group files a combined total of 10 or more information returns of any type during the calendar year, electronic filing is mandatory. The threshold includes W-2s, 1099s, and every other information return, not just ACA forms, so most ALEs clear it easily. Electronic ACA filings go through the IRS’s ACA Information Returns (AIR) system, which requires its own registration and credentialing.⁷

Keep copies of every filed return, or be able to reconstruct the data, for at least three years from the due date. Supporting documentation counts: monthly employee counts, ownership percentages, hours-of-service records, and evidence of the coverage offers you made. If the IRS questions your controlled group determination or your ALE status, those records are what you’ll rely on.⁵

1
Internal Revenue Service. Affordable Care Act Tax Provisions for Employers
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Internal Revenue Service. Identifying Full-time Employees
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Internal Revenue Service. Minimum Value and Affordability
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Internal Revenue Service. Questions and Answers About Information Reporting by Employers on Form 1094-C and Form 1095-C
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Internal Revenue Service. Instructions for Forms 1094-C and 1095-C
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Venable LLP. Fast-Approaching Deadlines for ACA Reporting and Similar State Reporting
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Internal Revenue Service. Who Must File Information Returns Electronically