What Is a Controlled Group?
A controlled group is a group of businesses that are connected through common ownership or control. Under Internal Revenue Code (IRC) §414, businesses in a controlled group, or in a related arrangement called an affiliated service group, may be treated as one employer for certain purposes. These are sometimes referred to together as aggregated groups.
This can apply even when the businesses have different Tax IDs, different employees, different industries or different locations.
Who Determines Controlled Group Status
Whether businesses form a controlled group is a tax determination, and the rules are complex. It should be made by the employer’s CPA, tax advisor or legal counsel, not by a health insurance agent or agency.
Controlled group status can affect much more than health benefits, including other tax and benefit plan rules. Employers with common ownership should work with their tax professionals to understand their status and what it means for their health plans.
Why It Matters for Health Plans
If businesses are part of a controlled group, their employees may be counted together when determining employer size. That combined count can affect:
- ACA employer mandate: Employees across the group are counted together to determine ALE status.
- Federal COBRA: The 20-employee threshold for federal COBRA is based on the combined group. A small business that’s part of a larger controlled group may be subject to federal COBRA rather than Cal-COBRA.
- Medicare Secondary Payer rules: The employer-size thresholds that help determine whether Medicare is primary or secondary are generally based on the combined group.
How It Works Under the ACA
If the combined group is an ALE, each business in the group is an ALE member. Each ALE member:
- Files its own Forms 1094-C and 1095-C
- Is subject to its own penalty exposure under IRC §4980H
- Reports that it’s part of an Aggregated ALE Group on Form 1094-C
Important: This information is provided for general educational purposes. It is not legal or tax advice. How these rules apply depends on each employer’s specific circumstances, so employers should review their situation with their own legal counsel, ERISA attorney, CPA or tax advisor.