What You Need To Know About ABC Testing


ACA Update

The ACA is a complex beast…every large applicable employer knows this. ACAwise is here to keep you up to date on any possible changes to the IRS. Have you heard of the ABC Test? Many states have begun adopting it.

Right now this test is used in the states of Illinois, Colorado, Idaho, Connecticut, New York, New Jersey, Vermont, Pennsylvania, Mississippi, Alabama, Hawaii, Louisiana, and California. Even if you aren’t an employer in these states, it is always possible that your state could adopt this test in the future. 

What Is The ABC Test?

The ABC test is used to help determine whether a worker is considered an employee or an independent contractor. This test was designed to help employers categorize their workers. This way, they can decide who on their payroll they should make an offer of health insurance to. 

ABC…As Easy As 123

So, let’s get to the bottom of this “alphabet soup” of reporting requirements

Under the ABC test, a worker is considered an employee except for in these three circumstances. 

  1. The organization that hires you has no control over the work you produce, this is indicated in the contract that you have signed with them.
  2. You provide services that are outside the scope of the business that has requested your work.
  3. You are established in a certain trade or business that is similar to the work that you are performing for said organization. 

With this test, it is more difficult to classify an employer as an independent contractor. An employer must be able to answer “Yes” to all three of these questions if they consider one of their workers an independent contractor. 

Why Is The ABC Test Important?

When you take a look at the big picture of the ACA, the ABC test is changing the way that employers classify their workers. When it comes to ACA reporting, the number of employees will increase with the use of this test. 

As more states adopt this test as a requirement, employers will have to adapt. The ABC test tightens the definition of an independent contractor, therefore, more employers will reach the ACA reporting requirements. Remember, employers with 50 or more full-time employees are required to report to the IRS. 

What Is The Take-away?

If you are an employer in one of the participating states, it is extremely important to stay vigilant when it comes to classifying your employees. 

If you are not an employer in one of these states, be sure to be mindful of any ACA changes that could affect your business currently or in the future. Many states have already adopted this test as a requirement and there will most likely be more following suit in the future. 
If you are a large applicable employer that is currently struggling with your current year of ACA reporting or even if you have past year penalties…check out ACAwise. Our experts can help you stay compliant in the future, and clear up any ACA reporting issues in the past!


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