Definition of Designated Governmental Entity (DGE)
A Designated Governmental Entity (DGE) will be part of or related to a federal or state government agency or any Indian tribal government.
What Is a Designated Governmental Entity?
As a federal or state government agency or Indian tribal government, a Designated Governmental Entity (DGE) will have slightly different reporting requirements under the ACA (Affordable Care Act) employer mandate.
Most of the time, a designated governmental entity will not owe taxes and typically give and receive charitable grants. However, it is essential to understand that these entities differ from a 501(c) (3) charitable organization. These types of organizations are not considered private businesses, and they are not a charity.
Some examples of various types of government entities include:
- State housing finance agencies
- Public housing authorities
- State Universities
- School districts
- Irrigation districts
- Fire control districts
- Elementary districts
A designated governmental entity could be any number of types of businesses that are working on behalf of a government agency.
For unemployment insurance tax purposes, entities such as these can opt to make payments instead of contributions if they prefer or be experience rated. The entity can choose which one to use through the Unemployment Insurance Bureau.
What it takes to qualify as a DGE
To qualify, DGEs who want to be experience-rated entities will typically have to do several things. For example, they will need to file quarterly wage reports with unemployment insurance and report the total wages for all employees. They must pay the administrative tax fund (AFT) equal to 0.09% of the total wages paid per quarter. They will also have to pay contributions tax on the total wages paid each quarter of the fiscal year.
According to the IRS, the “Governmental Unit must ensure that among the multiple Forms:
- 1094-C filed by or on behalf of the Governmental Unit transmitting Forms
- 1095-C for the Governmental Unit’s employees
- 1094-C is designated as the Authoritative Transmittal and reports aggregate employer-level data for the Governmental Unit, as required in Parts II, III, and IV of Form 1094-C.”
What does this mean in practice? Let’s look at how it might affect a business.
Why Are Designated Governmental Entities Important to Small Businesses?
Let’s consider a scenario where a county is an Applicable Large Employer or ALE, and it also includes other ALE members. An ALE must have 50 or more full-time or full-time equivalent (FTE) employees. This might consist of the:
- School district
- Police district
- Fire and rescue departments
The basics will also hold true for other levels of government, such as local or state government offices and their designated governmental entities.
In one example, the school district designates the state to report on behalf of teachers and report on the rest of the full-time employees. If that happens, the state or the school district will need to file an authoritative transmittal reporting all the employer-level data for the full-time employees of the school district.
The ALE leaders must know and understand how to accurately complete all of the employee reporting. As mentioned, this will often differ from the ACA requirements. The organization should always understand the latest ACA guidelines.
However, they can make sales-tax-exempt purchases on behalf of the governmental body. The DGEs can be a designated agent of a:
- State government
- Commission, etc.
This will often be done with contractors for specific construction projects explicitly done for the government. These contractors can only make tax-exempt purchases for a particular project.
What Is the History of Designated Governmental Entities?
Designated governmental entities have been around for almost as long as governments themselves. The reason for the designation is almost exclusively tax benefits. This benefit applies either to:
- How the DGE reports them
- For making tax-exempt purchases
Other terms similar to designated governmental entities that can assist you
- Affordable care act (ACA): This regulation is managed through the HHS. ALEs must offer affordable health insurance options, as defined by this regulation, and comply with its stringent recordkeeping requirements.
- Applicable large entity (ALE): A company with 50 or more full-time equivalent employees.
Summary of the definition of designated governmental entity
A designated governmental entity is often a business or agency that is part of or related to a governmental agency. These DGEs file taxes for another governmental unit.
These important entities complete a wide range through various parts of the government.
Similar Glossary Definitions You Must Know
Below are a few other definitions you should know from the HR Glossary.
- Tax Notice: A tax notice, or tax assessment, is a document regarding your company’s account status, new filing frequency, or rate assignments.
- Contractor: A contractor is a self-employed individual.
- After-Tax Deductions: After-tax deductions are payroll deductions that, according to the IRS, are not eligible for tax exemption status.
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