With the open enrollment period for the Health Insurance Marketplace beginning November 1st, it is the appropriate time to remind taxpayers and preparers of the various Affordable Care Act (ACA) estimators the Taxpayer Advocate Service (TAS) has developed and made available to the public. Whether the taxpayer is an individual or employer, we have several tools available to assist in estimating credits and payments related to the ACA. Keep in mind that they only provide estimates, rather than accurate calculations, to use as a guide in making decisions regarding the taxpayer’s tax situation.
Tools for Individuals
The Premium Tax Credit (PTC) Change Estimator
TAS developed the Premium Tax Credit Change Estimator to help estimate how the amount of a taxpayer’s premium tax credit (PTC) will change if his or her income or family size changes during the year. This is especially important if the taxpayer receives the advanced premium tax credit (APTC). In tax year (TY) 2016, through April 27, 2017, about 4.9 million returns reported APTC. If the taxpayer is an APTC recipient, he or she must reconcile on Form 8962, Premium Tax Credit (PTC), the APTC amount received throughout the tax year with the amount of PTC to which he or she is entitled. The taxpayer must repay any excess APTC received, unless his or her household income is less than 400 percent of the applicable federal poverty line, in which case a repayment limitation may apply.
Changes in circumstances that occur at some point during the tax year could impact the amount of PTC to which the taxpayer is entitled. If the taxpayer experiences a significant change in household income, moves to a different zip code, has a birth or death in the family, or change in marital status, the amount of PTC to which he or she is entitled may change. If the taxpayer does not report this change to the Marketplace and continues receiving the same amount of APTC for the remainder of the tax year, he or she may be in for an unpleasant surprise when reconciling the credit on Form 8962. This estimator tool will help determine how much the PTC amount should change if a taxpayer experiences a change in income or family size so he or she can prevent having an unexpected balance due as a result of receiving excess APTC. Keep in mind that the estimator does not provide assistance if the taxpayer moves to another zip code or experiences a change in marital status. In addition, the estimator does not report changes in circumstances to the taxpayer’s Marketplace. To report changes and to adjust the amount of APTC, a taxpayer must contact his or her Health Insurance Marketplace directly.
Individual Shared Responsibility Provision (ISRP) – Payment Estimator
Under the ACA, an individual taxpayer and each member of the taxpayer’s tax household must: (1) have qualifying healthcare coverage (known as minimum essential coverage), (2) qualify for a coverage exemption, or (3) make an individual shared responsibility payment (ISRP) when filing a tax return. Individuals use Form 8965, Health Coverage Exemptions, to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on a tax return. In TY 2016, through April 27, 2017, approximately 4 million returns reported the ISRP, of which the average amount was $708. TAS developed the Individual Shared Responsibility Provision – Payment Estimator to assist in estimating the amount a taxpayer may have to pay if he or she did not have minimum essential coverage during the year and does not qualify for any available exemptions. More information about ISRP exemptions is available at Individual Shared Responsibility Provision – Exemptions on irs.gov.
Keep in mind that this tool can only provide an estimate of the ISRP. For an accurate determination of the ISRP amount due, taxpayers or their preparers must use the Shared Responsibility Payment Worksheet in the instructions for Form 8965.
Tools for Employers
Employer Shared Responsibility Provision (ESRP) Estimator
TAS recently developed a tool to help employers understand how the employer shared responsibility provision (ESRP) under Internal Revenue Code §4980H apply to their organization. As background, the ESRP applies to applicable large employers (ALEs) – generally, that means employers that had an average of at least 50 full-time employees (including full-time equivalent employees – FTEs), during the preceding calendar year. Employers can use the Employer Shared Responsibility Provision Estimator to determine:
- The number of the organization’s full-time employees, including FTEs,
- Whether the organization might be an ALE, and
- If the organization is an ALE, an estimate of the maximum amount of the potential liability for the ESRP that could apply to it based on the number of FTEs that it reports if it fails to offer coverage to its full-time employees.
The estimator will not report a payment estimate to the IRS or interact with the employer’s tax return or tax account information. It is intended only as a guide to help employers understand the ESRP. Employers will not report or include an ESRP payment with any tax return or information return they may file. Instead, based on information from the organization’s tax return and from its employees’ tax returns, the IRS will calculate the potential ESRP payment and contact the employer to inform it of any potential liability. The employer will then have an opportunity to respond before any assessment or notice and demand for payment is made.
This estimator is designed only for 2016 and forward. For 2015, transition rules are applied in determining the payment. For information about these rules and how to determine the payment for 2015, see the ESRP Regulations.
Small Business Health Care Tax Credit (SBHCTC) Estimator
TAS developed the Small Business Health Care Tax Credit Estimator to help small businesses and their preparers navigate the complex rules to determine eligibility for the SBHCTC. The estimator will also estimate the amount of the credit a small business taxpayer might receive. If a taxpayer is an eligible small employer, the SBHCTC can help the taxpayer provide health insurance coverage to its employees. For tax years beginning in 2014 or later, the credit can be up to 50 percent of the premiums the employer paid for health insurance coverage under a qualifying arrangement, or, if the organization is an eligible tax-exempt employer, up to 35 percent of premiums it paid.
This tool provides small businesses (including eligible exempt organizations) with an estimate for TY 2014 and beyond; however, some figures used in determining the credit are indexed for inflation. Because of this, for future years, the estimator cannot provide a detailed estimate. To calculate the actual credit, the employer must use Form 8941, Credit for Small Employer Health Insurance Premiums. In addition, this estimator does not determine whether the health insurance coverage offered by the employer is an eligible plan. It also does not determine which employees are considered employees for purposes of determining the credit.
Related tax issue: Affordable Care Act (ACA)