Affordable Care Act Estimator Tools
The Taxpayer Advocate Service (TAS)—an independent organization within the IRS—has developed several tools to help individuals and employers understand how health care reform may affect their tax liability. For individuals, the tools include a premium tax credit change estimator, which estimates how changes in income and family size may affect the amount of the premium tax credit, and an individual shared responsibility payment estimator, which estimates the amount of the individual shared responsibility penalty for individuals who do not maintain minimum essential coverage. For employers, the tools include a small business health care tax credit estimator and an employer shared responsibility estimator. Each estimator includes a brief explanation of the applicable provision, how it affects the amount of tax or credit, and the information needed to use the estimator.
The employer shared responsibility estimator (designed only for 2016 and forward since it does not take into account transition rules that applied for the 2015 plan year) is divided into three sections, addressing applicable large employer (ALE) determinations, maximum potential Code §§ 4980H(a) and (b) penalty amounts, and full-time employee status under both the monthly and look-back measurement methods (see our Checkpoint article on the final regulations under Code § 4980H). Each section allows the user to enter relevant information. For example, users can include monthly hours for regular employees and seasonal workers to determine ALE status; they can enter the number of full-time employees to calculate potential penalties; they can choose the timing of measurement, administrative, and stability periods under the look-back measurement method; and they can select the optional weekly method under the monthly measurement method. (As background, an employer using the monthly measurement method can select the weekly method for tracking hours and choose whether the first week of each measurement month includes the first day of the calendar month—the estimator will calculate the start and end date of each measurement month. So, for example, the measurement month for January 2016 could be the five-week period from December 27, 2015 through January 30, 2016.) The estimator also includes a glossary of key terms and links to other IRS resources (e.g., the final regulations under Code § 4980H).
EBIA Comment: The estimators are relatively sophisticated and, consistent with their stated purpose, may help taxpayers better understand key aspects of health care reform. However, as the TAS cautions, the estimators provide estimates only and should not be relied upon to complete tax returns. We identified at least three apparent flaws with the employer shared responsibility estimator: it automatically estimates an ALE’s Code § 4980H(b) liability as zero whenever the Code § 4980H(a) liability is calculated as zero; it allows stability periods to include partial calendar months (stability periods must be full calendar months); and it allows an initial administrative period to extend beyond the last day of the first full calendar month after a new variable hour employee’s first employment anniversary. These flaws reinforce the complexity of employer shared responsibility and the need to consult knowledgeable sources for compliance information. For more information, see EBIA’s Health Care Reform manual at Sections XXI.B.4 (“Individuals and Employers Eligible for the Exchange: Individual Eligibility Determinations”), XXVI (“Small Business Health Care Tax Credit”), XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”), and XXIX (“Shared Responsibility for Individuals (Individual Mandate)”).
Contributing Editors: EBIA Staff.