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Ahead of the Curve: Predicting a Client's ACA-Related Taxes

As everyone gets ready for another tax season, it’s important to find and utilize tools that simplify and streamline new and complex aspects of tax preparation. The Taxpayer Advocate Service on IRS.gov provides ACA estimation tools, where tax preparers can refer clients to predict and adjust estimated tax charges and credits associated with health care. Understanding the function of each estimator* and when to use it may reduce client stress and the time needed to prepare the return.

The Individual Shared Responsibility Payment Estimator helps determine how much will be owed due to the lack of minimum essential coverage or failing to secure an exemption for the taxpayer or claimed dependents. While the estimator only determines the amount owed, the page hosting the tool includes links to information about acquiring an exemption and the provision itself. If your client has purchased minimum essential coverage, then she may qualify for the premium tax credit.

Since some taxpayers opt to have their premium tax credit issued in advance, it’s important for these clients to understand that changes in their financial or family situation may alter the actual amount they are provided when they file. The Premium Tax Credit Estimator predicts the amount of the taxpayer’s credit using annual income, family size, filing status, and other relevant information. If these details change during a given tax year, those receiving the advanced credit should revisit the estimator to see if some of that money will be owed back to the IRS.

Clients that are local businesses can use the Small Business Health Care Tax Credit Estimator to help determine their eligibility and the amount they might receive. As previously reported, be sure they know about Form 8941 or – if they are a non-profit – Form 990-T. Instructions for the former can be found here.

*Throughout the descriptions and instructions for these estimators, the IRS stresses that they do not calculate the actual credit a client will receive or taxes owed; instead, they provide taxpayers an idea of what to expect. Be sure to read through all the provided disclaimers for the estimators and emphasize that these tools help anticipate ACA-related tax responsibilities rather than provide concrete numbers.

Sources: Internal Revenue Service; Taxpayer Advocate Service

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