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Introduction

The Taxpayer Advocate Service developed the Employer Shared Responsibility Provision (ESRP) Estimator to help employers understand how the provision works and learn how the provision may apply to them.

The provision applies to applicable large employers - 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.

If you are an employer, you can use the estimator to determine:

  • The number of your full-time employees, including FTEs,
  • Whether you might be an applicable large employer, and
  • If you are an applicable large employer, an estimate of the maximum amount of the potential liability for the employer shared responsibility payment that could apply to you based on the number of full-time employees that you report if you fail to offer coverage to your full-time employees.

Important

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.

A majority of businesses will fall below the 50 full-time employee (including FTEs) threshold and therefore the employer shared responsibility provisions will not apply to them. The estimator can help you determine if you are an applicable large employer if you are close to that threshold.

Definitions of key words and other various requirements under the employer shared responsibility provision, including an overview of the provision itself are available on the right side of this screen and under the “Provision” tab above. If you are not already familiar with the basic requirements under this provision, we recommend reading these first along with the IRS Employer Shared Responsibility Provisions.

What is the Employer Shared Responsibility Provision?

Under the Affordable Care Act, governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. The estimator is specifically designed to help you determine if the employer shared responsibility provision (IRC Section 4980H) applies to you and, if it does, will help you determine the maximum amount of the employer shared responsibility payment that could apply to you under either section 4980H(a) or 4980H(b) based on the number of full-time employees that you report.

The provision applies to employers called applicable large employers that employ on average at least 50 full-time employees (including FTEs) during the preceding calendar year. If you are an applicable large employer, you may owe the payment if at least one of your full-time employees receives the premium tax credit because:

  • You don't offer health coverage to at least 95% your full-time employees (and their dependents) or
  • You do offer health coverage to at least 95% of your full-time employees (and their dependents), but the offer of coverage doesn't provide minimum value or is unaffordable to a particular employee, or a full-time employee that was not offered coverage receives the premium tax credit.

How does it apply?

The size of your workforce in the previous calendar year determines whether you are an applicable large employer. In most cases, you determine your “workforce size” by looking at your employees in the previous calendar year and computing if you employed on average 50 or more full-time employees, including your full-time equivalent employees, across all 12 months of the year. You must look at all of your employees, including seasonal workers, when determining if the provision applies to you; however, you may exclude employees who are covered by TRICARE or certain health programs for veterans.

Employers with a common owner or that are otherwise related (that is, employers that are part of an aggregated group) must count all full-time employees and full-time equivalent employees of all members of the aggregated group to determine if the employer is an applicable large employer. If the combined members of the aggregated group together employed an average of 50 or more full-time employees (including FTEs) in the preceding calendar year, the provision applies separately to each employer that is a member of the aggregated group (each ALE member). If an ALE member owes an assessable payment under the provision, the amount of the assessable payment would be determined based only on the full-time employees of that ALE member, and not full-time employees of any other member of the aggregated group.

If you are an applicable large employer, you could be required to pay an assessable payment if you do not offer minimum essential coverage to at least 70% (for 2015) or 95% (for 2016 and future years) of your full-time employees, or if you offer coverage that does not provide minimum value or that is not affordable to one or more full-time employees, and at least one full-time employee receives the premium tax credit. Generally, the provision is effective beginning in 2015.

Who are full-time employees?

Under the employer shared responsibility provision, a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week or 130 hours of service for that month.

This definition of full-time employee is central to the employer shared responsibility provision. You must identify your full-time employees to:

  • Determine your applicable large employer status and
  • Determine which employees to whom you need to offer coverage in order avoid a potential employer shared responsibility payment.

There are two designated measurement methods for determining your employees' full-time status: the monthly measurement method and the look-back measurement method. The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H and not for purposes of determining status as an applicable large employer.

The term 'hours of service' and both measurement methods are explained in the ESRP regulations, on IRS.gov, and within the provision section of the estimator. You may choose to use either method and you may use different methods for different specified classes of employees - so long as the methods are used consistently.

What does it require?

If you are an applicable large employer, you may be required to make an ESRP payment to the IRS if you:

  • Do not offer minimum essential coverage to your full-time employees (and their dependents), or
  • Do offer coverage to your full-time employees (and their dependents) that is not affordable or does not provide minimum value.

If you are an applicable large employer, you are also required to file information returns with the IRS and furnish statements to your full-time employees containing details about the coverage that you offered in each month. See Information Reporting by Applicable Large Employers on IRS.gov for more information.

Where can I get more Information?

More information about the ESRP and other large employer provisions under the Affordable Care Act is available from the IRS:

What is the Payment?

There are two types of payments:

  • The payment under section 4980H(a): You may be liable for this if you do not offer minimum essential coverage to at least 95 percent of your full-time employees (and their dependents) and at least one employee receives the premium tax credit. The amount of this payment is based on your total number of full-time employees (with certain adjustments), not only on the number of full-time employees who receive the premium tax credit.
  • The payment under section 4980H(b): You may be liable for this if you do offer minimum essential coverage to at least 95 percent of your full-time employees (and their dependents), but at least one of your full-time employees receives the premium tax credit because that coverage is not affordable to the employee, doesn't provide minimum value, or that employee did not receive an offer of coverage. The amount of this payment is based solely on the number of full-time employees who receive the premium tax credit.

To be liable for an ESRP payment under section 4980H, one of your full-time employees must receive a premium tax credit.

The calculation for the section 4980H(a) payment is significantly different from the calculation for the section 4980H(b) payment. If you are liable for the employer shared responsibility payment, you will only be liable for one of the two payments.

More information on both payments can be found in the ESRP Regulation and from the IRS:

What is the Estimator?

The estimator will help you understand the employer shared responsibility provision. Based on the information you enter, it will count your full-time employees so that you can determine whether you are subject to it. If you are an applicable large employer, the estimator will show an estimate of the maximum amount of your potential liability. The amount of actual liability will depend on the coverage that you offer to your full-time employees, as well as the number of full-time employees (if any) who enroll in coverage through the Marketplace and receive the premium tax credit.

Under the ESRP, you need to measure your employees' hours of service to determine whether they are full-time employees. The number of full-time employees ultimately determines your responsibilities under the ESRP and subsequently any payment that may be due. There are two methods used to determine whether an employee is full-time; the estimator has an optional interactive guide to help you understand both methods. It is intended only as a guide to help you understand the rules for determining whether an employee is full-time – it is not intended to make the determination for you.

See the Information You Need to Use the Estimator section below and read the information under the Instructions tab before you begin using the estimator.

Information You Need to Use the Estimator

To use the estimator, you'll need certain information, including:

  1. Information about yourself such as:
    • Whether you are an educational organization,
    • Whether you are a member of an aggregated group,
    • If you (as an employer) were in existence the preceding year, and
    • Details on the measurement method you use to determine full-time status of your employees.
  2. Information about your employees and the employees of other members of your aggregated group:
    • Each employee's hours of service for each month,
    • Whether any employee is a seasonal employee,
    • Number of your full-time employees,
    • Number of full-time employees employed by other members of your aggregated group,
    • Total hours worked by all part-time employees employed by you and other members of your aggregated group.
    • For new employees and employees resuming service after an absence, their starting date.

You can get more information from the IRS at Employer Shared Responsibility Provisions.

Remember

The estimator will not report a payment estimate to the IRS or interact with your tax return or tax account information. It is intended as a guide to help you understand the Employer Shared Responsibility Provision. You will not report or include an ESRP payment with any tax return you may file. Instead, based on information from your and from your employees’ tax returns, the IRS will calculate the potential ESRP payment and contact you to inform you of any potential liability. You will then have an opportunity to respond before any assessment or notice and demand for payment is made.

Please read all the information provided before starting the estimator.

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KEY TERMS

Administrative Period

Under the look-back measurement method, an optional period you select that is no longer than 90 days that begins immediately after the end of a measurement period and ends immediately before the start of the associated stability period.

The administrative period also includes the period between a new employee's start date and the beginning of the initial measurement period, if the initial measurement period does not begin on the employee's start date.

Affordable Coverage

Generally, coverage is affordable for an employee if the employee's required contribution of the annual premium for self-only coverage does not exceed 9.5% (as adjusted for inflation) of the employee's household income for the year. For more information, see Minimum Value and Affordability on IRS.gov.

An offer of coverage is also deemed affordable for purposes of the provision if the offer satisfies one of the affordability safe harbors listed in the ESRP final regulations. For additional details about the affordability safe harbors, see Q&A on the ESRP at IRS.gov.

Aggregated Group

A group of commonly owned or otherwise related or affiliated employers, which must combine their employees to determine whether they together constitute an applicable large employer. All employers that are treated as a single employer under IRC section 414(b), (c), (m), or (o) are treated as members of an aggregated group.

Applicable Large Employer Member

An employer that, together with one or more other employers, is a member of an aggregated group that is an applicable large employer.

For example, parent corporation A had 40 full-time employees in the preceding calendar year; subsidiary B, which is wholly owned by A, had 10 full-time employees in the preceding calendar year; and subsidiary C, which is also wholly owned by A, had 5 full-time employees in the preceding calendar year. Together, employers A, B, and C form an aggregated group that is an applicable large employer because the group employed on average 55 full-time employees in the preceding year. A, B, and C is each an ALE member, and each is therefore separately subject to the requirements of the employer shared responsibility provision.

Applicable Large Employer (ALE)

With respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. Employees of all members of an aggregated group are combined together for purposes of determining if the group is an applicable large employer, and if each member of the aggregated group is therefore an ALE member.

If you, as an employer, were not in existence throughout the preceding calendar year, you would be an applicable large employer for the current calendar year if you reasonably expect to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year and you actually employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the calendar year.

Employee Resuming Service

An employee resuming services is an employee with a prior period of employment (such as a rehire or after a period of leave) and may be treated as either a new or ongoing employee according to the rehire and continuing employee rules.

Full-Time Employee

Generally, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week.

For this purpose: 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, and this 130 hours of service equivalency applies for both the look-back measurement method and the monthly measurement method for determining full-time employee status.

Full-Time Equivalent Employee (FTE)

A combination of employees, each of whom individually is not treated as a full-time employee because he or she is not employed on average at least 30 hours of service per week with an employer, who, in combination, are counted as the equivalent of a full-time employee solely for the purposes of determining whether the employer is an applicable large employer.

The number of full-time equivalent employees for each calendar month is determined by calculating the aggregate number of hours of service for that calendar month for employees who were not full-time employees (but not more than 120 hours of service for any employee) and dividing that number by 120.

Hours of Service

The hours for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

Certain hours are excluded from hours of service; for more information, see the ESRP Regulations.

Initial Measurement Period

Under the look-back measurement method, a period of at least three but not more than 12 consecutive months that is used to determine the full-time status of your new employees. A new employee that averages at least 30 hours of service per week during the initial measurement period is treated as a full-time employee through the end of the associated stability period that follows.

Look-Back Measurement Method

One of the two methods for determining whether an employee is a full-time employee (the other is the monthly measurement method). Under the look-back measurement method for ongoing employees, each ongoing employee's full-time employee status during a stability period is determined based on hours worked during the associated measurement period.

If the employee was employed on average at least 30 hours of service per week during the associated measurement period, then the employee is a full-time employee during the subsequent stability period, regardless of the employee's number of hours of service during the stability period, so long as he or she remains an employee.

Minimum Essential Coverage

For the employer shared responsibility provision, minimum essential coverage has the same meaning as in the individual shared responsibility provision.

Minimum essential coverage means coverage under a government-sponsored program, an eligible employer-sponsored plan, a plan in the individual market, a grandfathered health plan, or other health benefits coverage.

See the Individual Shared Responsibility Provision regulations for more information.

Minimum Value

An eligible employer-sponsored plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to the employee under the plan (as determined under guidance issued by the Secretary of Health and Human Services) is at least 60 percent. For more information, see Minimum Value and Affordability on IRS.gov.

Monthly Measurement Method

One of the two methods for determining whether an employee is a full-time employee (the other is the look-back measurement method). Under the monthly measurement method, each employee's status as a full-time employee is determined by counting the employee's hours of service for each calendar month.

New Employee

Under the look-back measurement method, a new employee is an employee who has been employed for less than one complete standard measurement period.

Ongoing Employee

Under the look-back measurement method, an ongoing employee is an employee who has been employed for at least one complete standard measurement period.

Seasonal Employee

A seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less.

This term is used for determining the full-time status of employees if the employer is using the look-back measurement method.

Seasonal Worker

A seasonal worker means a worker who performs labor or services on a seasonal basis as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1), and retail workers employed exclusively during holiday seasons.

This term is used in whether the seasonal worker exception applies for determining your applicable large employer status.

Section 4980H(a) Applicable Payment Amount

With respect to any calendar month, 1/12 of $2,000, as adjusted for inflation. The adjusted amount is $2,160 for 2016.

If this liability is owed under section 4980H(a) for a calendar month, the amount of the payment is calculated by multiplying the section 4980H(a) applicable payment amount by the total number of full-time employees that you employ in that calendar month, with certain adjustments (for instance, the number of full-time employees is generally reduced by 30, and certain full-time employees in a limited non-assessment period may also be excluded).

Section 4980H(b) Applicable Payment Amount

With respect to any calendar month, 1/12 of $3,000, as adjusted for inflation. The adjusted amount is $3,240 for 2016.

If liability is owed under section 4980H(a) for a calendar month, the amount of the payment is calculated by multiplying the section 4980H(b) applicable payment amount by the number of full-time employees who receive the premium tax credit in that month, with certain adjustments (for example, full-time employees in a limited non-assessment period may be excluded).

Stability Period

Under the look-back measurement method, a period you select that immediately follows and is associated with a standard measurement period or an initial measurement period (and if elected, the administrative period associated with that standard measurement period or initial measurement period).

The full-time status of an employee during the stability period is determined based on the employee's average hours of service in the associated measurement period.

Standard Measurement Period

Under the look-back measurement method, the standard measurement period is a period of at least three but not more than 12 consecutive months that is used to determine the full-time status of your employees. Each employee who averages at least 30 hours of service per week during the standard measurement period is treated as a full-time employee for each month during the associated stability period that follows.

Alternatively, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week. Thus, an employee that averages at least 130 hours of service per month in the standard measurement period is treated as a full-time employee during the associated stability period that follows.

Variable Hour Employee

Under the look-back measurement method, if an employer cannot determine, based on the facts and circumstances at an employee’s start date, whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employee’s hours are variable or otherwise uncertain, the employee is a variable hour employee.