H&R Block Highlights Seen, Unseen Effects of ACA Implementation on Taxpayers
At today’s Council for Electronic Revenue Communication Advancement (CERCA) spring meeting in Washington, D.C., Mark Ciaramitaro spoke to government, policy and tax industry leaders on the next steps required to ensure the effective implementation of the Affordable Care Act next tax season.
By Mark Ciaramitaro
VP, health care enrollment services
Since the passage of the Affordable Care Act (ACA), taxes and health care have become more linked than ever before. We have passed the point of no return on ACA implementation taking place through the tax return. Preparation ahead of the 2015 tax season is key for both consumers and the tax preparation industry. For consumers, that effort could help them eliminate or prepare for a reduced refund or increased tax bill. For the tax industry, anticipating an increase in preparer training needs and the requirements of new or additional forms to prepare will be essential.
At a presentation to the CERCA spring meeting earlier today, H&R Block outlined these six major implications the ACA creates for consumers and industry that will need to be better understood to ensure a smooth season and overall compliance:
Most taxpayers will need to show proof of health care insurance. Consumers should receive the necessary information from their source of coverage, whether through their employer, a federal or state marketplace, or through their insurance carrier directly. The key for taxpayers will be to make sure to save that document, as it will be something they are not used to receiving.
2) Advance Tax Credit “Reconciliation” Process
For those who qualified for an advanced tax premium credit to help pay for health insurance on the marketplaces, their tax return will be used to reconcile that payment. Underestimated your income for the year and received too big of a credit? Consumers will have to pay it back via their tax return. One recent report by The Washington Post revealed that more than 1 million filers who received a tax premium could have received an incorrect amount that will have to be reconciled via their tax return with the IRS.
Those who do not have health care insurance may qualify for an exemption. More than a dozen different exemption categories have been established so far. Some exemptions are done via the tax return, while some will need verification from the health care marketplace. Others are based on a combination of other factors. Consumers will need to work closely with their tax professional to communicate their situation and determine if they are eligible for any of these exemptions.
4) Tax Penalty Calculation
The taxpayers who do not have health insurance coverage or do not qualify for an exemption face a penalty. On their 2014 tax return, they will face a fine of either $95 or up to 1 percent of their modified adjusted gross income – whichever is higher. For a family of four earning $70,000, that’s close to $500. A single filer earning $55,000 would see a penalty of around $450. For the past two tax seasons H&R Block has been educating all of its clients on this impact via our free tax and health care review.
5) New Tax Form Complexity
Implementing the ACA brings with it a new series of requirements that must be explained and documented. This means added complexity for tax forms and altering the appropriate usage for certain forms – both of which likely will result in more mistakes, delays, amendments and notices for consumers and preparers to deal with. Understanding the new 1040 lines and worksheets, the documentation requirements for coverage and exemptions, and the ability to continue to use 1040EZ are all prime examples of questions that will likely be common for many taxpayers.
6) Estimating Future Tax Implications
Accounting for the life changes every individual and family experiences – while trying to sync those changes to the ongoing and overlapping calendar year, tax season, open enrollment season and more – makes for a daunting challenge. Taxpayers will need to accurately estimate future income, calculate potential future tax penalty amounts and future eligibility for exemptions, and address any IRS tax notices due to incomplete or inaccurate documentation. Working closely with their tax professional will be essential to staying on top of these changes and requirements.
To help address these implications, H&R Block recommended at the CERCA meeting a number of steps that the administration and the tax industry should take. In the meantime, consumers should continue to discuss their personal financial situation and any questions they have with a tax professional to ensure they have the most up to date information and best possible advice. This past tax season – also the first year federal and state marketplaces were open to offer health insurance – H&R Blocked teamed with a web-based insurance broker to assist consumers in understanding, selecting and enrolling in qualified health insurance. To find the H&R Block nearest you or to set up an appointment, call 800-HRBLOCK or visit our office locator.
Open enrollment for health insurance starts November 1.Taxpayers can avoid tax penalties in 2019 by obtaining health insurance for 2018.