The PJ Tatler

Obamacare Tax Rules a Boon for Preparers

Tax preparation for the average American is going to be a lot more complicated this year as Obamacare penalties will be assessed for those who fail to purchase government-approved insurance.

Taxpayers have until February 15 to buy an approved insurance plan. Failure to do so will result in a fine being assessed of $325 or 2% of your income, whichever is greater.

Both insurance companies and tax preparation outfits are playing up the fines for non-insurance as a marketing tool. Companies like H&R Block and Jackson-Hewitt are inviting tax payers to pay them a visit to ensure they are in compliance with IRS regs.

The Hill:

Part of the pitch is helping consumers avoid the mandate through an exemption if they are eligible.

A variety of hardship qualifications makes this route possible for many people, including those who experienced the death of a close relative, had their previous health plan canceled or saw an increase in necessary expenses due to caring for an aging family member.

“There are a lot of people who will qualify for an exemption,” said Avalere Health CEO Dan Mendelson. “If a company can save someone the 2 percent fine on $50,000 of income, that is significant.”

Firms are also offering to help current enrollees understand how changes in income can affect their tax credits to buy coverage. In some cases, they can also help the uninsured select health plans.

In promotional materials, H&R Block and Jackson Hewitt Tax Service say they can provide consumers relief, arguing that healthcare reform is making tax planning more difficult.

“The ACA [Affordable Care Act] has changed the landscape of both healthcare and tax,” H&R Block states online, inviting consumers to calculate their mandate penalty or receive a “tax impact analysis” when they become a client.

Jackson Hewitt urges consumers to stop by one of its locations, promising that their employees “work harder to keep up with the latest tax law changes to protect you from possible penalties — not everyone else does.”

The marketing around the healthcare law is taking flight at a time when surveys show the public remains deeply confused about the mandate.

Almost half of U.S. adults are unaware they must report their health insurance status on their 2014 tax returns, according to a TurboTax survey released earlier this month.

And while about three in five uninsured people know the law penalizes people without coverage, nearly 90 percent do not realize the 2014 deadline has already passed.

As a result, experts are urging insurers and the federal government to do more to emphasize the mandate this enrollment period.

Some Americans are going to get a nasty surprise when they realize what exactly the individual mandate means. It’s relatively simple if you have insurance through your employer. But if you buy insurance on the open market, here are 13 pages of instructions that tell you how to fill out IRS Form 8965. (PDF)

Of course, most taxpayers won’t even attempt it, which is where the boon for tax prep companies is going to be huge. Complexity in this case is not a bug; it’s a feature.

But there’s a dirty little secret that the IRS doesn’t want you to find out. They won’t have a clue if your insurance plan is in compliance with the law or not:

Call it confusion over what to call the law – “Obamacare,” the “Patient Protection and Affordable Care Act,” the “Affordable Care Act,” the “PPACA,” or the “ACA.” Or a technical glitch. Or insufficient funding to write the program. But for whatever reason, the IRS has absolutely no way of verifying whose insurance coverage did not qualify under the law and who pays the penalty.

With just under 25 million people enrolling in the federal and state health exchanges (including Medicare and Medicaid recipients), plus the estimated 150 million who have employer-paid health care plans, there are still some 62 million people who would have to pay a penalty but likely will not. For those who do the math the IRS apparently did not, that’s a potential loss of nearly $6 billion in revenue – potentially out-pacing the EITC fraud everyone is so enraged over.

But wait, it gets worse. Some 3.6 million more people were laid off during the year and lost their health benefits – becoming liable for some or all of the penalty for the months they were not covered. Call that another billion and a half dollars.

And even worse. Those who successfully did enroll in Obamacare and received a premium credit must repay the overage if the IRS finds that the customer’s 2014 income increased over the 2012 income used as a benchmark. That’s the theory, but with the start of tax season mere weeks away there is no mechanism to make that comparison. The final rules say there will be income comparisons, but who will do this?

And worse yet. Those who do not meet the “essential minimum coverage” threshold for individuals can still avoid paying the penalty if they meet one of the dozen or so exemptions, which seem to be granted to any person who breathes air, or has a life crisis like missing a utility bill payment, or having a family member becomes ill or even a family pet with a flea problem. It really doesn’t matter, because there is no place to report either the coverage status or the exemption if you are not already enrolled in a qualified program. Those are supposed to be covered under rules that the IRS has not yet drafted.

This is a clusterfark waiting to happen. Literally millions of Americans have no idea the piano that is about to be dropped on their heads. Of course, for many of them, it’s their own fault for not paying attention to what’s going on in the country. You would think that by this time, Obamacare would hold no surprises for an informed citizenry.

But an “informed citizenry” is a relative term these days, so millions won’t see the piano. Meanwhile, H&R Block and their fellow tax preparation companies are leading the way in Obama’s economic recovery, generating wealth (their own) and creating jobs.