Rube Goldberg – What ObamaCare means for your taxes | Fox Business Video.
The law’s requirement that most Americans carry health insurance means all filers must indicate on federal tax forms whether they had coverage last year and got tax credits to help pay for it. Those who didn’t have coverage could face a fine, although reduced staffing at the Internal Revenue Service and certain changes to the law mean the so-called individual mandate is expected to be lightly enforced this year, tax preparers say.
Meanwhile, millions of Americans who got subsidies under the law may find they are getting smaller-than-expected refunds or owe the IRS because credits they received to offset their insurance premiums were too large. As many as half of the roughly 6.8 million Americans who got subsidies may have to refund money to the government, based on one estimate by tax firm H&R Block Inc.
“The ACA is going to result in more confusion for existing clients and many taxpayers may well be very disappointed by getting less money and possibly even owing money,” said Charles McCabe, president of Peoples Income Tax and the Income Tax School, a Richmond, Va., provider of tax preparation and education. “The whole implementation of Obamacare will be frustrating for tax preparers.”
But where there’s pain, there’s opportunity…
But the season could be a lucrative one for tax firms. Liberty Tax Service, a tax-preparation franchise, began calling hundreds of thousands of customers in November to invite them to a store to get help applying for an exemption to the insurance-coverage requirement. About half of the company’s 4,000 stores opened weeks ahead of their usual start date to provide health-law tax advice.
If you’re going to owe the penalty, my recommendation is to take profits from investing in the tax preparation services. NOTE: I am NOT qualified to give investment advice!
Liberty Tax Service will ring in the 2015 tax season with Taxapalooza, a grand opening celebration on January 7 at more than 1,000 offices across the country. It’s not just food and fun that will be shared. Guests will be treated to free advice and information about the Affordable Care Act (ACA), which will have tax implications for the first time this season.
“I have said more than a few times that the Affordable Care Act is a game-changer,” said Liberty Tax CEO John T. Hewitt. “We opened many of our offices on November 15 to help people enroll in health insurance and apply for coverage exemptions. Now, before tax filing opens on January 20, we want to invite people in and help them really understand how this law will directly affect their taxes this year.” (emphasis added)
Taxapalooza will be a national party to celebrate the start of tax season and to assure taxpayers that Liberty Tax has the resources and the knowledge to handle all their tax issues, even with late changes to the tax code and the ongoing evolution of the ACA.
If Obamacare subsidies and/or penalties have made your tax situation complicated, use the services of a professional tax preparer. This is no place for amateurs.
If you want to complain, call your political representatives. If you want to profit off of the tax complications and chaos, purchase the publically traded tax preparation companies.
New health care law complicates tax filing season for many in NC | National Politics | NewsObserver.com. NOTHING in this article is restricted to North Carolina, the problems and challenges described are NATIONWIDE issues.
The purpose of subsidies is to make Affordable Care Act plans… well “affordable” for lower income households. While a subsidy may at times accomplish this purpose, it creates a wealth of complications for these very same people.
The imminent tax law changes are likely to bewilder the people for whom the Affordable Care Act was designed: low-income people who needed help to figure out how to buy federally subsidized health insurance.
Jackson Hewitt Tax Service is predicting on its website that more than a third of people who received health insurance subsidies were overpaid and now will owe “pretty hefty repayment liabilities.” Others could end up paying hundreds of dollars in penalties for failing to buy health insurance.
This creates two issues:
- People who used to do their tax returns can no longer do them thanks to the complications of Obamacare
- The cost of tax preparation services is going to increase
Professional tax preparers plan to charge extra for sorting through the ACA’s knotty requirements. Still, they count on a flood of new customers ready to pay more in hopes of maximizing their subsidies and minimizing penalties, especially the myriads who opted to ignore the law and skip insurance coverage this year.
Taxes are what you owe if you received too much in subsidy payments (technically advanced tax credits). Penalties are what you owe if you weren’t insured. Speaking of penalties for 2014…
The ACA’s minimum penalty this year is $95 per individual or $285 per family, but the law specifies that violators must pay the higher of two penalties. The higher penalty is calculated as 1 percent of household income above the tax filing threshold, which could come to several hundred dollars per person in many instances.
The maximum annual penalty this year, based on household income, is $2,448 per individual, and $12,240 for a family of five or more.
The penalties are docked from tax refunds, and for people who don’t get a refund this year, the penalty will be rolled over to future years, shadowing the taxpayer from year to year unless the IRS issues an amnesty.
Low-income filers are particularly vulnerable to the ACA penalty because they are dependent on tax refunds, notably the federal earned income tax credit, which can easily come to several thousand dollars per person, said Kala Shivali, franchisee of four Liberty Tax offices in Raleigh.
The sheer complexity of the new tax requirements, compounded by expected technical and administrative glitches, has some predicting that the the IRS will be in a forgiving mood this year.
“Health care systems don’t have to be this complicated,” said law professor Timothy Jost at Washington and Lee University. “I think this year they’ll have to cut people slack on this stuff.”
No, they don’t have to be this complicated. Talk about jumping from the frying pan into the fire.
CMS (Center for Medicare and Medicaid Services) has come out with a helpful document titled: 3 Tips About Marketplace Coverage & Your Taxes
The tips are:
- Watch your mail for Form 1095-A. It will help you file your 2014 federal taxes.
- Your final premium tax credit for 2014 will be computed with your federal income tax return. Use Form 8962
- If you didn’t have health coverage for part of 2014, use Form 8965.
The complexity is mind boggling. If you are receiving a subsidy, say goodbye to Form 1040EZ. Have a problem, call your Washington legislatures.
Tax Facts | How Big is the ACA Tax Penalty?. (<– click to access calculator)
The Affordable Care Act (ACA) requires most Americans to have health insurance starting in 2014. People who don’t comply have to pay a penalty, the amount of which depends on several factors, including income and family size. This calculator lets you estimate the potential ACA penalty for individuals and married couples who don’t have health insurance coverage required by the ACA.
Certain groups are exempt from the penalty tax (click for list).
The 2015 Obamacare penalty is where the rubber really starts to hit the road. All Americans must report on their IRS income tax documents their health insurance status for 2014. This is when the IRS will begin to collect Obamacare fines from the uninsured unless they happen to quality for Obamacare exemptions, which includes financial hardship. TurboTax has created a free online tool called “Exemption Check” for people to see if they may qualify for a waiver.
For 2014, the Obamacare penalty is a minimum of $95 per person or one percent of household income if the latter value is greater than $95. The Obamacare fines will jump in 2015 to the greater of two percent of income, or $325. By 2016, the average fine will be about $1,100, although that depends on your income. The Obamacare penalty is also capped based upon the average premium for bronze level health insurance plans, and these maximum fines are projected to be $2,448 for 2014, $2,570 for 2015, and $2,699 for 2016.
As an example of the Obamacare penalty, we will use the Tax Policy Center’s Affordable Care Act penalty calculator. Assuming you are a single person making $50,000 for the year, the Obamacare penalty will be $399 for 2014, $824 for 2015, and $1,062 for 2016. In effect, being uninsured will cost almost half of the project bronze level health insurance plan for 2016.
How well educated is the public in regards to Obamacare deadlines and penalties?
Unfortunately, according to News 13, only around five percent of uninsured Americans know the Obamacare deadline for the enrollment period is February 15, 2015 nor do many know that the Obamacare penalty will be rising significantly this year.“We could be looking at a real train wreck after Feb. 15,” said Stan Dorn, a health policy expert at the nonpartisan Urban Institute. “People will file their tax returns and learn they are subject to a much larger penalty for 2015, and they can do absolutely nothing to avoid that.”
Does the public understand this? By the time they understand the ramifications of the penalty, it will be too late to fix it for 2015, when the penalty will be twice as large (or larger).
TurboTax – Exemption Check – TurboTax Health.
Early next year, the IRS will begin collecting revenue from Obamacare’s individual mandate tax penalty. Americans who fail to obtain insurance that complies with numerous Washington mandates – and who fail to qualify for an exemption from the individual mandate – face penalties of $95 ($285 per family) or one percent of household income, whichever is greater. To collect this penalty, the IRS will target people’s tax refunds.
The IRS also plays a key role in implementing Obamacare’s complicated subsidy scheme. The health care law authorizes tax credits for people in households with income between 100 percent and 400 percent of the federal poverty level, who can’t get insurance through work or through a government program, and who reside in states that established their own exchanges. In 2012, the IRS issued an illegal rule that also extended these tax credits to people in states that use the federal exchange. (Ed note: The Supreme court will decide if federal exchange subsidies are legal)
Form 8962 for subsidy reconciliation:
Form 8962 allows households that claim a premium tax credit to calculate the correct tax credit amount and the amount that will need to be reconciled. The form has 36 lines for entry and will require filers with any change in coverage during the year to fill in 72 boxes (six boxes per month). Altogether, Form 8962 has 95 boxes for entries for single filers and 133 boxes for entries for married filers with two dependents. People who previously used IRS’s short form (1040EZ) to file their return, and who receive credits this year, will need to switch to the more complicated long form (1040 or 1040A).
Instructions for Form 8962 consist of 15 pages of complicated terminology and worksheets that will take the average tax filer hours to understand, will be incredibly frustrating, and will undoubtedly result in many inaccuracies. . Because of the convoluted structure of Obamacare’s subsidy scheme, the instructions have to explain how tax filers should allocate tax credits under certain conditions and how they should correctly calculate tax credits if household size changes during the year, such as through marriage, divorce, birth of a child, or death of a family member. Despite their length, the instructions fail to provide directions for filers to figure out whether offered employer coverage satisfies Obamacare’s minimum essential coverage requirement.
Taxpayers who claim one of the 19 exemptions from the individual mandate must file Form 8965 with the IRS. As many as 23 million Americans may have to file a Form 8965 for the 2014 filing season. The form has 21 boxes for entries for single filers and 78 boxes for entries for married filers with two dependents. Instructions for Form 8965 take 12 pages and contain five worksheets. One tax expert told Politico, in an August 11 article, that the application requirements for some of the exemptions are “hopelessly complex.” Liberal supporters of the law agreed, telling the paper: “The folks who are helping consumers are reeling. A consumer can’t be expected to understand this.”
You can call this a Republican “hack job” but unfortunately most Republican protestations that have been ridiculed by the legacy media and Democrats have turned out to be largely truthful.
Obamacare WILL bring a paperwork feast – For tax preparers, PPACA may bring a paperwork feast | LifeHealthPro. Only the sun coming up tomorrow morning is more certain.
At this point, Liberty Tax is predicting the PPACA form business will increase fee revenue about 2.5 percent to 3 percent in 2015, and more than that in 2016.
One source of optimism: Liberty Tax believes Form 8962 will be intimidating enough to force many consumers who have been doing their own taxes to seek professional help.
“Our franchisees are prepared for a robust tax season,” Hewitt said. (Hewitt is chairman of Liberty Tax – Ed)
Bill Cobb, president of H&R Block, is also looking forward to an increase in the percentage of tax filers who seek professional help. “Those that received an advanced tax credit will no longer be eligible to file their returns on a 1040EZ,” he said. (emphasis added in this quote)
This is going to be a giant mess. Keep it simple stupid and Obamacare are on opposite sides of the universe.
For most taxpayers, this will simply mean checking a box on a tax return indicating they had insurance for the full year. But millions of others will have to grapple with new tax forms and calculations that may generate unexpected results.
For instance, most of the 6.7 million people who bought insurance through the exchanges received subsidies, which reduced their monthly premiums. But those subsidies were based on previous years’ income — so people whose incomes have changed will inevitably have to pay some of that money back, while others may receive fatter refunds.
I’m not sure why they say a subsidy was based on someone’s previous years income. The subsidy is based on the applicant’s ESTIMATE of his income for the tax year in question. Also, it’s not clear to me that “most” of the 6.7 million people received subsidies on a monthly basis or received subsidies at all.
The subsidy you receive is reconciled on your tax return to determine if you receive too much, too little or if the account was just right….
RECONCILING People who bought subsidized insurance on the exchanges received what is actually an advance on a tax credit. Since the amount of help taxpayers received was based on 2012 income (Ed note – simply not true), it will need to be reconciled against what they actually earned in 2014 — particularly if they earned more or less and did not update their income data on the exchange.
Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund. Conversely, people who earned less money in 2014 — and who received subsidies that were too small — may receive money back. Changes in life circumstances — a divorce, marriage, a new child — can also affect those numbers.
“This is the part that can be very complex,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “People think of the tax credit as a discount on their premium. But realizing it can be something you repay a portion of is going to be a surprise.” (emphasis added)
Let me get this straight, we have a very complex tax return for the lower income portion of the population. Can you spell “RECIPE FOR DISASTER?”
The article also discussed the Obamacare penalty for not having compliant coverage.
Consumers face a Feb. 15, 2015, deadline to buy insurance, after which those without coverage could be hit with fines of $325 per adult or 2 percent of family income, whichever is higher.
Uninsured people looking to escape the penalties are turning to the exchanges before they close, while insurance companies and tax preparers are seizing on the looming tax hit as a business opportunity.
There is no doubt that There can be little doubt Obamacare is good for the tax preparation business:
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.”
There’s no KISS (Keep it Simple Stupid) within a light year of Obamacare.
Do you wish to avoid the Obamcare penalty? You can apply/declare a hardship exemption using this form: Application for Exemption from the Shared Responsibility Payment for Individuals who Experience Hardships.
You can view the form below:
Be careful out there – Americans for Tax Reform : IRS Warns: Obamacare Tax Must Be Paid with Tax Return.
- How do I sign up, and is the website working better?
- When is the deadline to sign up?
- How much is the penalty?
- What kinds of plans are offered under the new exchanges?
- Do I get to keep my doctor?
- I heard some of the top hospitals aren’t accepting Obamacare, is that true?
- How expensive are Obamacare plans compared to employer-based coverage?
- Who qualifies for subsidies?
- Where can you find out if you qualify for a subsidy?
- How does the subsidy work?
Additional information on the Obamacare penalty here.