Even if you aren't thinking about the upcoming tax season you know that your local tax preparer is already in action. This year will create complications for many individuals because for the first time Obama's Affordable Health Care Act is going to figure prominently in those tax form preparations. John Koskinen (IRS Commissioner) has gone on record by confirming that 2015 is going to be one of the most complicated tax years for almost everyone who is going to be filling out the forms.
In all 50 states US tax preparers are attempting to get their offices ready to handle the expected deluge of frustrated folks who have to submit tax forms. In SF, California one of the H&R Block tax centers is managed by Sue Ellen Smith. She states that a rush of clients should be coming through the doors any minute.
According to Smith the tax laws and health care regulations are now linked together in new ways. She says that many of her clients will have insurance coverage that they obtained through their employers. In these situations they can just check the appropriate little block on the tax form that states they were covered by health insurance throughout 2014.
The problems will begin with the estimated 30,000,000 individuals who did not have a health insurance plan in 2014 and those who purchased health insurance through a third party exchange. The latter policies would have been subsidized to some degree by the government.
Tax preparers (including Ms. Smith and her office staff) have been studying the new tax regulations for months. They have practiced filling out mock forms and working through numerous mock tax scenarios.
One such scenario (for learning purposes only) presents the preparers with a fictitious married couple In this case it is the same Vicky and Ray who are prominently featured on one of the company's advertising brochures. (The company uses this storyline to help their clients understand how the health care program can affect their tax returns).
This particular scenario suggests that the couple has earned 65K in combined income for 2014. They did not sign up for any health insurance coverage. Now they need to reconcile their situation, lack of health care coverage and the amount of taxes that they owe.
Many people mistakenly believe that they will only owe a $95 penalty for not having insurance coverage. Smith wants the public to understand that the actual amount for this specific scenario is going to be almost $450 which will certainly blind-side Ray and Vicky. There are sure to be many Rays and Vickys who are going to be facing a very similar situation.
The actual penalty for uninsured taxpayers is 1% of the total yearly income, or $95. The government has mandated that uninsured people must pay the amount that is greatest. The $95 is just for starters, it is only the lowest amount of money that can be assessed.
In 2015 the penalty will increase to 2% of the total yearly income.
Smith wants to remind you that it is best to avoid any penalty. There is an open enrollment window which allows people to sign up for health insurance prior to February 15th, 2015. You cannot be turned down for insurance, but the premiums will be determined by the company and plan that you choose.
Mark Steber works as chief tax officer at Jackson-Hewitt. He says that many uninsured individuals will delay getting health insurance for different reasons. Then when they are filing last-minute returns in April it is going to be too late to get the insurance and the penalty will be assessed. There is no appeal and no circumventing this ruling. If you do not have health care coverage you are going to have to pay the price.
Steber realizes that some taxpayers are going to find themselves in a bind. He says the discussion is going to be difficult and the tax preparer is going to have to deliver the bad news. When someone is discovering that they may not get a refund, or will have to shell out more money in penalties, it is not going to make them happy.
Jackson Hewitt is preparing their teams by showing them the best ways to tell the clients about health care penalties, and helps them learn how to defuse any volatile situations. Steber hopes that the clients listen now and go ahead and sign up for health care insurance prior to coming in to fill out their paperwork. If you should discover that you are going to be affected by the penalty tax then just accept the situation and do not blame the office staff.
One H&R Block tax preparer is bracing himself for the worst. Lou Graham works at one of the Hartford, CN locations and he knows that there is another situation that is going to set taxpayers on edge. There will be individuals who were paying for subsidized health care insurance throughout 2014. The subsidies can often be based on estimated income for the year. The subsidy provided may have been inaccurate. If someone made more money than was quoted in the estimate their subsidy will amount to government overpayment.
The government is going to demand their money back. Not some time in the future-they want it right now. Imagine a tax preparer having to tell a client that their $500 tax refund is owed to the government for subsidy overpayment. Mr. Graham is concerned that the insurance penalties are not being fully understood by taxpayers. He believes that many people are blissfully unaware that these penalties even exist.
The worst case scenarios mean that clients will have to hear the bad news about owing a penalty for not having insurance and then they are going to find out that the 2015 open enrollment period has closed. This means that they are going to have to pay another (heftier) penalty in 2016.
The good news is that Graham knows some people can qualify for an insurance exemption. This means that they will not have to pay any penalties. According to Graham there are many taxpayers who are not aware of this “loophole”. It is part of his job to find out if someone can be exempted from the Health Care Act.
One example of this would be a “hardship case”. For instance someone failed to get health insurance but they had extreme financial concerns. High utility bills, loss of income and other factors might qualify for exemption status. Graham further states that many of his clients are too embarrassed by their circumstances to volunteer such information and he must tactfully explore the situation to see if he can help prevent them from being penalized
One additional problem is that people tend to delay worrying about tax returns until the day that they have been given their W2 forms. This means that they will just start scheduling appointments toward the end of January. Then their window of opportunity for the open enrollment may be as brief as 2 weeks.
As seen above, getting health insurance before the 15th of February is the best decision you can make to avoid the penalty tax during the upcoming tax season.
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