Love them or hate them, there’s one thing everyone can agree upon about the major government-mandated changes sweeping through the world of health care insurance: They’re confusing. And since so many of the changes involves taxes, don’t be surprised if your clients expect you to have all the answers.
The Affordable Care Act, a.k.a. Obamacare, mandates penalties for lack of health insurance: 1 percent of a client’s yearly household income above the tax filing threshold; or $95 per person for the year ($47.50 per child under 18), with the penalty maxing out at $285. The penalty is pro rated based on how many months an individual lacks coverage; annual increases are also built into the law.
Only a little more than half of small businesses understand and are prepared for the changes required by the ACA, according to a recent survey by payroll service provider Paychex.
Nonetheless, clients aren’t exactly beating down doors with questions yet. “The only questions I have had so far (and they have been very few) center around the tax credits associated with employer provided health insurance,” said Stephen DeFilippis, an EA at DeFilippis Financial Group in Wheaton, Ill.
“For the 2013 year, we haven’t seen too many of these questions in our practice,” said Twila Midwood, an EA at Advanced Tax Centre in Rockledge, Fla. “Most clients are currently covered under a plan. We are advising them, however, that should their coverage change, to contact us or a health insurance provider to ensure that they meet the requirements to maintain minimal essential coverage or to at least be aware of the requirements and possible penalties.”
Clients are “not particularly” asking for health care advice from EA Stephen Jordan, in Salem, N.H., “although it is a popular discussion topic at tax prep meetings. Clients seem to know what they are doing well enough and are accomplishing things on their own. I refer clients to an insurance consultant I work with if they need further help.”
Some preparers have worked ahead with clients concerning the ACA. Becky Neilson, of Neilson Bookkeeping in Sheridan, Calif., for example, is a Certified Enrollment Entity and a Certified Enrollment Counselor, one of the first in her state when she completed the requirements last fall.
“I’ve seen how horrible the system can be from both sides, as a consumer and counselor,” she said, “with all the headaches involved in signup online and with lost or unprocessed paper applications. California is still backlogged on the Medi-Cal enrollments for those who didn’t qualify for Affordable Health Care.”
As Neilson worked with tax clients doing 2013 returns, “I reviewed their coverage and the requirements. Some clients chose to accept the penalties but the majority wanted health insurance coverage,” she recalled. “The cost for those not eligible for premium assistance was shocking. Many couldn’t understand why their premiums were so high compared to their old programs. I had to explain that the new minimums for all plans to meet the new standards was causing the problem. They no longer could tailor their health care to meet their minimum needs and were stuck with the options available.”
A few clients refused to accept Affordable Health Care, she added, “thinking it would be repealed before they needed to do their taxes.”
Neilson’s self-employed clients “plan on checking in with me in early July to see if we need to do adjustments in their estimated tax payments,” she said. “They all plan to visit me at the end of each quarter. Hopefully I can keep them ahead of the game by tax filing in 2015. I plan to include updates on the health coverage in my bimonthly newsletters.”
Clients seem more likely to show up with questions if they or their spouse lose or change employment. Midwood, for example, added that her firm has received questions from those who’ve become unemployed and concerned about being subject to penalty for failure to have insurance. “Some of these individuals realize that, for now, any potential penalty would be less than the cost of coverage,” she said.
Chuck McCabe, founder and president of Peoples Income Tax and The Income Tax School, recently spelled out for preparers some of the issues of Obamacare and the nature of help clients might soon expect. Among his points:
- The next open enrollment for Obamacare begins November 15.
- Some clients may qualify for the special enrollment period while the ACA insurance marketplace is closed. This applies to people who had a “qualifying life event” such as changes to family size or a “complex situation related to applying in the Marketplace.”
- Those exempt from the individual responsibility payment include clients uninsured for less than three months; those for whom the lowest-priced available ACA coverage exceeded 8 percent of household income; those who didn’t have to file a return because of low income; and members of federally recognized tribes or those eligible for services through an Indian Health Services provider, among others.
- Clients who have obtained health care coverage through the Marketplace may be eligible for a premium tax credit.
- Preparers should bone up on what forms are and will be needed concerning the ACA, how to verify clients’ compliance, and any penalties for preparers who stray from ACA compliance.