[IMGCAP(1)]The Affordable Care Act requires that in 2014 all Americans must have qualified health insurance or face a Shared Responsibility Payment.

Treasury Department officials believe that most—80 percent—of taxpayers will have little more to do than check a box on their tax return indicating that they had health care coverage during 2014.

However, they also warned that up to 6 million taxpayers who failed to secure health insurance in part or all of 2014 will be liable for a penalty of up to 1 percent of income.

Since the Act allows insurance providers and large employers a one-year delay in reporting the coverage in 2014 to both the IRS and the taxpayers, this effectively renders the health care penalty a voluntary oral reporting item for 2014 in many cases, according to John Raspante, CPA, senior vice president and director of risk management at NAPLIA, the North American Professional Liability Insurance Agency.

However, Raspante warns accountants to be cautious with the advice they give clients about the ACA.

“One of the issues we’re struggling with is that not every accountant has an insurance background, particularly in medical insurance, but they should be as familiar as possible with the ACA,” he said. “There are specific questions they may be asked. Whether a CPA should entertain those questions and how much information they should provide is always questionable, because they may not have the necessary skill set for that.”

“In addition, there are a lot of employment law matters surrounding the ACA, and CPAs need to be very careful regarding UPL [unlawful practice of law],” Raspante said. “They can give advice about tax, but they have to be cautious when it’s construed to be the practice of law. Many states have prohibitions against accountants giving legal advice.”

“Once they get through all of that, the next thing will be the imposition of potential penalties for not having coverage,” Raspante added.

CPAs need to be very familiar with the exemptions available. The CPA struggling to get through tax season has the additional hurdle of filling out these forms.

CPAs may need to ask for the necessary information from the exchange to complete the return, Raspante noted. Form 1095-A gives the dates of coverage, the total amount of the monthly premiums for the insurance plan, the information needed to determine the amount of the premium tax credit, and any amount of advance payments of the premium tax credit. This form is supposed to be received by the taxpayer by early February, but many taxpayers will come in to see their tax preparer before they receive the form.

“It’s a distraction and a huge practice management issue,” said Raspante. “Even though we’re on the honor system for this year, it should be a learning year for CPAs. Preparers shouldn’t get relaxed that the IRS will not cross-reference to carriers if they checked the box on line 61.”

“We were getting so many calls on what level of due diligence CPAs ought to do,” he said. “We considered tax organizers, engagement letters or a standalone letter. We felt that both the organizers and the engagement letters may not get signed or returned, so we created a standalone letter. We suggest that every client of the accounting firm sign the letter.”

The letter states: “In order to remind you of the rules and to protect us both from future IRS liability in the event of an audit and/or IRS inquiry, we require all individual taxpayers for 2014 to positively affirm the following items related to health care.”

The letter has a box to check that the client had coverage for the full year, and five other boxes to check off, according to Raspante.

“In the event you do not have qualified health insurance for the entire year for all member of your household who qualify as dependents, we will calculate the penalty and include it with your return. Please attach any exemption certificates for dependents to this form,” the letter concludes.

“The best practice management advice is to read the Act, the forms and instructions, and do a few sample returns,” said Raspante. “They should do a few of the complicated ones, where the taxpayer went to an exchange, or had several insurance carriers during the year. It could impact what clients thought would be their refund.”

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access