No dodging those three little letters anymore: The tax prep requirements of the ACA, or Obamacare, are now due.
Since Jan. 1, 2014, individuals must have health insurance for themselves and their dependents. Most people only have to check a box on their 1040 to indicate they had coverage. Those who don’t have health insurance for one or more months during the year may have to pay an additional tax, the individual shared responsibility payment. Americans who do not have health coverage may qualify for an exemption from the penalty for being uninsured.
If you’re a good preparer, of course, you already know all this. Your question: How will the new filing requirements affect your fees?
“No doubt the act will affect our billings and what we charge our clients,” said Jeffrey Schneider, an Enrolled Agent at SFS Tax & Accounting Services in Port St. Lucie, Fla. “I’m sure that clients will want me to help them. This is, however, outside of tax preparation. If we do want to help them, that is extra time and there should be extra fees. Also, all legacy preparers (EA, CPAs and attorneys) have to complete a 7216 Disclosure Statement if we want to help the clients.”
The IRS had braced itself for “an onslaught of questions” related to the ACA and Liberty Tax Service president, CEO and chairman John Hewitt told Accounting Today in an interview that he anticipates increased business for preparers this season thanks to the ACA.
Not to mention adding “significant time to the preparation of our clients’ returns,” said Melissa Bowman, an EA at Rainbow Accounting Services in Bradford, Ohio. “This is resulting in significant increases in fees by large box stores as well as by independent professionals.”
Douglas Lindgren of Lindgren’s Tax Service in Brooklyn Park. Minn, plans on charging more, “approximately $15 per return to spread it out and $50 to $100, depending, for clients who have insurance purchased through the Exchange and have Forms 8962 and 8965.”
And it seems Hewitt was probably right: As of early January, Bowman was already getting calls from prospects “who have always prepared their own returns and who are no longer comfortable doing so because of the complexity of the ACA forms.”
The ACA will be the leading cause of increases in billing and rates this year, predicted EA Janie Biddix of Advanced Tax Specialists, Dalton, Ga. “Worksheets and forms will be very time-consuming and will present a challenge,” Biddix said. “Also, taxpayers will be hard-pressed to understand, obtain and relate the information needed to prepare these forms.”
EA Martha Nest of Westview Tax Services, Bardstown, Ky., who specializes in small-business returns, reported early issues with clients who ready to file -- except for not having their 1095-A. “Along with my clients having to pay more for my services due to more schedules and forms, my beginning cash flow is suffering,” she reported at the start of the season.
Fallout had also begun on the fees of Princeton, N.J.-based Padgett Business Services, according to owner Kathleen Fitzpatrick. “Today we price our returns by schedule,” she said, “and we have developed a new price for each form so overall we will be charging more per return given the added complexity.”
“Prices will definitely go up just for the aggravation, although most employed people will be simple [to prepare],” noted New York-based preparer Maurice Trauring.
Any easy clients?
“I see my billing rates only going up for the forms required,” said Becky Neilson of Neilson Bookkeeping, in Sheridan, Calif. “I bill by the form and don’t see the forms as that complicated. I do have a worksheet that I will use at intake to gather information from clients to ease the process. My current clients should be relatively simple as most have coverage, and [some] I assisted getting coverage as a certified enrollment counselor The only issue I see is when clients are waiting for their 1095-A for proof of coverage. It may delay the ability to complete clients’ returns.
“You’d think this would be good for our preparation businesses,” she added. “The problem I see is that with the significant additional time needed to prepare returns for our current clients, we are limited by the amount of new clients we can take on and service properly.”
“Even if they have it for the whole year, we need proof that it is minimum essential coverage for all dependents in their home,” pointed out Florida EA Schneider. “The bigger problem is when they do not have insurance for the whole year, took advantage of the Premium Tax Credit (which has to be reconciled), didn’t take it yet, but are eligible for it and want to take it on their return. Then they may be subject to the individual shared responsibility payment and there are new forms and several worksheets we have to go through. Then there are also 14 exemptions to the penalty, another form we have to complete.”
“I have a letter that I’m sending out with all my engagement letters (with other pertinent ACA stuff). It says that [my] time can go up two hours for returns where a client does not have insurance (covering the client and dependents) with their employer for the full 12 months or they are on Medicare, again for the full 12 months,” he added. “In these cases, the client just has to show me proof that they do and it’s a check in the box. Easy.”
Maybe too easy: Preparers report on social media that some early-bird clients say they plan to simply check the “Yes” box regardless of whether they actually had insurance last year, figuring that the IRS will never investigate.
Not all preparers foresaw a surge in fees. Said Donna Sue Henderson of Bristol Tax and Accounting in Bristol, Tenn. “There is a lot of hype on television advertising trying to prepare Americans for increased fees. One retail franchisee friend advised that all of his employees are aiming for the $400 fee range.’ I find this action reprehensible. The big three retail tax firms have one commonality and that is that they charge by the form. They jack up fees for the first peak and [at] the second peak time the prices come down.”
Henderson added that for most Americans, “The healthcare tax is going to be simply checking a box or not. The ones who file who are not the primary owners of the policy such as ex-spouses covering a former spouse and children not claimed on their return, adult children not claimed on the parents’ return or individuals partially covered for the year will make extra work for the tax professional, but the fees should not be out of proportion to other fees.”
“Individuals who can least afford to pay more for tax prep are the ones most affected, lower-income families that qualified for the health-care premium credits or can’t afford insurance at all and will either have to deal with the hardship forms or pay the penalties,” California preparer Neilson added.
Clients have to somehow see that this new law affects everybody’s bottom line. “I hope that clients will understand that I, as a credentialed tax professional, have to bill for my time,” Schneider said.
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