How the Affordable Care Act Affects Your Practice

Did you know that tax season 2014 is going to be one of the roughest in recent memory? Those are the warnings from National Taxpayer Advocate Nina Olson who says it could be “awful.”

But, don’t just take her word for it. IRS Commissioner John Koskinen predicts the worst phone service the IRS has delivered in more than two decades, and warns of possible shutdowns. The twin culprits, according to Olson and Koskinen, are budget cuts and the Affordable Care Act (ACA). Put them together, and you’ve got a recipe for a very difficult filing season.

On the other hand, the picture may not be as gloomy after all. For starters, we aren’t dealing with major, late-breaking tax legislation. The IRS opened as usual on Jan. 20, and while the ACA involves some of the biggest and most complicated tax law changes in history, most Americans have health insurance and will simply need to check a box on their returns saying so.

So, what does all of this mean for the tax professional girding for the rest of busy season? Simply put, in addition to the usual preparations – CPE and boning up on forms changes, for example – you’ll need to understand how the ACA affects the tax return and help your clients understand what they need to do. I would’ve thought this would be relatively easy. Tax pros, after all, have seen this kind of movie before.

Unfortunately, this may be where things have the best chance of going off track. First, the IRS and Health and Human Services (HHS) took much longer than expected to finalize the rules under which everyone has to operate … and those rules are complicated. Moreover, in the first year of any implementation, everyone’s learning about how things are going to work. That includes taxpayers and there will be bumps.

For example, how many people do you suppose know what Form 1095 is and what they’re to do with it? I put this question to an audience of about 100 people late last year and only four knew the answer – and this was an audience of practitioners. These folks were tops in the field and I have no question about their capabilities, but healthcare is new territory to them.

In the past, the biggest question for most clients was whether their medical expenses were big enough to qualify for a deduction from income. Now, there are new forms and new terms: the second lowest cost silver plan and does it apply? What is MAGI and how does it differ from AGI? What is a household for purposes of determining coverage requirements? The list goes on and on.

There are also the natural issues that come with a new program. Your clients may have gotten Form 1095 in the mail, but will they even recognize it or know what to do with it? They may not have gotten insurance because they thought the penalty was only $95 instead of 1 percent of income. Or, they may have underestimated their incomes when computing the premium tax credit and may find they’ll need to repay it – at the expense of a smaller refund.

Two years from now, healthcare will be another feature of the tax process, albeit a complicated one. The rules will be clearer and taxpayers will understand their responsibilities much better than they do today. By that time, the IRS and HHS will have learned how to administer the program’s complexities. In short, we’re in transition.

To help you talk to your clients about these topics, Intuit has created an ACA Resources page – a comprehensive listing of practitioner and client guides, checklists, and information for tax professionals, individual clients and more.