Worries about how the Affordable Care Act may affect 2014 returns could drive more filers to spend hundreds of dollars to get professional help from accountants and preparation services, tax specialists said.
The tax code changes tied to the federal health care law take effect this year. That has triggered television, radio, and newspaper ads suggesting that filers need to brace for complications and may need specialized tax help.
“For millions of Americans, the Affordable Care Act is no longer some distant conversation,” H&R Block president Bill Cobb, wrote in USA Today op-ed in January. “It’s real. It’s here. And it’s going to affect them at tax time.”
The law essentially requires individuals to carry health insurance or face penalties and to report it on their tax returns. But the vast majority of filers should be able to handle the new requirements without hiring extra help, tax specialists said. Most Americans are insured through their work, and all they need do is check a box stating they had employer-provided coverage in the last year.
The situation becomes more complicated for those who bought insurance through a government sponsored exchange, received subsidies for it, or remain uninsured. They may have to fill out additional forms (move over 1040s, the 1095-As and 8962s are here) and do additional calculations.
For Massachusetts residents, however, these changes are less problematic since the state has mandated medical coverage since 2006, said Angelina Camacho, who leads the Volunteer Income Tax Assistance program at the Action for Boston Community Development, a nonprofit agency.
Less than 1 percent of the state’s residents are uninsured, according to the Massachusetts Center for Health Information and Analysis. About 4 percent buy health insurance through exchanges.
The number of Massachusetts residents who received subsidies to purchase health insurance and will need to report it for tax purposes this year is even smaller, only about 1,000 people, according to the state health officials.
“We are in much better shape,” Camacho said. “We’ve had a number of years to work out the kinks.”
Camacho said she is concerned that advertising by tax preparation firms will lure people who may not really need the help, particularly lower-income taxpayers least able afford the cost, which averages $159 to $273. The state has several Volunteer Income Tax Assistance sites that provide free tax help for low-income residents, she said
“When there is change in tax law like this, there will be practitioners who will benefit even if it is not appropriate,”’ she said.
For a minority of taxpayers, there’s no doubt the Affordable Care Act will make filing returns more complicated. Those without health insurance will have to determine whether they have to pay a penalty or qualify for one of several exemptions, which include earning too little money or having a religious objection to health insurance.
Taxpayers who received government subsidies for health care will receive a 1095-A form with information about their insurance purchase. They will need that information to fill out Form 8962, which will help them calculate whether they received the appropriate amount of subsidies based on income. Some filers may have miscalculated when applying for insurance and received too much in subsidies. They may have to pay the government back or receive a smaller refund.
H&R Block noted that 52 percent of its clients so far who enrolled in health insurance through state or federal marketplaces have been required to pay back a portion of their subsidy. Their refunds have decreased by on average $530, the company said Wednesday.
Ultimately, whether a consumer uses tax preparation firm will depend on how comfortable they feel with the changes, said Kay Bell, a tax editor for Bankrate.com, a consumer financial website. She recommends that filers making less than $53,000 use volunteer tax preparation programs.
Others who decide they need professional help should shop around for the best priced and most qualified preparers, Bell said. They should beware of preparers who only open for business during tax season, because the IRS may come back with questions in July. They should also avoid those who charge based on the refund amount because they may have an incentive to falsify returns to boost their payments, she said.
“A lot of people want to see a human, some person to explain it to them in English,” Bell said. “I think the ACA is going to drive more people to professionals to seek that comfort.”