Tax preparers brace themselves for clients who went without health insurance

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    It's that time of year again

    It's that time of year again

    There’s a new reason to be nervous about your next tax appointment…as if you needed one.

    Darren Dabner just wants to get his taxes over with, but he’s a little anxious this year. For the first time, he and millions of other Americans may owe the IRS money for being uninsured.

    “Last year, I came in and I expected this amount back, and now I’m sitting here, I could get penalized,” says Dabner, a healthy 28 year old who just graduated from college. “So that’s definitely money out of my pocket.”

    Dabner enters Bill Holtzman’s tax office near the Philadelphia Museum of Art to find out how much he owes. But Holtzman is also feeling anxious.

    “I have to brace myself that people are going to feel devastated,” says Holtzman, who has been in the tax business for over three decades. “And I have to prepare myself to explain to my tax client that there are other alternatives out there.”

    holzmanBill Holzman is a Philadelphia tax accountant who says he’s anticipating confusion when it comes to taxes and health insurance. (Kimberly Paynter/WHYY)

    Because new rules under the Affordable Care Act have kicked in—adding a new layer of complexity to millions of people’s taxes—Holtzman and hundreds of thousands of other tax professionals across the U.S. have spent an unprecedented amount of time prepping for this tax season. For Holzman and others it means newly confused clients, new conversations, new calculations, and in some instances new and unexpected headaches.

    New Penalties

    For the first time, people who, like Darren Dabner, are uninsured, may owe the IRS money or have to file for an exemption. The penalty for not having coverage in 2014 is the greater of $95 dollars or one percent of a person’s adjusted modified gross income. That amount is capped at the national average premium for a bronze plan, or $2,500 for this past year. The penalty increases in future years, going up to $325 or two percent of an individual’s income for 2015.

    “I think everybody knew there was a penalty, but people didn’t understand how high the penalty could be,” says Holtzman.

    Exemptions include people who experience certain “hardships,” have low incomes, may have been in the “coverage gap” in states like Pennsylvania, or were uninsured for less than three months.

    A New Layer Of Complexity For Those With Obamacare

    For the millions of people who enrolled in coverage through the Affordable Care Act’s online marketplace, they may experience a different layer of complexity with their taxes.

    “This is brand new stuff,” says Holtzman, holding a 14-page 8962 form he has been scrutinizing, to ensure he’s ready to go through it with clients. The form applies to people who got federal subsidies to help pay for their insurance premiums. The amount of assistance is based on a person’s estimated income for the year.

    What that means is that now during tax time, a person who earned more than they anticipated will have to pay back some of that subsidy. On the flip side, a person who earned less may get money back from the IRS.

    “I know I’m going to feel more stress,” says Holtzman. “I have to change our workflow because of this.”

    Tax Preparers Nervously Prepare

    A few blocks away, Stuart Katz, another tax pro, is also feeling anxious. On a scale of one to ten, his level of preparedness?

    “I think we’re about a 6 to a 7,” says Katz, who has a lot more questions about how this will all work in practice.

    But it’s not just the smaller shops that are bracing for some confused clients and added work.

    “We did at least 15 hours of training just on the Affordable Care Act,” says Kim Busbee, a senior tax advisor at an H&R Block office in West Philly.

    That involved role playing and even a segment entirely focused on teaching tax preparers how to be more empathetic toward clients, who may be even initially shocked with some unexpected forms and penalties.

    “So we try to put ourself in the clients shoes,” says Busbee.

    Busbee says a successful visit will hinge on being able to really help people understand why they may owe a penalty, for example, and what they can do to prevent that in the future.

    Jackson Hewitt Tax Service, a competitor to H&R block, has also been putting in extra resources to prep their tens of thousands of preparers. They too designed their own software and an online curriculum that features info-graphics, talking points and role plays.

    Majority Of Population Not Affected

    Jackson Hewitt’s chief tax officer, Mark Steber, doesn’t think the tax season will be as rocky as some preparers might be anticipating. He says keep in mind most people already have insurance and really won’t be affected.

    “I would fully estimate about 80 percent of the tax paying public will have a minimal impact on their tax return,” says Steber. “That is to say they had insurance coverage for they and their family for the whole year.”

    That basically involves checking off a box on a tax form.

    Steber is anxious about one thing, though. The deadline for individuals to enroll in health insurance through the marketplace is February 15, two months before the deadline to file taxes.

    “We’re very concerned for the simple fact of the matter that enrollment ends on February 15, and quite a number of tax payers will not have filed their tax returns by then and will not know they owe a penalty or realize they’ll owe a triple or double sized penalty next year,” he says.

    But by then, it will be too late to sign up for coverage.

    Steber also says the size of a person’s refund may factor into whether they want to sign up or change their marketplace plan.

    Facing The Penalty

    As for Darren Dabner, who came in to Bill Holtzman’s office to get his taxes done, he learned he’s facing the minimum, $95 dollar penalty.

    “It’s not as much as I thought, so I guess there’s a silver lining here,” he says.

    Dabner says he’s now weighing his options—either sign up for health coverage through the online marketplace and avoid a penalty in the future, or don’t and face a much greater fine next year for being uninsured.

    Open enrollment ends February 15, so he has two more weeks to decide.

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