Tax Pros Face Obamacare Questions

January 7, 2014


By Jeff Stimpson

The Affordable Care Act — along with its accompanying enrollment Web site and new taxes and tax breaks — has opened up a host of questions for the taxpaying public, ramping up the usual levels of pre-tax season taxpayer confusion.

“Forty of the 500 provisions in the ACA amend or add provision to the U.S. Tax Code,” reads a primer from The Income Tax School. “Most of the changes that are to be implemented in 2014 have to do with healthcare coverage [that] requires that each person either have the minimum essential coverage, qualify for an exemption or make a payment when filing his or her federal income tax return.”

Among the new taxes is a 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single), and a 0.9 percent additional Medicare tax.

The health care reform also includes numerous mandates, conditions and requirements for both individuals and businesses of all sizes, sparking confusion in taxpayers and questions for tax preparers.

“Most people are aware that there will be a penalty for the uninsured, but not much else,” the ITS primer adds. “Although you are not required to brief your clients on the Affordable Care Act, you should consider at least informing them of their options.”

Painful learning curve

“We’re trying to inform our business clients of their obligations,” said Steven Hanson, a CPA with Minnesota-based Piehl, Hanson, Beckman PA. “I don’t think most individuals realized that by the first of the year they needed to have health coverage or risk paying a penalty. There’s still a huge learning curve out there.”

“The largest complaint I am hearing is that their medical premiums are rising,” said Kristin Roberts of The Roberts Tax Group in Torrington, Conn.

Clients “aren’t worried so much about the taxes,” said Enrolled Agent Susan Floyd of Paducah, Ky.-based Egner’s Tax Service. “They’re seeing that the health insurance cost is the same amount as their rent or car payment, their part of the health insurance payment is more like 13 percent to 14 percent of their income. They’re barely making it now.”

Added Sherry Whah, of Sherry Whah EA & Associates in Anchorage, Alaska, “The majority of my clients don’t see that this program will work [and think] that much of it is bad law. They believe that insurance rates will increase and patient care will decrease while many doctors retire, not accept any more new patients or refuse care. They believe they are being forced into higher premiums or insurance costs they clearly can’t afford.”

Some taxpayers may worry for little reason. “I do have several clients who will be impacted by these new taxes, but there are few taxpayers who will be impacted by these taxes in the overall scheme of things,” said Frank St. Onge, an EA with Total Financial Planning, Brighton, Mich. “When I discuss this issue with my clients, I start with what they need to understand about all the income on their return and what they can do to limit their tax liability.”

Preparers’ role

Preparers are taking several steps to shed light on the ACA for clients. EA Stephen DeFilippis, at DeFilippis Financial Group in Wheaton, Ill., for instance, has run 2013 projections to advise clients on the impact of Obamacare taxes. “We adjusted clients’ withholding and estimated tax payments accordingly,” he added.

EA Cynthia Jeanguenat, of Horizons Unlimited Tax & Business Services in Virginia Beach, Va., put together a client newsletter posted on the Web site of the National Association of Enrolled Agents. “We have several clients in the $200,000 to $250,000 income range, so we have already spoken with them and done a rough 2013 estimate so they can have extra withholding out of their paycheck,” she said. “Our firm also has a Facebook page and we post tax news and tidbits there, plus we send out a targeted client e-mail on [ACA] news that requires action such as the employer notice to employees.”

Preparers have a chance to rise in clients’ eyes by educating them about the ACA. Some of that education starts with simple, smart tax advice.

“When a client has huge amounts of taxable interest, dividends and capital gains on their return that they really don’t need for daily living, I try to educate them how each of these items are taxed and how they could get rid of the tax if they invested differently,” said St. Onge. “One example would be a client who has interest income of $10,000 taxed at 33 percent and is concerned it will be taxed under Obamacare for another 3.8 percent. He has this type of income because he’s conservative in his investment style and afraid of a stock crash and won’t invest in an index fund that creates little if any taxable income until the stock is sold. Most clients have no idea that they have income taxed at 15 percent if [it’s] qualified dividends or capital gains but taxed at 33 percent if it’s interest or non-qualified dividends — but they’ll complain about the 3.8 percent tax on their investment income.”

Writing recently on, TaxVox blogger Howard Gleckman suggested using tax preparers to actually sign people up for Obamacare — an idea supported by Jackson Hewitt exec Brian Haile and long-since floated by The Urban Institute.

“We clearly need to study more about this law rather than take a knee-jerk reaction to it,” said Alaska-based Enrolled Agent Whah. “The more [we’re] informed and educated about it, the more we’ll be able to address the problems.”