The ACA and how it affects taxes is going to be a major topic of discussion between you and your clients this tax season. Although the season has already started, it’s not too late to plan how you will address taxpayer questions relating to the ACA if you haven’t already.
Even though we aren’t insurance brokers, in the grand scheme of things, we are going to be the bearers of bad news if your client failed to get qualified insurance or received a premium tax credit up front and underestimated their income.
Here are some ways you can prepare for (and reduce) the questions you may get this season.
Get Familiar with the ACA Procedures
The IRS has released a lot of information in the past couple months to help tax preparers get ready for the upcoming season.
For a walk-through of all of the ACA Tax Provisions and other important information, review the Affordable Care Act (ACA) Tax Provisions section of irs.gov.
You should also review Publication 5187, Health Care Law: What’s New for Individuals & Families. It covers the provisions of the health care law that taxpayers will see for the first time on their tax returns this year.
You should also know the penalties, and be ready to explain why they may be more than your client was expecting. Many people might think the penalty is only $95, however the fee is calculated two ways and your client is responsible for paying the greater of the two:
- 1% of your yearly household income. (Only the amount of income above the tax filing threshold, $10,150 for an individual under 65, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
- $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.
You’ll also need to be able to explain why a client who received a premium tax credit might owe additional taxes when they file their return. IRS.gov has a section on Premium Tax Credits if you need to brush up.
Know where to go for information
The IRS also has a database of information written specifically for tax preparers called The ACA Information Center for Tax Professionals.
Know Your Forms
There are some new forms you’ll need to know about as well as changes to existing forms.
Clients who purchased insurance through the exchanges will need to bring you form 1095-A. This form lists everyone in the household who has coverage and what the government paid in subsidies for each person.
Form 8962 is the Premium Tax Credit Form for claiming or reconciling subsidies.
Form 8965, Health Coverage Exemptions is to report a coverage exemption granted by the Marketplace, or to claim a coverage exemption on a client’s tax return. In addition, if for any month a taxpayer or anyone listed on their tax return had neither qualified health care coverage nor an exemption, the instructions for Form 8965 explain how to calculate the shared responsibility payment.
Client communication is going to be crucial this season. If you want to be proactive (and save time answering questions), you should start prepping clients now.
You can do this through:
- Email newsletters
- Free Q&A seminars at your office
- Social Media
- Over the phone when you call to schedule appointments
You should communicate things like:
- Forms they need to bring
- The penalties and fees they may owe
- Information on how the ACA may affect their return
- Send information on exemptions and how to qualify
- Remind them to get insurance by Feb. 15 to avoid the penalty next year
Are you prepped and ready for the season? Tell us how you’re handling the ACA changes.
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Affordable Care Act Updates Tax Preparers Should Know About
Educating Clients on the Affordable Care Act