This is the first year Americans are required to have health insurance. But how will they show they’ve complied with Obamacare’s individual insurance mandate?
For most, it will be simple: they’ll just have to check a box on their tax forms.
But for people who bought their insurance through public health insurance exchanges, or who will face a penalty for being uninsured during some or all of the year, filing taxes could be considerably more complicated.
And that worries officials at Connecticut’s exchange, Access Health CT.
Acting CEO Jim Wadleigh is concerned the Internal Revenue Service won’t be prepared to handle the call volume from customers who aren’t familiar with the tax process and will have more complicated returns because of the health law.
He also worries that many of the exchange’s customers will have questions about how to handle their taxes and about the tax form they’ll receive in January to show that they bought coverage through the exchange. The exchange isn’t allowed to offer tax advice, but Wadleigh expects many customers will call seeking guidance.
And so, in the midst of a busy sign-up period for coverage, the exchange is also working on a push to prepare this year’s customers for tax time. That includes sending multiple letters to explain the new tax form that exchange customers will receive in January. The form will be required for completing their taxes.
Tax preparers are also getting ready for what they expect to be a tax season with considerable confusion for consumers — and significant demand for tax help.
“This is one of the biggest legislative changes in history that touches all taxpayers,” said Mark Steber, chief tax officer at the tax preparation company Jackson Hewitt.
But the way it affects people will vary significantly.
“For some people, this won’t be a big deal,” said Alison Flores, principal tax research analyst at The Tax Institute at H&R Block, the tax service’s research and analysis division. “For other people, this is going to be the most changes they’ve ever seen on their tax return.”
If you had health care coverage all year…
The health law’s impact on taxes will be simplest for people who had coverage all year and obtained it outside the exchange.
They can simply check a box on their tax forms, without having to submit documentation proving they had coverage, IRS spokeswoman Peggy Riley said.
“As always, taxpayers are responsible for the accuracy of the information on the tax returns that they sign,” she added.
The health law sets up a system of third-party information reporting to the IRS about people’s coverage status. Starting next year, insurers and some employers will be required to send reports on health coverage to taxpayers and the IRS.
If you bought insurance through the exchange…
Things will be more complicated for people who bought insurance through public health insurance exchanges like Access Health. In Connecticut, that’s between 80,000 and 82,000 people, or about 53,000 households.
By Jan. 31, they should receive a form in the mail known as a 1095-A. It will include information about people in their household who received insurance through the exchange, their monthly premium costs and any tax credits used to discount their premiums.
Exchange officials worry people won’t know what to do with those forms and are anticipating many to call with questions. They’re planning to mail customers two notices about the forms, one in December and one in January, before mailing the forms themselves in January. Access Health is contracting with Thomson Reuters to operate a call center to address questions about the tax forms, and is developing an in-house unit to address more specialized questions.
“We’re preparing for the worst,” said James Michel, the exchange’s operations manager.
Tax preparers are also worried.
People who coordinate volunteer income tax assistance programs — which are available to people earning up to $53,000 per year — are concerned that clients won’t receive their forms in time or won’t know to bring them, said Lucille Vaughan, who coordinates the tax assistance program for the Connecticut Association for Human Services.
While people can file tax returns and then amend them later with information for certain tax credits, Steber said that’s not the case with the information contained on the 1095-A forms.
“You will need that paperwork and you will not be able to proceed without it,” he said.
Some states plan to make the forms available electronically, so people who arrive at a tax preparer’s office without their 1095-A could access it through the Internet, Steber said. But Connecticut customers won’t have that option. Instead, if they lose the form, they will need to call Access Health, and the exchange will reprint the form and mail it to them, Wadleigh said.
Another concern: potential customer confusion when they see on the forms that they received a large tax credit. The money that discounts their premiums is a tax credit, paid in advance to insurance companies, but officials say many people don’t realize that. And those who earned more income than they anticipated when they signed up for coverage could have to repay some or all of the tax credit paid on their behalf.
“Many of our customers probably don’t even realize they’re getting a tax credit,” Wadleigh said.
If you’re uninsured…
For tax purposes, people who are uninsured fall into two categories: those exempt from the mandate and those who will have to pay a penalty for not having coverage.
People can be excused from having insurance coverage for a variety of reasons, including being part of a health care sharing ministry or if the only coverage available to them is considered unavailable. For most exemptions, Connecticut residents must apply for them through Access Health (the form is available here). People whose applications are approved will receive a form with an exemption ID number that must be included with their tax return.
As of last week, 260 people had applied for an exemption and 152 had been approved, exchange spokeswoman Kathleen Tallarita said.
Not all exemptions need to go through Access Health, including one for people who don’t earn enough income to meet the filing threshold.
People who aren’t exempt from the mandate, and who haven’t had insurance will have to pay the penalty: $95 or 1 percent of income above the tax filing threshold, whichever is higher, prorated for the number of months they were uninsured.
Steber said there are still questions about the penalty, including what happens if a person calculates it incorrectly. Everyone has a theory on how it will work, he said, “But much like anything, until you turn it on, you just don’t know.”
Will the IRS be prepared?
Wadleigh says he’s worried the IRS will get more calls than anticipated with questions at tax time. He said when exchange officials from across the country raised their concerns with IRS officials earlier this year, they were told to tell people to meet with their tax advisers, even though Wadleigh said most probably don’t have tax advisers.
In testimony to Congress in September, IRS Commissioner John A. Koskinen said the agency is trying to make answers to questions available online, to limit the number of people who need to call for help. Even so, he said officials still expect an increase in calls, and warned that “our ability to meet this demand may be strained due to ongoing budget constraints.”