H&R Block, the nation’s largest retail tax preparation company warns that the newly released Obamacare tax code, officially called the Affordable Care Act, is likely to confuse millions of taxpayers who try to tackle their tax returns for 2014.
“Now that the Affordable Care Act has made health care a tax issue, no one can understand it,” H&R Block flatly tells taxpayers in a video that resides on its dedicated Obamacare web site.
A former IRS Commissioner agrees, and cautions that the new tax requirements will be a “shock to the system,” especially afflicting low-income earners who have never itemized on their tax return.
The tax preparation giant — with 24 million tax clients worldwide — reports that the Obamacare tax rules now constitute “the biggest tax code change in the last 20 years.”
The company is so concerned, it has launched a high profile national television advertising campaign directed solely at Obamacare enrollees. The ads were first broadcast the weekend of Jan. 10 during the NFL playoffs.
Illustrating H&R Block’s point is IRS Publication 5187, which attempts to explain to taxpayers how to comply with the new Obamacare tax requirements. That publication runs for a total of 21 single-spaced pages.
This year, for the first time, taxpayers will feel the full weight of the Obamacare tax rules, which were enacted in 2010. The new tax code regulations will apply to all Americans who file 2014 tax returns.
Some Obamacare users may discover that they need to repay the government for the subsidies they received to cover their health insurance premiums. A few will discover they were not entitled to insurance at all.
Other taxpayers also will find their refunds are smaller, due to penalties incurred because they didn’t enroll in a government-approved health plan.
Penalties for non-compliance with Obamacare have tripled since 2013, from $95 to an average of $301, according to an email to The Daily Caller from software giant Intuit which runs TurboTax, a competitor to H&R Block.
A large percentage of Obamacare enrollees are low-income earners who opted for the program because they qualified for government subsidies that would lower their monthly insurance payments.
H&R Block’s Tax Institute found in a national survey released last fall that nearly three out of four low-income earners were not aware of the need to file anything with the IRS because of their Obamacare insurance.
“Lower-income respondents (72%) are significantly less likely than other income brackets to be aware of the law,” the Institute reported.
Former IRS Commissioner Mark W. Everson, now vice chairman of Alliantgroup, warns the new Obamacare requirements will deliver a “shock to the system.”
“Low income filers are not used to itemizing and it will be a big challenge for them,” he noted in an interview with TheDC. “You’re introducing a whole new level of complexity.”
Grace Marie Turner, president of the non-profit Galen Institute and a critic of Obamacare, calls the new IRS filing requirements “a nightmare.”
“People don’t even know that they have to comply with this law through their tax filing,” she said in an interview with TheDC.
At the heart of the Obamacare tax rules are three new IRS health-related forms.
One is Form 1095, which will be sent to the estimated seven million Obamacare enrollees who received a federal subsidy.
Turner warned that many who will receive Form 1095 are likely to throw it out. “Many will think it’s junk mail.”
To prove they were entitled to subsidies, recipients will have to fill out a second document, Form 8962.
Mark Jaeger, a tax team leader at the software company Tax Act, which competes with H&R Block, says Obamacare recipients will be “most definitely” confused by Form 8962.
“If they’re trying to do it on their own doing, and do it by hand, that’s going to be pretty difficult for the user,” he told TheDC.
Turner agrees. “Millions of people who were used to doing a simple 1040 EZ form are going to be required, now, to fill out this complicated 8962 tax form.”
A third form, 8965, is for taxpayers who did not have a government-approved health insurance plan in 2014 and wish to calculate their penalty.
The IRS never uses the word “penalty” but calls it an “individual shared responsibility payment.”
The penalty will either be a flat amount or there will be a penalty for the tax filer, spouse, every child and dependent in a family. Form 8965 also is used if taxpayers believe they are entitled to an exemption.
To arrive at their penalty, Form 8965 requires taxpayers to first calculate their income “threshold,” and detail it for every month of the year. The income threshold table is not part of the regular IRS instructions and must be acquired from the ACA section of the IRS web site.
The calculation is so complicated the IRS advises, “Taxpayers should use the worksheets located in the Instructions to Form 8965, Health Coverage Exemptions, to figure the shared responsibility payment amount due.”
Andrew Townsend, another tax analyst for Tax Act, agreed in an interview with TheDC that the 8965 “calculation is rather complicated.”
“It’s not something people are going to be able to find on their return,” he said. “It is a totally separate calculation that they’ll be needing to do.”
The understaffed IRS will only be able to handle less than half of taxpayer calls and waiting times could average about 34 minutes according to Nina Olson, the IRS’s official tax advocate.
In addition, in her annual report to Congress on Jan. 9, she said the IRS would only be able to handle “basic” questions.
The Department of Health and Human Services last September allocated $60 million to 90 community and left-leaning activist groups to pay for “navigators,” people who are supposed to advise Obamacare participants.
The navigators, however, were only trained to assist with signing up for Obamacare — not how to “navigate” the law’s complicated tax requirements.
The public’s tax problems over Obamacare and the lack of government support is translating into a big win for the tax preparation industry. H&R Block has indicated that Obamacare tax revenue could generate a windfall profit of more than $104 million for his company just this year.
Company CEO Bill Cobb told Reuters on Jan. 7 that up to 25 percent of H&R Block’s client base might be required to fill out the new Obamacare IRS forms. He said his company could earn between $5 and $30 per Obamacare document.
That, according to an analysis by Wedbush Securities, estimates the additional revenue could be as high as $104.25 million for H&R Block.
The giant firm has positioned itself to reap the rewards of Obamacare business. Chief marketing officer Kathy Collins stated at the Jan. 5 launch of the company’s Obamacare tax service: “Our tax professionals understand the increasingly complicated tax code, including confusing changes with the Affordable Care Act.”
On Jan. 9, the company launched a national TV ad—part of an overall campaign that the Daily Twitch, an analyst of an advertising agency estimated will cost $200 million.
The ad debuted the weekend of Jan. 10. In the 30-second ad, a bow-tied narrator tells viewers: “On the one hand, you have taxes. On the other hand, the Affordable Care Act.”
The narrator goes on: “And that leads to a lot of questions, like, ‘What does the Affordable Care Act have to do with my refund?’ Or, ‘Who can help me figure this out?’ We can.”
The media buy is big, with 2,986 national TV airings, according to iSpot TV.
As part of its aggressive marketing campaign, the company also organized an “ACA Q&A Day.” Obamacare enrollees were invited to visit one of H&R Block’s 10,000 retail offices on Jan. 8.
According to a company spokeswoman, more than 200,000 people showed up.