Obamacare complicates the coming tax season

Obamacare's individual mandate is going to affect personal tax filings for the first time in the upcoming tax season, and the impact just might be a doozy.

"At a recent convocation of enrolled agents, I found that a good many of the veteran preparers are considering retiring because of the health care confusion and complexity," says Ken Shirk, founder and president of Lebanon-based Sonrise TagsAnd-Tax LLC.

There are two main issues. The first requires that filers prove they had qualifying health care coverage in 2014, or an exemption; if not, they'll be subject to a penalty.

The second centers on the federal subsidies for those with income between 138 percent and 400 percent of the federal poverty level who purchased health insurance through the Obamacare marketplace. These subsidies were based on enrollees' income estimates for the year and could be received via payments to the insurer throughout the year or as a lump sum upon filing 2014 tax returns.

"Receiving too much or too little in advance can affect your refund or balance due," the IRS says. If your income estimate was too low and you chose to receive the subsidy throughout the year, you'll end up owing the government for the difference between what you got and what, in retrospect, you were actually entitled to.

According to the U.S. Department of Health & Human Services, subsidies dropped monthly premiums 74 percent for eligible Pennsylvania enrollees.

What that means for preparers

Shirk says this addition to the tax-filing process is going to require numerous new forms, and he and other preparers expect that many clients will not initially have all the necessary information and documentation.

"Add to that the likelihood of people trying to scam the system to get undeserved credits, which the preparer must guard against due to the sanctions and fines that the preparer is subject to, and it's not a nice picture," he says. "Fees will increase dramatically in some cases because of the extra work and the increased liability for an improperly prepared return."

The IRS Volunteer Income Tax Preparation program, which in Lancaster County is offered through the United Way and is available to individuals and families who make less than $50,000, won't see fees increase, because it's free. But Steve O'Neill, United Way of Lancaster County's VITA adviser, does expect an increase in demand.

Last year, O'Neill says, about 185 volunteers prepared 4,850 returns in the county, saving participants an estimated $200 in preparation fees per return. The program has drawn mostly people from the lower end of the eligibility range, with average income of participants at about $18,000.

But because other services may be more complicated and more expensive this year, he thinks people who have gone to another preparer or done their own returns in the past may seek out VITA this year.

As usual, VITA is seeking new volunteer preparers, who don't need to be accountants but must pass an IRS certification program annually. This year, O'Neill says, they will be getting extensive training on the changes, but he doesn't think it will scare off veteran volunteers.

"I think they're looking forward to a new challenge and helping people with something that is difficult," he says.

One challenge VITA can't help people with directly is renewing or selecting health insurance through the Obamacare marketplace. Volunteers got lots of questions about that last year and referred them to other organizations with trained Obamacare navigators and assisters. This year, he says, the organizations might work together to have navigators and assisters at some VITA sites so they can answer questions immediately. <

"I think they're looking forward to a new challenge and helping people with something that is difficult."