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Financial Planning > Tax Planning

PPACA tax season update

By Allison Bell

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Many have predicted that Patient Protection and Affordable Care Act (PPACA) tax provisions would make the 2014 personal income tax filing season a nightmare. 

The Internal Revenue Service (IRS) created elaborate tax forms with even more complicated looking instructions.

PPACA and Obama administration regulators set complicated rules for who can use PPACA advance premium tax credits (APTCs) to pay for PPACA exchange plan coverage, how much exchange plan buyers can get, and what happens when the APTC users get too little APTC help or too much.

PPACA imposes a “shared responsibility” penalty on consumers who fail to have what regulators think of as being as “minimum essential coverage” for enough of the year, and Obama administration officials created a complicated set of exemptions from the individual coverage mandate penalty, along with complicated processes for using the exemptions.

See also: 5 great individual PPACA mandate exemption excuses.

So far, however, the only nightmare tax preparers are reporting is a lack of panicked taxpayers crowding their waiting rooms.

The tax preparers are talking about customers organized enough to come in by mid-February, not the stragglers who will rush in with paper bags full of receipts at 4:55 p.m. April 15.

But, for the tax preparers’ observations about how well-organized customers are handling PPACA-related issues, read on. 

An extremely cute disappointed dog

1. Early in the tax season, taxpayers were not swarming into preparer offices.

Liberty Tax Inc. (Nasdaq:TAX) has put out a press release apologizing to its investors for the current disappointing lack of a PPACA-related flood of customers.

Through Feb. 13, the company served 0.1 percent fewer customers than it did during the same period in 2014.

John Hewitt, the Liberty Tax chief executive officer, said in a statement that he thinks PPACA will provide tailwinds for tax preparers for the next several years. “However, we have seen minimal impact so far this season,” Hewitt said. “We believe we will see more impact in the second half of the season as more ACA filers come in to have their returns prepared.”

See also: HHS extends PPACA enrollment for some.

Girl conked on head with soccer ball

2. For taxpayers who owe the no-coverage penalty, the average penalty is a lot more than $95.

Early on, official summarizers of PPACA and the individual mandate penalty described the penalty in such a way that even people who paid close attention to PPACA regulatory developments thought the 2014 penalty for people who lacked “minimum essential coverage” (MEC) would be $95.

People classified as being unable to afford to pay for MEC do not owe the penalty.

For people who earn enough to be considered able to afford MEC, the real minimum penalty payment is 1 percent of income. The maximum is an amount equal to the cost of typical bronze-level health coverage. In practice, that means an individual taxpayer could pay up to about $2,450 in penalties per year, or 1 percent of up to about $245,000 in income.

H&R Block has not given an estimate of the percentage of customers who owe the penalty, but it says the customers who do owe the penalty are paying an average penalty of $172.

In theory, many of those customers could find ways to get exemptions from the mandate. 

In practice, consumers have to apply to an exchange for permission to use some exemptions.

Few H&R Block customers are applying for the exchange-based penalty exemptions, the company says. The company does see customers using the iexemptions they are able to get when they file their tax returns.

H&R Block reports that the percentage of customers who say they have MEC is in line with pre-tax season forecasts. That may be a sign that early H&R Block tax filers are giving accurate answers about whether they have MEC, the company says.

Angry baby

3. The average exchange plan user is paying back some subsidy money.

About 52 percent of the H&R Block customers who bought health coverage through a PPACA exchange have to repay some of the subsidy money, the company says.

The average consumer in that situation was expecting a tax refund of about $3,100 and has to pay back about $530 in tax credit money. The APTC paybacks are reducing those consumers’ tax returns by an average of about 17 percent.

See also: Treasury thinks individual mandate will work.

Happy dog

4. Many exchange users OVERESTIMATED their income when they applied for coverage.

About one-third of H&R Block exchange plan user customers overestimated their 2014 income.

Those taxpayers are expecting an average of refund of about $3,450.

They are getting an average of about $365 in extra tax credit money when they file their income taxes, and that’s increasing their refunds by an average of 11 percent, H&R Block says. 

See also: Tennessee shows how Republicans are learning to love PPACA. 

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