Are Your Tax Clients Truly Ready for The ACA Rules?
As a CPA, you provide your clients with guidance and advice on a wide range of topics that have an impact on their tax liability. For example, you may provide them with knowledge about tax deductions that they could put to use that could help them lower their tax liability. From preparing taxes to offering structured insight on financial planning, you may provide many services to your clients. When it comes to a recent change with regards to healthcare, you may be wondering if you have the knowledge and insight to properly guide and advise your clients in this area. More than that, you may be wondering if your clients are prepared for the changes brought forth by Obamacare.
The Passage of Obamacare
The Patient Protection and Affordable Care Act along with the Health Care and Education Reconciliation Acts were passed in March 2010. These acts included an Individual Mandate that went into effect on January 1, 2014. This means that the tax consequences of those changes will begin to be felt when taxpayers file their returns in the coming year. As a CPA, it is important for you to understand more about Obamacare. This will help you to better serve your clients.
Minimum Essential Coverage
As part of the legislation that was passed, clients are required to purchase a minimum amount of coverage. Many will qualify for this through their government or employer-sponsored plans, but others do not. It is important to note that this is for health insurance, so plans for dental insurance, vision coverage, workers’ compensation and other discount coverage options will not meet this requirement.
When the rule for Minimum Essential Coverage is not met, your clients may be required to pay a penalty for this, known as the Shared Responsibility payment. The fact is that the calculation for the Shared Responsibility payment is actually complicated, and because of this, it can be hard for your clients to estimate it on their own. This may catch some of your clients off-guard, and the penalty for some may equate to hundreds or thousands of dollars. It is important to note that the penalty may apply for them as well as any dependents that they claim on their tax return.
Shared Responsibility Exemptions
There are some exemptions in place for the Shared Responsibility rule, and understanding these exemptions may help your clients to qualify for savings on their tax bill. There is a lengthy list of questions that have been developed to help taxpayers determine if they qualify for an exemption. Some of these include having a low household income or having other documented hardships. Some also include being a part of a group, such as some religions or a federally-recognized Indian tribe. There are special forms that must be completed in order for these individuals to qualify for an exemption, and you may help your clients to fill out the necessary paperwork to apply for an exemption to the Shared Responsibility rule.
Obamacare Tax Credit
Some taxpayers have taken advantage of the opportunity to purchase affordable health insurance through the Health Insurance Marketplace that was established under the recently passed legislation. Those who have purchased their coverage through the marketplace may qualify for a special tax credit that can be used to lower their tax liability. You should be aware that there are special rule in place for applying and qualifying for the credit. For example, married taxpayers typically must file as married filing jointly in order to qualify, but there are some exceptions in place.
The New Tax Forms
While all CPAs should take time to familiarize themselves with these special tax rules, it is important to also be aware that the Obamacare changes have also resulted in changes to the tax forms. The standard 1040, for example, has additional lines for these credits. There is also a Form 1095-A that must be filled out by taxpayers who bought coverage through the marketplace. These are just a few of the changes in place regarding how compliance with the legislation should be reported to the IRS.
The Impact on Tax Liability
Many taxpayers will be impacted by the next laws that are in place under the Obamacare legislation. While some taxpayers may qualify for a tax credit, others may be required to pay a penalty for failure to comply with the legislation. Still others who have employer-sponsored coverage in place may not be impacted by the legislation at all. Clearly, there are some considerable ramifications associated with this legislation for taxpayers. Because the legislation has entwined taxes with healthcare, it has fallen onto the shoulders of CPAs to learn more about the healthcare act and to help their clients make affordable decisions about their healthcare and their taxes.
This year, you also need to consider the safety and security of your clients’ data. When filing tax forms like the 1040 and W-2’s, you need to find services that are as safe as possible. Especially when you want to file 1099 online for contractors, you need to make sure they have a record of having safety measures in place so data breaches aren’t a concern. One site you can review quickly as a standard bearer is eFile4Biz.com. They will efile 1099 forms on your behalf, as well as print and deliver the tax docs to the required recipients. This alone makes them – or anyone doing this for you – a massive support system for you, especially during heavy tax filing periods.
If you are a CPA, you should be prepared to answer any questions that your clients have about Obamacare and their options, and you may need to help your clients determine if they will be required to pay a penalty or qualify for a credit or an exemption. In some cases, this can result in hundreds or thousands of dollars of difference in tax liability or taxable income, and this means that taxpayers may need to be prepared for this tax change. While some taxpayers may have an unfortunate surprise when filing their taxes this year, you can decrease their stress and can help them to avoid surprises by providing them with guidance and advice in this area.