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Beginning next year, most Americans without coverage will be subject to government fines.
Friday, March 29, 2013
As the April 15 tax-filing deadline looms, people in Southwest Virginia are finding that health insurance soon will be part of the mix.
Many professional tax preparers are advising their clients about the new health care law, which next year will impose a tax penalty against those who don’t have insurance.
With polls showing that many Americans still don’t know how the law will affect them, a trip to the tax preparer could be their most detailed introduction to the Patient Protection and Affordable Care Act.
“Now is the time,” said Meg Sutton, a senior adviser for tax and health care services at H&R Block.
“We have to start educating people about the personal impact of the Affordable Care Act on them.”
Passed by Congress three years ago, the law has been implemented gradually because of its wide scope and complexity. Some of the most sweeping provisions — including the requirement that most Americans buy health insurance — will not take effect until Jan. 1, 2014.
Although tax professionals are not required to brief their clients on the law, many have started to do so this year.
One of the key talking points: Starting next year, the Internal Revenue Service will be collecting a fine from taxpayers who fail to buy health insurance.
Phillip Gervase, a senior tax adviser with Hampden Hills Tax Service in Vinton, said he has been telling his clients about the requirement “so they don’t get taxed for it next year.”
Many people are not pleased to learn about the “individual mandate,” one of the more unpopular provisions of the new law.
But some taxpayers also are discovering that they could be eligible for financial assistance to purchase insurance through a federal exchange where the uninsured can shop for the best rates and policies, another key part of the Affordable Care Act.
Information about household size and income that is included in the 2012 tax returns will be used to determine what kind of subsidies a taxpayer would be eligible for.
“We’re getting very positive feedback” from filers about that aspect of the law, Sutton said.
Despite the fact that the Affordable Care Act has received intensive media coverage since it was passed by Congress, upheld by the U.S. Supreme Court last summer and debated at length in the recent presidential election, many people remain in the dark when it comes to details.
A poll conducted earlier this month by the Kaiser Family Foundation found that two-thirds of the uninsured and a majority of Americans say they have too little information to know how the act will affect them.
And according to a survey conducted last fall by the Tax Institute at H&R Block, 31 percent of the respondents were unaware of the tax penalty for failing to have health insurance by 2014.
As some people are now learning from their tax preparers, the cost for not having health insurance by 2016 will be $695 a year per individual (and up to $2,085 if family members are not covered) or 2.5 percent of family income, whichever is greater.
The penalty will be phased in over the next three years, starting at a flat fee of $95 or 1 percent of household income in 2014.
Many of the taxpayers who come to Hampden Hills Tax Service are surprised to hear those numbers.
“Very few people are fully aware of [the Affordable Care Act],” Gervase said. “And the people who are aware, the information they have is generally incorrect.”
Some taxpayers — generally low-wage workers with no insurance who depend on their annual refund to pay bills — have expressed little interest in paying the penalty, Gervase said.
But there are exceptions to the requirement. Exemptions will be granted for financial hardship, religious objections, American Indians, people covered by government insurance plans, those without coverage for less than three months, people who make too little to have to pay taxes and those for whom the lowest insurance plan available exceeds 8 percent of their income, according to the Kaiser Family Foundation.
And because the vast majority of Americans already have health insurance, or will soon be able to get it, the number of people hit by the tax penalty is expected to be relatively small.
Another part of the Affordable Care Act that taxpayers may be hearing about is an exchange, to be available through a website, where insurance plans can be purchased. Individuals and families with incomes of up to 400 percent of the federal poverty line will be eligible for subsidies or credits to make the coverage more affordable.
Some states have opted to create their own exchanges; Virginia will defer to the federal government to run its insurance marketplace.
Enrollment in the exchanges is scheduled to begin Oct. 1, with plans purchased to take effect the first of next year.
While H&R Block is telling clients whether they would qualify for a plan purchased through the exchange, other tax preparers are holding off, saying too many details have yet to be finalized by the government.
“We’re waiting for it to be more concrete,” Gervase said. “We wouldn’t want to give out information that could be wrong.”
Ellis Wimmer , owner of Star City Tax Pros in Roanoke, is taking a similar approach.
“Our hands are tied” when it comes to many details, Wimmer said. “But we sit down and advise every one of our clients on things they need to know to be prepared for next year.”
Doug Gray, executive director of the Virginia Association of Health Plans, said there’s no question that the federal exchange is on schedule to begin enrollment later this year.
Nor is there any doubt that other provisions of the Affordable Care Act will soon take effect, he said.
“There is no luxury of twiddling your thumbs and saying, ‘I’ll just wait,’ ” Gray said. “None of us can do that. We have to follow the law.”
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