Health Reform Law May Make Tax Filing More Complicated

Jan. 21--When you file your federal income tax return this year, you may see some big changes -- or, depending on your health insurance situation, you may not see much change at all.

The Internal Revenue Service began accepting federal tax returns Tuesday, marking the official start to the filing season.

A major change this year: for the first time, filers will be asked about their health insurance status. This change, which is part of the Affordable Care Act, will have the biggest effect on filers who either purchased insurance through the Health Insurance Marketplace or who went without coverage.

Michele Harris, a certified public accountant who serves as tax director for Myriad CPA Group'sEvansville market, said she anticipates a lot of questions and uncertainty this filing season.

"These are all new rules for everyone," Harris said.

Since the requirements are new, Harris said, even the IRS hasn't issued much Affordable Care Act guidance yet.

"It's really very murky at this point," she said.

Celeste Newman, a senior tax adviser with H&R Block, said the Affordable Care Act provisions are "the biggest tax law change in 20 years."

"It's new, and nobody really understands it," said Newman, who works in both H&R Block'sCovert Avenue office and its Henderson, Kentucky, office.

Newman said, H&R Block required employees to complete 15 to 20 hours of extra training on the Affordable Care Act. Newman said returns will take longer to complete this year because of the extra reporting requirements.

The changes, in a nutshell:

Filers who were covered by employer-provided insurance all year get off easy: they need only check a box on their return to indicate their status.

Filers who obtained coverage through the Health Insurance Marketplace will face more complexity. For starters: These filers will receive a new statement by mail, Form 1095-A. The statement contains information about their coverage, and they'll need this statement in hand before they file.

Marketplace consumers who qualified for income-based premium reductions will be required to reconcile their actual 2014 income with the estimated income level they provided when they signed up for insurance. "If your income was more than you estimated, then you will have to pay that money back on your tax return," Harris said.

Filers who could afford insurance coverage but did not purchase it should expect to pay a penalty, unless they meet one of the specific criteria to qualify for an exemption.

This year, the penalty is $95 per adult and $47.50 per child, or 1 percent of income, whichever is higher.

"I think that is definitely going to be a shock to people who did not have coverage," Harris said.

Newman said she's already filed a return for a client who owed a penalty of $800 because one spouse was uninsured for nine months of the year.

"They knew they were going to have to pay something, but they weren't expecting that ($800 penalty)," Newman said.

But here's a bit of a bright spot.

The new rules only affect federal returns, not Indiana state income tax filings. Indiana's state income filing season also kicked off Tuesday.

"The Affordable Care Act is federal," said Bob Dittmer, spokesman for the Indiana Department of Revenue.

"It doesn't have an effect on the state filing at all."

Need help understanding the Affordable Care Act's tax provisions? Here are some places to start:

--Internal Revenue Service information about the Affordable Care Act and taxes: http://1.usa.gov/1BBjPP3

--The Volunteer Income Tax Assistance Program offers free tax preparation for low- to moderate-income filers. The program is administered locally by the United Way of Southwestern Indiana. http://bit.ly/1sWJaDE

--A fact sheet from the U.S. Department of Health and Human Services: http://1.usa.gov/1DZJ3LD

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