Republicans’ stalled campaign to repeal the Affordable Care Act is sowing confusion among those now trying to do their taxes.
Many taxpayers believe Republicans have already repealed the law, tax preparers say, and they’re surprised and upset to learn they are still subject to Obamacare’s penalty for failing to have health insurance — a charge that climbed this year to more than $2,000 per family.
President Donald Trump’s recent executive order targeting the law has only added to the confusion, some practitioners say. It ordered federal agencies to do what they can to ratchet back the law and, in response, the IRS said it would not automatically reject returns that fail to indicate whether the filer had health insurance for all of the previous year.
Some have interpreted that as a green light to ignore the law’s individual mandate, and Intuit, maker of the popular TurboTax, is now updating its software to allow users to file their returns without answering Line 61, which asks about coverage.
But many experts complain that neither the executive order nor the subsequent announcement by the IRS actually changed the Obamacare insurance requirement.
And while they readily admit the IRS is unlikely to chase down people who ignore the mandate, some tax preparers say they won’t sign off on client’s returns if they skip the insurance question because the preparers consider omitting the information unethical, even if the IRS is unlikely to do anything about it.
All of that is adding up to a lot of uncertainty, plenty of inconsistency and some uncomfortable conversations with would-be filers this tax season.
“Some people are quite indignant,” said Christine Speidel, an attorney at Vermont Legal Aid, a nonprofit, who provides free tax help to people with low income. “They don’t want to pay it, and they don’t want to believe the provision is still in force.”
It is an example of the unexpected fallout from the delays in Republicans’ bid to repeal the massive health care program. Republicans have promised to immediately junk the penalty as part of their plan. But Republicans are deeply divided over how far they need to go to replace the program, and there’s no agreement in sight. Asked last week when Republicans would repeal the ACA, Senate Majority Leader Mitch McConnell said “just as soon as we have the votes.”
Meanwhile, millions of Americans are now doing their taxes, and the requirement to have insurance is not only still on the books — the penalty for failing to carry coverage has jumped.
Democrats, worried about the penalty’s unpopularity, slowly phased it in when they wrote the health care law. This is the first year it will be fully phased in at $695 per adult and as much as $2,085 for families, or 2.5 percent of annual income, whichever is larger.
Last year, 6.5 million paid the penalty.
Given the Republicans’ chesty rhetoric on Obamacare, and the fact that they now control the legislative and executive branches of the government, many filers assumed Obamacare was already history.
“There’s been a little bit of education necessary for taxpayers because some heard that Obamacare went away,” said Mark Steber, chief tax officer for Jackson Hewitt.
Practitioners also blame Trump’s very first executive order that directed agencies to “take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the act.” In response, the IRS said it was killing plans to automatically reject so-called silent returns that skip the question asking about insurance.
Though it was sometimes lost in the announcement, the IRS said the underlying insurance requirement remains and it warned that people who don’t have coverage can still be on the hook for the law’s “shared responsibility payment.”
“Processing silent returns means that taxpayer returns are not systemically rejected by the IRS at the time of filing,” the agency said. “When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date.”
Many practitioners complain the news media has misconstrued the administration’s actions as an indication the individual mandate has either gone by the wayside or will not be enforced.
“It didn’t change the law one iota — and nor does this policy change the IRS just announced change the law one iota,” said Chris Condeluci, a former Republican tax aide in Congress and expert on the health care law.
But Intuit says it’s updating its do-it-yourself software to allow people to file returns without answering the insurance question. “Beginning March 2, TurboTax customers can e-file their return without indicating if they had health coverage last year,” said spokeswoman Julie Miller.
Some tax preparers readily admit the IRS is unlikely to pursue those who skip Line 61, given Republicans’ efforts to repeal the law and the IRS’s chronic budget woes.
But preparers like Speidel say that makes no difference because they have an obligation to truthfully fill out their clients’ returns, which they note are filed under threat of perjury.
“If you owe a penalty and you’re not assessing that deliberately, that’s a false tax return,” she said. “Tax professionals are not permitted to file a false tax return or encourage that just because the taxpayer probably won’t get caught.”
John Dundon, who owns a small Denver accounting and tax firm, says he won’t sign off on clients’ returns if they skip the question, either — and that it’s costing him business.
“The customers are saying, ‘You guys are a dime a dozen, and I’m going to go to Bill Smith down the block who’s willing to [do] that,’” said Dundon, who also blogs about taxes. “I’m flat out losing customers because I’m not going to sign a tax return that is knowingly omitting information.”
“It is dividing the practitioner community,” he said.
Jackson Hewitt is telling its uninsured clients who don’t have an exception from the coverage mandate that they are going to have to pay up.
“We are answering the question for all of our clients, based on their information,” Steber said. “The customer could be contacted later in the year for additional information like, ‘Why didn’t you put the penalty on there?’”
“The law is still the law,” he said.
H&R Block, which runs both walk-in offices and offers do-it-yourself software, declined to say how it’s handling the insurance question.
“This is a complex issue, and we are evaluating the appropriate solution and potential impact for our clients and tax professionals,” the company said in a statement.
Though tax season is barely a month old, some preparers are already advising clients to postpone filing their taxes — and to request an extension giving them until October to act — allowing them to buy time while Republicans agree on a plan.
But others doubt that will make a difference.
Any agreement in Congress won’t kill the tax penalties owed this year, predicts Condeluci, because that could require millions to file amended returns to recover penalties already paid. Tax season began Jan. 23, and 42.5 million returns have already been filed.
“It’s too much of a mess administratively for them to do it retroactively,” said Condeluci.