Accountants Debate How to Advise Clients on Health Care Act

By Christina Camara

While the IRS is telling congressional leaders that it won't enforce the requirement under the new health care law that Americans buy insurance, accountants are considering how to advise their clients.

"We will not use levies, liens, or criminal prosecutions if taxpayers have unpaid amounts related to the individual-coverage provision," Steven Miller, a deputy IRS commissioner, said before a House Ways and Means subcommittee meeting earlier this month. "There will not be revenue agents involved in this. These will not be audits."
 
The law requires everyone to purchase a health insurance plan or pay an annual fee to the IRS of $95, or 1 percent of taxable household income, starting in 2014. This includes self-employed workers who also will be able to purchase insurance through a competitive exchange. Companies with fifty or more full-time employees must provide health insurance or pay fines. 
 
Some tax clients may opt to pay the fine rather than buy the insurance plan. CPAs are learning as much as they can to provide the best information on the options. Miller made clear that the IRS won't get involved in pursuing or auditing those who don't comply. In his testimony, he said, "The process for verifying individual insurance coverage is very similar" to verifications done in the past. 
 
The IRS will review tax returns to confirm the amounts reported as being paid for insurance premiums match premiums received and reported to the IRS by insurance companies. If the numbers don't match, the IRS will notify taxpayers by letter, but won't garnish wages against those who don't pay the proper premiums. The IRS may adjust a person's tax return if the premiums aren't appropriate.
 
Some opponents of the new law have expressed concern that the IRS will harass people who fail to buy insurance. "In most cases, taxpayers will file their tax returns reporting their health insurance coverage, and/or making a payment, and there will be no need for further interactions with the IRS," Miller said in his testimony. About 1 percent of the population will be charged for not buying insurance, government watchdogs have estimated.
 
Joseph W. Walloch, a CPA in Redlands, California, isn't buying it. In a letter to the Redlands Daily Facts, he wrote that government estimates of those who may be subject to penalty continue to increase. Even though Miller said the IRS won't audit, he wrote that "the IRS has many other methods of enforcement, including withholding refunds, charging interest, increasing IRS agents to enforce Obamacare, and sending notices of noncompliance."
 
Mark Everson, former IRS commissioner wrote in The Hill that many are "flummoxed" by the new law. The nation's high level of tax compliance depends on honest taxpayers, IRS efforts, and tax practitioners who understand the law. "The volume of changes associated with the Affordable Care Act as well as the nature and complexity of certain of its provisions, will be tough for practitioners to absorb. CPAs and small and medium-sized businesses are flummoxed by the Affordable Care Act, a problem magnified by the inability of Congress to resolve tax matters critical to business and provide even a modest amount of certainty for investment planning."
 
John Hovey, president of a Des Moines, Iowa, human resources, accounting, and payroll outsourcing firm, told the Business Record that "there's really nothing in the law that says employers have to provide health care coverage." He added, "But if they do drop their health care plan, they'll not only be paying the IRS the penalties that may be applicable; they still have to figure out how they'll keep or recruit employees to their company."
 
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