On this week’s session, I’ll talk about the Affordable Care Act also known as Obamacare and how it affects the income tax preparation industry.
The ACA was created to provide uninsured Americans with health insurance by providing subsidies to those who fall within certain income ranges and it centralizes the purchasing of health insurance through a federal and state run exchanges. Nearly 7 million households have already received these subsidies. One big issue that most people don’t know about is that in order to apply for health insurance on the exchanges, you must estimate what you believe your income will be for the following year and that is what is used to determine your subsidy. Then after the year is completed, on the tax return you prepare for that year, you must reconcile the income you estimated against your actual income to possibly make adjustments to the subsidy you have received. This can result in either owing more money on your tax return for repayment of some of the subsidy if you underestimated your income or getting a additional subsidies included with your tax refund if you overestimated your income.
Recently, the Supreme Court ruled on the latest challenge to invalidate parts of the ACA and the ACA is still intact. It looks like this law and the massive changes that it has been bringing to this industry are here to stay. Well, that is at least unless a scenario where a Republican becomes President along with a Republican Congress takes place in which case it could be repealed.
Because these subsidies are reconciled on the tax returns, the ACA brings additional complexity to tax return preparation. That can influence people who traditionally self prepare their returns to instead use a paid preparer. Remember, 62% of people in the country or approximately 90 million people use a paid preparer. That number just may increase as a result of the ACA coming into full force this coming tax season with penalties for not having insurance increasing to $325 per person or 2% of your household income, whichever is greater.
At Happy Tax, our knowledgeable CPAs prepare all tax returns and they are well versed on the preparation of these ACA reconciliations. Just like other licensed professions like doctors and lawyers, CPAs are required to take continuing education courses. Unenrolled tax preparers which are the status quo in the industry have no license and no certifications. Tax preparers aren’t. We’re looking for people who want to own their own business and change their world to become franchisees at our company. If you have a desire to do so, please contact us.
Have a wonderful and productive rest of the week and take care.