Megan McArdle, Reality Check on Obamacare Year Two:
Another thing to keep in mind, however: This open enrollment period isn’t the biggest test for Obamacare in the next 12 months. The biggest test will be what happens on or around April 15th. That’s the first time all the people who didn’t buy insurance will get hit with the individual mandate penalty, and the ones who thought that it was a nominal $95 fee are in for a nasty shock . April 15th will also be the first time that people who got too much in subsidies are going to be asked to pay back some of that money. I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund. Brace for a wave of taxpayers angrily complaining to congressmen and their local newspapers.
After completing the first six sessions as a panelist in continuing education for tax preparers around Iowa, I completely agree. Preparers learning about the process of computing the individual mandate penalty and the tax credit adjustments are appalled.
The first question we receive is: how are we going to get people to pay for this? The taxpayers who will have the biggest issues here will be the ones who formerly had the simplest returns and who will not be excited about paying for an extra 1-4 hours of preparer time. A chart prepared by the ISU Center for Agricultural Law and Taxation to guide preparers through the client interview process for ACA return issues looks like this:
Courtesy Iowa State University Center for Agricultural Law and Taxation. Full-size version available to TaxPlace subscribers.
But it’s worse than even Ms. McArdle knows. It’s not just individual taxpayers who look to get clobbered by this. Based on what I’ve seen at our sessions, dozens or hundreds of Iowa small businesses are starting to figure out that they have had non-compliant health insurance plans so far in 2014 as a result of the ACA “market reforms.” Non-compliance carries a penalty of $100 per day, per employee. At $36,500 per employee per year, it doesn’t take too much of this to bankrupt a small business. And it’s not as though these employers are doing something abusive; they have just continued funding employee insurance the way they always had, but in ways the “Departments” that run Obamacare no longer like. Or they just might have done all the right things, except for properly notifying employees of their coverage options in writing. Trivial violations, crushing penalties.
While there is a provision to have the penalty waived for reasonable cause, that’s not very comforting in a state where the IRS is willing to loot a restaurant’s bank account without any indication of wrongdoing. In addition to dealing with a parade of irate individuals with sticker shock from their return fees, let alone their new taxes and penalties, preparers also have to tell noncompliant business-owning clients that they suddenly have a potentially devastating tax liability.
If taxpayers are upset after tax season as practitioners are before it, Obamacare will be about as popular as Ebola by April 15.
Robert D. Flach discusses TAX EFFICIENT INVESTING
Leslie Book, Living With Your Decisions: Delinquent Mortgage Debt (Procedurally Taxing). “Courts and IRS put the kibosh on deductions when the new loan comes from the same lender as the old delinquent loan; the theory in those cases is that the taxpayer has not really gone out of pocket and that there is just a shuffling of papers.”
Martin Sullivan, Why the Upcoming Battle Over Expiring Tax Provisions Matters — A Lot (Tax Analysts Blog). “Extenders legislation is not just about the fate of a grab bag of miscellaneous tax provisions this year. If Republicans can get expensive expiring provisions permanently extended, the chances for enactment of tax reform will be significantly improved.”
Steve Warnhoff, New CBO Report: Yes, the Rich Are Paying “a Bit” More (Tax Justice Blog). How much more, Steve? “New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share.” (Via Instapundit):
Kyle Pomerleau, CBO: Overall Federal Taxing and Spending is Progressive (Tax Policy Blog)
Donald Marron, Spin Alert: DOE Loans Are Losing Money, Not Making Profits (TaxVox). Of course they are losing money. If they were profitable, they wouldn’t need the feds to make the loans.
TaxProf, The IRS Scandal, Day 558
News from the Profession. You’re Not Really as Busy as You Claim (Adrienne Gonzalez, Going Concern)