ACA-Related Tax Woes Increase for Small Businesses and Vulnerable Populations

Tuesday, March 31, 2015
Michael Gomes

There is an old saying that no good deed goes unpunished. Although the sponsors of the Affordable Care Act (ACA) may have good intentions in terms of expanding access for health coverage and reducing health care costs, the implementation challenges continue. Among other issues, ACA-related tax and reporting issues have recently been in the spotlight.  

Recently, a number of journalists have published stories on how mid-size to small businesses are struggling to meet some of the new ACA tax reporting requirements that went into effect this year. To add insult to injury, many low-income Americans and immigrant populations are being hit by tax scams. And to further exacerbate these issues, the IRS is short-staffed and struggling to return customer service calls.    

ACA Paperwork Costs Small Businesses Thousands of Dollars

Businesses employing 50 or more workers are now subject to an array of new reporting rules thanks to the ACA. This includes the need to track employee hours, absences and how much employers spend on health insurance. According to news reports, many small businesses have neither the human resources departments nor the computer systems necessary to track and handle all paperwork. As a result, small businesses who make an effort to comply with the law will spend more than $15,000 a year as they seek out new payroll providers, human resources consultants and Brokers to help track hours, keep records and file documents with the government. If businesses refuse to adapt to these new requirements, they likely will be financially penalized.

Brad Mete, managing partner of Affinity Resources, a temporary staffing company, will spend $100,000 this year to meet the law’s requirements. He said, “It’s a horrible hassle.”

New Tax Scam Targets Exchange Enrollees

With the new ACA filing requirements in mind, con artists are targeting immigrants, particularly Spanish-speakers who have a limited understanding of the English language, and young immigrants protected from deportation by the Obama administration. The scammers are seeking payment of “health law fines” that may be due to the government, news reports state. During the call, they typically promise to lower the fake fine if the consumer pays them directly. 

“The payment should never be made directly to an individual or return preparer,” the IRS warned. “Most people don't owe the (fine) at all because they have health coverage or qualify for a coverage exemption.”

In addition to targeting immigrants subject to the health law, scammers have also been calling individuals covered by Medicaid and other forms of insurance, saying they owe a fine because they supposedly don’t have the right kind of insurance, saying they still owe money.

Despite the prevalence of the scam, consumers should know that the vast majority of paid preparers provide honest, high-quality service. According to Scott Gross, “To help payers avoid being taken by the small number of dishonest preparers, the IRS last month began offering a searchable online directory of those that currently hold professional credentials and other qualifications.” The IRS has also launched online tax assistant tools to determine if consumers owe the ACA penalty or are exempt. 

IRS Blames White House for Poor Customer Service

Recently, the IRS blamed its poor customer service on the ACA. Commissioner John Koskinen told Congress that he had to take about $100 million from customer service priorities and instead spend it on technology and personnel to implement the ACA requirements.

According to the IRS, only 43 percent of calls are being answered so far this year, and this number could get worse if they do not receive extra money. Despite the apparent need, the IRS is unlikely to receive more money; congressional Republicans consistently refuse to allocate more money in an effort to hinder the ACA’s further implementation.

The Commissioner also stated that most of his budget goes to personnel, so he had to cut 3,000 positions, leaving him with 87,000 employees. This means that fewer people are answering phones and fewer examiners and investigators reviewing filings to ensure taxpayers are paying fairly. In addition, if more consumers cheat on their taxes, it could lower the level of tax compliance; every percentage of lower compliance means $30 billion less revenue to the federal government.  So far, there does not appear to be an immediate solution in sight for this problem.

BenefitMall Continues to Track Key Tax-Related ACA Issues

Over the past few months, BenefitMall published several blogs on tax-related issues:

  • The IRS recently announced that they will not collect any additional taxes from the 50,000 taxpayers who have already filed their returns using the incorrect 1095-A form, which is used to reconcile their health insurance coverage from the federal Exchange. Many of these 50,000 people may have owed more taxes than they paid had they received the correct statement from the (read here).
  • According to an article by Robert Pear, a well-known health reporter for the The New York Times, up to six million people, or 2 to 4% of tax filers, will have to pay penalties this year because they chose not to buy health insurance (read here).  

Stay Tuned

Stay tuned as we continued to report on scams and other turbulence related to this year’s tax season, as well as any other issues affecting Brokers.

The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.