Tax businesses see profits in healthcare law

WASHINGTON Tue Jul 10, 2012 5:20pm EDT

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WASHINGTON (Reuters) - While some see the new healthcare law as a source of controversy, tax preparation companies see it as an opportunity, hoping it will bring in millions of new and confused customers.

Under the Affordable Care Act, most of those who sign up for health insurance will receive a federal tax credit. At the same time, the government will impose a tax on most people who do not obtain health insurance.

Either way, more Americans are likely to need help with their taxes, even though the Internal Revenue Service aims to keep the new rules as simple as possible. As a result, the upheaval in the tax code promises to be the biggest in 20 years.

Jackson Hewitt Tax Service is examining how it can weave the healthcare requirements into its tax preparation business, Chief Tax Officer Mark Steber said.

H & R Block Inc, another tax preparation company, and tax software company Intuit Inc are both looking to capitalize on the new filing challenges individuals will face, said Vishnu Lekraj, a senior analyst with Morningstar Inc.

A spokesman said H & R Block is working with the IRS to get customers ready for the changes. Intuit declined to comment.

The IRS does not know how many new people will start filing taxes as a result of the healthcare law, a Treasury Department spokesperson said.

New customers for tax preparation businesses could include people who, for lack of income, have not needed to file tax returns in the past. People applying for healthcare benefits in 2013 may ha v e to file tax returns for 2012.

The Urban Institute, a think tank, estimated in March that about 11 million people would be eligible for government subsidies to buy their own health insurance coverage if the law started this year.

Families with annual income between $22,350 to $89,400 will be eligible for a federal tax credit to reduce the insurance cost. The Congressional Budget Office estimates that 4 million people will snub the law and pay a penalty in 2016 rather than buy health insurance.

For individuals forgoing coverage, the tax starts small, just $95 in 2014. But that penalty increases to $695 or up to 2.5 percent of their taxable income in 2016.

The IRS cannot seize assets as part of its healthcare enforcement efforts, but it can withhold a taxpayer's refund.

Many questions remain unanswered, and the rule-writing process could trigger a political spat as members of Congress question how the IRS will implement the law.

"How can anyone expect this agency to be able to handle this massive new law?" Republican Senator Orrin Hatch said in an e-mail statement to Reuters. "I will be pressing the IRS for answers."

Until now, the IRS has tried to keep tax-filing expenses low for individuals, curbing the profit potential for H & R Block and Intuit, Morningstar's Lekraj said. That may change.

"Anytime there is more complexity in an industry that someone has to participate in you are going to have an opportunity for middlemen to make a lot of money," Lekraj said.

While details are still being worked out, the IRS could decide to levy fines on taxpayers who receive a federal tax credit for insurance costs one year but fail to file a tax return the next year -- an added incentive for people to file returns.

A ruling by the Supreme Court last month added confusion for people on Medicaid, the state-federal healthcare program for the poor, whose numbers are set to expand under the healthcare law.

The ruling allows states to opt out of the Medicaid expansion, and six states -- Florida, Louisiana, Mississippi, South Carolina, Texas and Wisconsin -- already have said they will do so.

People in those states who cannot get the broader Medicaid coverage could turn to their states' health insurance exchanges for coverage. Tax businesses are seeking details on what documents people will need to file to get access to state insurance exchanges.

The Department of Health and Human Services is rolling out an application process for the state exchanges, a department spokesperson said. The department will begin testing the application with consumers in the coming months.

(Reporting by Patrick Temple-West; Editing by Howard Goller, Eddie Evans and Dan Grebler)

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Comments (1)
jrj906202 wrote:
More complexity will only cause more people to game the system.Avoid paying for the insurance and then,when they need it,sign up for insurance.Obama thinks everyone is going to play fair.Never have and never will.

Jul 11, 2012 11:26am EDT  --  Report as abuse
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