Two laws have created a multimillion-dollar opportunity that H&R Block’s marketing department is taking full advantage of. One of these laws is Obamacare (AKA the Patient Protection and Affordable Care Act), and the other is the Law of Unintended Consequences. January 9, according to a Bloomberg report, the income tax preparation firm launched television and online ads “urging people to check with tax preparers about the potential consequences of Obamacare.”
“…[T]he big Obamacare event of this year will not be the exchange enrollments,” writes economics columnist Megan McArdle, “but tax season, when people who got too much in subsidies find out how much money they owe the government (and [I’ve] been told by a tax preparer that it was even worse than I thought). Tax preparers, to judge from my Twitter feed, have been panicking for months. But now they face the Herculean job of communicating that panic to the public.”
The task may be Herculean, but it’s far from thankless. That’s because relatively low-income consumers, who’ve been going along for years just filling out 1040EZ forms themselves, will now have to pay for hours of accounting work – “an extra 1-4 hours of preparer time,” according to CPA Joe Kristan – to see what kind of tax liabilities they’ve unwittingly incurred and to minimize future ones. Those one to four hours of accounting work aren’t free. Making federal income tax filing so much less EZ, says McArdle, constitutes a kind of “hidden” Obamacare tax:
There’s been a lot of talk about the “hidden taxes” in the Affordable Care Act, but here’s one I hadn’t thought of before or seen mentioned anywhere: the sudden need for folks with simple tax returns to avail themselves of the services of a paid professional. If you have no income outside a modest salary, and not much in the way of potential deductions such as huge mortgage interest or state tax bills, then there was really no reason to use a tax preparer. Even the mathematically challenged should, with the aid of a calculator, be able to fill out their 1040EZ forms just fine. But Obamacare has introduced a significant level of complexity into the taxes of lower-middle-class wage earners. More of them are going to need an accountant to negotiate the process — or risk owing the government hundreds of dollars because they didn’t fill out the forms correctly.
The money doesn’t go to the government, of course, but in many ways this looks like a tax: Suddenly, people with simple incomes are going to need to pay a significant sum to keep themselves out of trouble with the IRS. This tax will be extremely regressive, because the people most likely to be hit by it are people whose incomes are (or have been) low enough to qualify for subsidies…
[I]t is one more symptom of the law’s Byzantine complexity that new costs keep popping up just where voters least expect them.
That’s bad enough. But it gets worse. Come April 15, as McArdle noted in an earlier post, “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,” because because for anyone making more than $9,500 a year, the penalty will be 1 percent of adjusted gross income. So if you made, say, $65,000 last year and chose not to sign up for Obamacare, the IRS will be into you for $650.
If you did sign up and got a subsidy, you may also be in for an April surprise, McArdle writes:
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.
Businesses, unlike low-income consumers, already use tax accountants. But they, too, may be needing to pay them for more work. That’s because their 2014 health insurance plans failed to fully comply with every fine point buried in all the fine print in what Kristan calls “the ACA ‘market reforms.'” This “non-compliance” may not have been any abusive wrongdoing, but even something as trivial as neglecting to notify employees of their coverage options in the prescribed manner. In writing. It carries a penalty of $100 per day. Per employee. “At $36,500 per employee per year,” Kristan writes, “it doesn’t take too much of this to bankrupt a small business.”
So this year, there’ll a lot of new business out there for accounting firms. And it makes perfect sense for H&R Block to be the first to go after it. (Chances are excellent they won’t be the last.)
Hey, Obamacare kicked millions of people off plans they liked, jacked up not only premiums but also deductibles and coinsurance, and shrank the number of doctors and hospital available. But for H&R Block’s bottom line, it’s just what the doctor ordered.