Monday, September 22, 2014 · 8:16 a.m.

Affordable Care Act, fiscal cliff legislation impact taxes

Taxpayers can't file for returns until the end of the month

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The Affordable Care Act and recent fiscal cliff legislation will affect taxpayers. (Photo: MGNOnline)

The Affordable Care Act and recent fiscal cliff legislation will impact taxpayers in a variety of ways—some more noticeable than others, tax experts said. 

"The Affordable Care Act is the single biggest tax code change in more than 20 years," Meg Sutton, senior adviser with H&R Block, said.

This year's returns may help determine if someone qualifies for financial assistance to help cover some of the costs of the Affordable Care Act, Sutton said. 

And taxpayers have to wait a little longer to file their taxes because the fiscal cliff bill passed early on New Year's Day means the IRS had to retool their systems to work with the new agreement, Decosimo tax director John Henegar said. 

"The IRS is having to delay being able to receive tax returns until Jan. 30," he said. "The so-called 'fiscal cliff' [legislation] that passed—the IRS had programmed all their systems for what they thought was tax law. Now, they have to go back and do some reprogramming." 

Usually, people can start filing for their returns the first week of January, Henegar said. 

Fiscal cliff, Affordable Care Act 
"Fiscal cliff" is a term being used to define the situation the American government was facing at the end of 2012 when an increase in taxes combined with spending cuts. 

Fast facts
—77 percent of consumers didn't realize that the 2012 tax return plays a role in this Affordable Care Act process. 
—More than half of consumers ages 18 to 34 were not aware there was a tax penalty for not having health insurance. 
 
Source: H&R Block survey, according to Meg Sutton

The agreement leaders came to involves some tax changes, as well as a two-month delay in dealing with $110 billion in government spending cuts that were due to go into effect Jan. 2, according to CBS News. 

The deal aimed to keep tax cuts for the majority of Americans while raising taxes on the wealthiest residents, according to CNN

Leaders estimate the legislation will raise about $600 billion in new revenues during the next 10 years, CNN also reported. 

And, according to The Washington Post, the fiscal cliff legislation hurt the Affordable Care Act by killing a multibillion dollar program aimed at boosting health insurance competition by funding nonprofit health plans. 

Filing this year 
Sutton said that now is the time to start learning about the health exchanges, which open in October. Residents can buy health insurance from the exchanges. That coverage will go into effect in 2014, Sutton said. 

And what residents report on this year's tax filings—information such as household size and income level—will measure if they qualify for assistance in paying for the health care.

It can also help tax preparers gauge what the approximate monthly cost of that insurance would be, and it can help a person figure out what the penalty would be if they chose not to get insurance, Sutton said. 

The penalty varies by person based on income and household size, she said. 

The penalty is about $95 per person and $47.50 for children, or 1 percent of a person's income—whichever is greater, Sutton said. 

And the penalties go up every year, she said. 

CNN reported that by 2016 the penalty will increase. Uninsured adults would have to pay $695, and it would cost up to $2,085 per household, or 2.5 percent of income, whichever is greater. Click here for more information. 

H&R Block did studies with focus groups, who said they wanted a place to go for information on these topics, so the company has added a portion to their website where taxpayers can get more answers.

"Now is the time to get educated," she said. "Now is the time to understand your options—you have the option to get health insurance, you have the option of a tax penalty. It's important for the consumers to know the numbers of how this will affect [their] family."

More impacts from the Affordable Care Act 
Henegar said that the Affordable Care Act will also impact some people in more subtle ways. 

For example, there are some new taxes on the manufacture of medical devices—braces, for instance, Henegar said. 

The prices of braces will naturally go up because of that tax increase, and that will likely trickle down to consumers, he said. 

The average taxpayer may also see an immediate impact if they use an employer's flexible spending account, which is money employers set aside for workers on a pretax basis to pay medical expenses. 

The amount of money that an employer can set aside has been capped at $2,500, and some employers may be used to setting aside more than that, he said. 

That will essentially be a tax increase because more money will be taxable. 

Another impact is for small business owners—they may be eligible for tax credits, Henegar said. 

After the election, there was more security about all these issues, he also said. Before that, it wasn't clear what the situation would be, but now, leaders are starting to get more of a hold on all the changes. 

And 2014 will be another important year, Henegar said. 

"The watershed year for the Affordable Care Act is going to be 2014 because that's when what we call the pay or play provisions come into effect for the employer," he said.

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