It’s tax season! You know what that means: Tax preparers and accounting professionals gird their loins as we collect and sift through the necessary paperwork for our tax returns.
But besides the predictable W-2s and 1099s, this year also brings some new variables, and there’s been a lot of hype that filing your taxes will be extra tricky, thanks to Internal Revenue Service cutbacks and the implementation of the Affordable Care Act. But how bad will it be for Massachusetts’s taxpayers?
For those who did get subsidies under the new law, filing your tax return will certainly be trickier this year. But for those who got health insurance through an employer, you’ll mostly have the same old headaches to look forward to.
We spoke with some experts, and here’s what to expect, for all Massachusetts taxpayers, for those who got subsidies under the ACA, and for those without health insurance:
For All Massachusetts Taxpayers:
All Massachusetts residents, part-year residents, and nonresidents with incomes exceeding $8,000 during the taxable year must file tax returns, and fill out a state form called the 1099-HC and a federal Form 1040.
If you did not get your health insurance through the new online marketplace created by the ACA, but through your employer, or other insurers, you’ll likely have a fairly simple tax return, or one similar to previous years.
Regardless of your health insurance, tax preparers recommend that you use an experienced tax preparer or certified public accountant to prevent you from making mistakes on your tax return. Mistakes can lead to audits, scary notices in the mail from the IRS saying your tax return information is wrong.
Robert Ryter, a CPA with tax and accounting consulting firm Ryter & Company, P.C., said if you do try to file your own tax return, you should at least use electronic tax preparation software to avoid errors. H&R Block Inc. offers free software, but it’s geared toward “simple’’ returns, or people without multiple sources of income and numerous itemized deductions. “I would suggest being proactive and not procrastinating,’’ Ryter said. If you want to meet with a qualified CPA, appointments become few and far between as February melts into March, then April, he added.
But be aware that these appointments are costly. Ryter said they have a minimum fee of $500 per tax return, but the cost goes up with the difficulty of the return.
If you earn less than $53,000 per year, however, the Boston Tax Help Coalition might help you prepare and file taxes for free.
For Those Who Got Subsidies Under the ACA:
Filing your tax return will be more difficult this year, mostly because of a new federal form that you’ll have to fill out called the 1095-A. (You still have to fill out the 1099-HC, which records different information.)
The federal health care law requires that most Americans carry health insurance, so filers need to indicate on their federal tax forms whether they were covered last year and got tax credits to help pay for it. Massachusetts is unique among the states, however, because most residents have been required to have health care since 2006 under the The Massachusetts Mandated Health Insurance Law.
Taxpayers who did get subsidies under the new federal law may be in for an unpleasant surprise, said Ryter. The ACA act allowed you to apply for a credit, and the application required that you list your income for the year. Ryter said almost all people listed inaccurate numbers for their income, however, so many refunds will likely be smaller than expected, or you might owe the IRS because you received overly large credits to offset your insurance premium.
An estimate by tax firm H&R Block predicted that as many as half of the 6.8 million Americans who got subsidies will have to refund money to the government. Woof.
“That’s one of the biggest issues,’’ Ryter said.
The good news is that Massachusetts tax preparers say they are familiar with these types of forms.
Mimi Turchinetz, the coalition director of the Boston Tax Help Coalition, said over 97 percent of Massachusetts residents already have health insurance, tax preparers will be better equipped to handle questions surrounding the ACA than preparers in other states. “There won’t be as many hiccups,’’ she said.
But the confusing tax season will still likely lead to more phone calls to the Internal Revenue Service for assistance. That’s where there’s a hitch: $346 million in federal budget cuts reduced the IRS’s funding this year to its lowest level since 2008. Budget cuts mean fewer employees.
Since 2010, the IRS workforce has been slashed by 13,000 employees. Reduced staffing means you might want to hold off on your phone call and try to pepper someone else with your filing questions. “It’s going to be harder for tax payers to get the answers they need,’’ Ryter said. “There will be longer waits and more frustration.’’
And the new federal health law means the IRS must now verify that millions of Americans are enrolled and due the tax credit under federal law. Electronic forms can be verified quite simply, but paper forms could be very time consuming for IRS employees.
If you typically file returns by paper, this year might be the time to switch to electronic filing. The IRS has said most of the refunds – nine out of 10 – will be issued within 21 days, but paper filers can expect wait times of seven weeks or longer. Usually, paper filers had to wait between four and six weeks.
For the Uninsured:
The percentage of those without health coverage in Massachusetts is less than 1 percent, according to the most recent data from the Massachusetts Center for Health Information and Analysis. If you didn’t have any health coverage in Massachusetts this past year, you could face two fines, one from the federal government, and one from the state. But Lindsey Buchholz, a principle analyst with HR Block, said that most uninsured will not face any fine because there are over 20 potential exemptions, ranging from having a low income, to being a member of a Native American tribe, or facing personal or financial hardships that made it impossible for you to pay for health insurance.
“The IRS has estimated that approximately 30 million people [nationwide] were uninsured and could be subject to a penalty, but likely 26 were subject to an exemption, so only 4 million people will pay a penalty,’’ Buchholz said.
If you think you qualify for an exemption, you must fill out the Form 8965.
So, doing your taxes won’t be very fun and it could involve filling out a few more forms than last year, but if you take the right measures to gather your financial documents and file electronically, using either reputable software or a qualified tax preparer, you will survive.