IRS officials are urging taxpayers to choose their tax professional carefully as reports are coming in from around the country about preparers who instruct their clients to make the new healthcare-related individual shared responsibility payments directly to the preparer.
“Individual shared responsibility payment” is the government term for the fines being imposed on people who do not have healthcare insurance that meets certain standards, based on the Affordable Care Act (or Obamacare).
For tax year 2014, the fine for not having adequate coverage is $95 per adult and $47.50 per child, or is calculated using a formula involving household income and tax-filing status.
The fine is pro-rated on a monthly basis, depending on how many months in a year a taxpayer doesn’t have acceptable coverage.
Most people don’t owe the payment at all because they have health coverage or qualify for a coverage exemption, according to an IRS press release.
Never pay a preparer directly
The IRS reminds individuals who owe the payment that it should be made only with their tax return or in response to a letter from the IRS. The payment should never be made directly to an individual or return preparer.
The IRS has received several reports of this kind of unscrupulous activity. In some cases, return preparers have told taxpayers to make the payment directly to them, even though the taxpayer had Medicaid or other health coverage and doesn’t need to make the payment at all.
In some parts of the country, unscrupulous return preparers are targeting taxpayers with limited English proficiency and, in particular, those who primarily speak Spanish.
How the scam is justified
These preparers are asking for direct payment to them, but the reasons they give vary. Their methods include:
— telling individuals that they must make an individual shared responsibility payment directly to the preparer because of their immigration status.
— promising to lower the payment amount if the client pays it directly to them.
— demanding money from individuals who are exempt from the individual shared responsibility payment.
Could be taken out of refund
Taxpayers either pay the shared responsibility payment with their tax return or in response to a letter from the IRS requesting payment. They should not make the payment directly to any individual or return preparer.
If a shared responsibility payment is due, taxpayers should pay it to the U.S. Treasury. In most cases, the shared responsibility payment reduces a taxpayer’s refund. If there is no refund, the payment will increase the amount a taxpayer owes on the tax return.
Find out more about the tax-related provisions of the health care law at www.IRS.gov/aca.
Information about the payments
— Payments are not required for individuals who had coverage or qualify for an exemption for each month of the year.
— Individuals who are not U.S. citizens or nationals, and are not lawfully present in the United States, are exempt from the individual shared responsibility provision and do not need to make a payment. For this purpose, an immigrant with Deferred Action for Childhood Arrivals (DACA) status is considered not lawfully present and therefore is exempt. An individual may qualify for this exemption even if he or she has a Social Security number (SSN).
Taxpayers who are unsure if they must make a payment can click below for information:
Find out more about the tax-related provisions of the healthcare law at IRS.gov/aca.
The Obamacare fines
The annual individual shared responsibility payment for 2014 is the greater of:
— 1% of your household income that is above the tax return threshold for your filing status, such as “married filing jointly” or “single,” or:
— A flat dollar amount of $95 per adult and $47.50 per child, limited to a maximum of $285.
The fines will increase in upcoming years.
Report problems to the IRS
Anyone who thinks they have been targeted by an unscrupulous preparer or been financially affected by a tax return preparer’s misconduct or improper tax preparation practices, can report the situation to the IRS on Form 14157: Complaint — Tax Return Preparer.
Choose tax preparer carefully
The vast majority of tax professionals provide honest, high-quality service, according to the IRS press release. However, IRS officials encourage taxpayers to avoid dishonest and unscrupulous preparers by choosing their preparer wisely.
To help, the IRS offers a new, online, searchable public directory of tax preparers who currently hold professional credentials recognized by the IRS or certain other qualifications. To view it, go to “Choosing a Tax Professional” on www.IRS.gov.
According to the IRS, using tax preparation software is the easiest way to file a complete an accurate tax return.