Taxes

This is the first year people without health insurance could face big penalties. (Getty Images)

January 8, 2015 | 11:40 AM
By April Dembosky

Most days in early January, tax preparation offices are dead. Most people won’t get their W-2 or other tax documents until later this month.

But at an H&R Block office I visited in San Francisco, office manager Sue Ellen Smith is expecting things to pick up fast. The IRS commissioner declared back in November that this tax season will be one of the most complicated ever. Why?

“This year taxes and health care intersect in a brand-new way,” Smith said. This is the first year that people who do not have health insurance will have to pay a fine, and that fine could be hefty.

Smith introduces me to Ray and Vicky. They’re a fictional couple from an H&R Block flier. Together they earn $65,000 a year. Neither has health insurance.

“The biggest misconception I hear people say is, ‘Oh, the penalty’s only $95, that’s easy,’” Smith says.

But a lot of people like Ray and Vicky could be in for a surprise this year, Smith says. For the fictional couple, their fine will be much more than $95. “In this situation, it’s almost $450.”

That’s because the penalty for being uninsured is $95 or 1 percent of income, whichever is greater. Next year, the fine goes up to $325 per person or 2 percent of income.

Smith says there’s some relief for people who come in before Feb. 15. That’s the deadline to enroll in a health plan through Covered California, the state’s health insurance marketplace. “That’s the smartest move,” Smith says.

For those who come in by Feb. 15, they would still have to pay the penalty for having been uninsured in 2014, but would avoid the penalty for next year.

But a lot of folks won’t file their taxes until April. For them, it will be too late to do anything about the penalty for being uninsured in 2015. They’ll pay a penalty in their 2014 taxes and know that they will have to pay an even greater penalty on their 2015 taxes.

“They’re kind of stuck,” says Mark Steber, the chief tax officer for Jackson Hewitt Tax Service. The company is running role-playing exercises with tax advisers to prepare them for delivering bad news — in case taxpayers want to blame the messenger.

“Quite frankly, that’s a very difficult discussion,” Steber says.

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