It's not too early to start thinking about the tax implications of health care reform.
Did you buy health insurance through one of the exchanges? You might be eligible for a refundable tax credit. Taxpayers had the option of estimating their 2014 income to see if they qualified for the credit and then having it applied in advance to the cost of the premiums.
"We have an opportunity in the 2014 filing season to educate taxpayers about what they need to do during the year to avoid problems during the 2015 filing season," National Taxpayer Advocate Nina Olson said.
Her advice to those taxpayers: keep the exchanges advised if there are changes in your circumstances that could affect the subsidy.
"It could increase if you have another child and you want to be able to get the benefit of that," she said in a wide-ranging interview with The Associated Press. "It could decrease if you have a significant pay increase, if your spouse gets a job, if a child is no longer covered on your plan."
As a result, some taxpayers could end up owing the U.S. Treasury money when they file their 2014 taxes next year.
"It may mean that they would have a reduced refund, and many taxpayers depend on their refunds for various things," Olson said. "They've used them for planning. They use them like savings, so that will be a rude surprise for these taxpayers. And we can avoid it by having them go into the exchanges throughout the year."
But what about those taxpayers who don't get refunds — between 75 percent and 85 percent do, she said — or those whose refunds aren't big enough to cover what is owed if the subsidy is reduced?
In that case, "the easiest thing is you'll have a refund the next year, and we'll take it out of the refund the next year," Olson said. "It's a debt on the books. It's an assessed tax, and we can collect it for 10 years and it's just a computer offset."
While her job is to take on the Internal Revenue Service where necessary, Olson said the agency's role in verifying income for people applying for the health-care subsidy has been working well. "They have lessened the time in which they are able to give the answer to the exchange," she said.
But she said there needs to be more outreach and education does need to be done about the Affordable Care Act. She called on the IRS to make its website more informative by offering more examples "so taxpayers can recognize themselves if you direct them to a page," she said.
As for her own role, Olson said she speaks for taxpayers, interceding in individual disputes with the IRS and pushing for tax reform. She said she understands the agency's constraints and won't propose changes that are unrealistic. "But," she said, "I'm not going to take as an answer, 'Oh, this is too heavy of a lift.'"
There are 74 taxpayer advocates around the country — at least one in each state — who work with her, she said.
To qualify for taxpayer advocate assistance, you must show that you face a significant hardship — that the IRS is causing you economic harm, that its systems are not working or that your rights have been violated. "That gets you through the door," Olson said.
Ask her what challenges taxpayers face and she answers emphatically, "Getting assistance from the IRS, getting service from the IRS."
In fiscal year 2013, she said, nearly four out of 10 calls to the IRS did not get through to a live person who could help. The average wait time was 17.5 minutes.
Getting IRS assistance is particularly an issue, she said, when it comes to identity theft, which remains a major issue, although the number of cases has declined since the IRS put "significant screens" in place. When identify theft occurs, Olson said, the IRS needs to act more quickly and consistently to help victims.
"The taxpayer has already gone through an enormous amount of angst and huge inconvenience ... and we do not recognize that in our customer service to them," Olson said. Victims of identity theft typically speak to a different person each time they call the IRS, she complained, and "have to explain their situation over again."
She said the agency should assign each case to one person who can see it all the way through.
As for electronic filing, Olson suggested that taxpayers look into the IRS' Free File program, which allows people whose adjusted gross income is under $58,000 to file their taxes for free through the IRS site. For people whose income is higher, the IRS has Free Fillable Forms, which do the basic math but don't walk you through filling out your returns.
"I don't think I should have to pay to file electronically with the IRS," said Olson, who uses the Free Fillable Forms. "That's my duty as a taxpayer, and the IRS in the 21st century should make it available to me for free. It's crazy."
She urged taxpayers to check out tax preparers carefully before hiring one, and not to fall for promises of huge refunds. "It really becomes a 'consumer, beware' world," she said.
In dealing with tax preparers, she offered these tips:
—Get a copy of your return. "If the preparer then alters the return after you've signed off on it, that's proof that it was a false return that was filed."
—Make sure the preparer's name, registration number and address are on the return.
—Check with the Better Business Bureau or state consumer affairs agency to see if there are any complaints against the preparation firm or preparer.
"Even though that seems like some work upfront, if you get sucked into one of these preparer issues it can take over a year to get it resolved, and that's just pain that nobody needs to go through," she said.
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