H&R Block is seeing dollar signs as one in four of its customers “will directly confront” the Affordable Care Act when sitting down to do their taxes in the coming months.
The Kansas City-based tax preparation company told investors during a session Tuesday in New York that it sees the potential for significant growth in business thanks to the health care reform commonly called Obamacare.
Although Block executives did not estimate how much revenue the company may gain from health care reform, this is their most emphatic claim of business gains from the health care reform law. Previously the company said it saw uncertain potential as the act unfolded.
This also is the first year that consumers who received benefits under the act will need to reconcile those benefits on their annual federal tax return.
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There will be new tax forms to fill out, more documents to collect and more questions to answer, H&R Block chief financial officer Greg Macfarlane told investors.
“We will be charging for them this season,” Macfarlane said of the new tax forms required. “There is pricing opportunity for us here, for sure.” He did not divulge the amount of the fees to avoid tipping off competitors.
Block expects to gain customers from among taxpayers who currently do their taxes themselves or seek help from independent tax preparers.
Macfarlane said current H&R Block customers and those who “sample” the company in the coming year will be more likely to remain customers because of Block’s skill in handling their first tax experience under the health care reform.
“And that situation will only get more complicated as the next few years unravel,” he said.
H&R Block expects its business from the health care reform to grow as the number of people enrolled in coverage under the state and federal exchanges grows to an estimated 24 million, the company said. About 8 million enrolled for 2014.
The Affordable Care Act helps pay the health care insurance premiums of those who qualified based on their estimates of what they would earn in 2014. Reconciliation looks at the benefits they qualified for based on what they ended up earning during 2014.
Taxpayers who received more benefits than their actual income would qualify for will see the difference taken out of any tax refund they are due, or an additional tax bill.
The act also sets penalties for those who didn’t get coverage. It also allows a number of exemptions to avoid those penalties.
All of which includes filling out new tax forms.
Retail tax services such as H&R Block, Jackson Hewitt and Liberty Tax typically base customer bills on the complexity of their returns, such as how many and which tax forms are involved.
Block’s digital tax service rival Intuit said its TurboTax software will handle Affordable Care Act forms and information without triggering additional costs. Nor does Intuit expect the act to affect the company’s amount of business this year.
“We don’t see this as either headwinds or tailwinds,” Intuit spokeswoman Julie Miller said.
Most taxpayers have health care coverage through work and won’t have more than one or two boxes to check doing their taxes, Miller said. She said certainly fewer than one-fourth of TurboTax users will have Affordable Care Act tax impact.
H&R Block based its estimate of 25 percent on results of a survey in August.
Those results encouraged the company to launch an extensive marketing campaign around the tax impact of the Affordable Care Act, H&R Block vice president Mark Ciaramitaro said during the session with investors.
“We’re not holding anything back,” Ciaramitaro said of the coming advertising campaign.
H&R Block sees business opportunity in part because the act likely will affect different members of a household receiving benefits differently. Ciaramitaro said many see the act either hitting a household’s return or not.
“Our surveys reveal a much messier reality,” he said.
For example, even households covered by health care through an employer or government provider can face a messy situation.
If everyone in a household has health coverage all year, the 2014 tax forms will allow the tax filer to check a box to say coverage was complete.
“If even one household member was not covered for any period of time, this check box cannot be used,” Ciaramitaro said.
He also outlined several potential impacts the act could bring in the coming months.
Many will need to document health care coverage and the amount of tax credit benefits received though one of the exchanges. Those who received benefits will have to reconcile the amount of credits they received based on an estimate of their 2014 earnings with their actual income.
Taxpayers will need help with worksheets to figure out their “shared responsibility” for coverage under the act. Some will need assistance to navigate the “complicated maze” of exemptions to paying a penalty, he said.
The act also won’t allow some former users of Form 1040-EZ to use that simple method to meet all the demands of the Affordable Care Act, Ciaramitaro said.