H&R Block sees growth potential in Affordable Care Act and taxes

H&R Block expects more customers to feel the impact of the Affordable Care Act when they do their taxes early next year, providing a source of growth for the Kansas City-based business.

A year ago, Block invested in marketing and training its tax preparers to deal with the increasing questions that customers would have from the health reform act’s impact on taxes.

“We think we’re going to start to reap the benefits of that investment,” Block chief executive Bill Cobb said Tuesday during a strategy session with analysts.

The Affordable Care Act, often called Obamacare, will expand its impact in the upcoming tax season as more people buy health insurance under its exchanges, as penalties for not having coverage increase and as the IRS steps up its enforcement, Block executives said.

“I have news for you: IRS enforcement is coming,” said Mark Ciaramitaro, vice president of taxes and health care at Block. “The era of tax leniency with the Affordable Care Act is coming to an end.”

The act helps pay the medical insurance premiums of those who qualify based on their own estimates of what they will earn in the coming year. At tax time, filers who gained those benefits have to reconcile that estimate of their earnings with what they actually earned.

Many taxpayers who underestimated their income had to return some of those premium benefits at tax time. Still others faced penalties at tax time for not getting coverage.

In each case, the act cut into those taxpayers’ refunds.

Cobb, responding to a question, said he did not expect consumers to blame H&R Block for that but rather to turn to the company for help.

Block said penalties under the Affordable Care Act are rising to the point that help finding an exemption would be of greater value than the cost of getting taxes done at Block.

Cobb and other executives were mum about their marketing and advertising plans for the upcoming season. They don’t want to give away any clues to rivals.

But the company said an early effort will be aimed at getting back customers the company lost last year. Specifically, these were early filers who receive an earned income tax credit and used Block offices. Many went to online or software programs to do their taxes themselves.

Block talked with hundreds of such filers to hone its approach for the upcoming season, Block vice president Laura Scobie said.

“We know what really matters to these folks,” Scobie said.

The session with analysts followed H&R Block’s report of second-quarter results on Monday. Revenue fell 4.6 percent and its loss grew 29.5 percent during the seasonally slow months of August, September and October.

Block shares fell $2.58, or 7 percent, closing Tuesday at $34.31.

Mark Davis: 816-234-4372, @mdkcstar