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Affordable Care Act (ACA): Protective Refund Claim

July 06, 2020

If the ACA is found to be unconstitutional, there may be a refund opportunity but refund claims must be submitted by July 15, 2020.

Earlier this year, the US Supreme Court accepted review of a 5th circuit court case dealing with the constitutionality of the Affordable Care Act (ACA). That court found the ACA’s minimum essential coverage provision to be unconstitutional. That finding also raises the question about whether the entire Act is unconstitutional, including the taxes created to fund the provisions of the law, specifically

  • the 3.8% Net Investment Income Tax, imposed on those with AGI over $200,000 for single taxpayers and $250,000 for married taxpayers
  • the .9% Additional Medicare Tax, imposed on those with the same AGI limits as the 3.8% tax

If the Supreme Court rules these taxes to be unconstitutional, there may be a refund opportunity for these taxes which have been paid in past years. For a calendar year taxpayer that did not extend their 2016 tax return, a claim for refund for an individual or trust (normally due April 15, 2020) must be filed no later than July 15, 2020 (under Notice 2020-23). For those taxpayers whose 2016 returns were on extension or which have a fiscal year, the claim will be due later in the year.

The Supreme Court has indicated it is unlikely a decision will be made before late 2020, or even into 2021. Thus, we will not know whether these taxes will be repealed and for what years for some time.

Taxpayers that paid significant amounts of these taxes on their 2016 tax returns may want to consider filing a Protective Refund Claim for the 2016 tax year. You can find how much you paid for these taxes by finding Forms 8959 and 8960 in your copy of your 2016 tax return. If your adjusted gross income was less than $200,000 (single) or $250,000 (married), then you did not pay these taxes.

While we believe it unlikely any Supreme Court ruling will create a refund opportunity for taxes paid in years prior to 2019, we cannot guarantee it will not generate such a finding. Thus, the cost to file a protective claim for tax years 2016 through 2018 may make sense for those taxpayers that paid a significant amount of these taxes, based on the remote possibility that the claim may ultimately succeed.

Questions? Consult one of our tax advisors about your specific situation. We can help. Contact us.

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