I saw chatter on the ACTEC listserv, did a general search for the issue, and found that many tax professionals are looking at filing “protective claims for refund” in connection with the taxes that are a part of the Affordable Care Act (“ACA”).
In 2012, the Supreme Court said that a mandate requiring individuals to buy health insurance was not enforceable but because the ACA had a tax provision/penalty for failure to buy insurance, the ACA could be upheld under the tax powers in the US Constitution.
Subsequently, Congress eliminated the tax/penalty. After that, a federal District Court ruled that, without the tax/penalty, the ACA was unconstitutional since it could no longer be supported as an exercise of Congress’ taxing powers. That issue is now before the US Supreme Court. If the Court upholds the lower court’s ruling and the ACA goes away, some argue that the net investment income tax of 3.8% and the Medicare surtax of 0.9% will likewise go away.
The purpose of this missive is not to argue that issue one way or another. My purpose is to alert people to the idea that a finding that such taxes never existed because the ACA should never have existed raises the possibility that taxpayers who paid those taxes could get refunds.
What’s at stake? Immediately, it’s your 2016 tax return. One of the tax professionals in this office believes that a protective claim for refund for 2016 taxes should be filed by July 15. Another suggests that it should have been April 15 or, if your return had been extended, perhaps by October 15. Again, I’m not trying to argue that point.
I would advocate that you contact your CPA or tax preparer immediately to find out if you paid any ACA taxes for 2016, and how much you paid. If the amounts are significant, perhaps you should consider retaining a tax attorney to work with your tax preparer to get a protective claim for refund on file, whether by July 15 or another date.
If you didn’t have any such taxes for 2016, then you should check your 2017 return, and begin the process now on making the determination of whether a refund claim should be filed for that year.
Then, wait and see what the Supreme Court does. It may not discard the entire ACA, but if it does, you may be entitled to some money.
This information is provided as a means of keeping subscribers informed on important current events affecting planning. It is not intended to be legal or tax advice applicable to any particular person’s issues, and readers should consult with their own tax accountant or attorney before taking, or refraining from taking, any action.