We are watching the case of Texas v. US, which is challenging the constitutionality of the tax provisions of the Affordable Care Act (ACA). The US Supreme Court (the “Court”) has agreed to hear this case earlier this year. You can read about the case here.

As part of the funding for the ACA when it was enacted, several taxes were created. The specific ones in question are:

  • The additional Medicare tax on form 8959. A simple explanation is that this is an additional 0.9% tax on earned income in excess of $200,000 single, $250,000 married-filing-jointly.
  • The net investment income tax on form 8960. This is an additional 3.8% tax on net investment income, imposed on those with adjusted gross income over $200,000 single, $250,000 married-filing-jointly.

If you want to see how much of these taxes you paid, find these forms 8959 and 8960 in your copy of the tax return for 2016, 2017, and 2018, and see the tax imposed at the bottom of the form. If your adjusted gross income was less than $200,000 single or $250,000 married-filing-jointly, then you did not pay these taxes.

If the Court rules that these ACA tax provisions are unconstitutional, then taxpayers will be able to file an amended return refund claim and get refunded these taxes, if the statute of limitations is still open for that year. Where a tax is ruled unconstitutional, governments pay refunds for years that are closed due to the statute of limitations to those taxpayers who file a protective claim for refund before the statute of limitations expired. The statute of limitations for a protective claim on the tax year 2016 expires on July 15, 2020, for those that filed by 2016 return by April 15, 2017. If you file a claim on these taxes paid before the statute expires, your right to receive a refund of that tax is preserved even if the case is decided after the statute of limitations.

Our analysis. We have looked into this matter and have concluded that there is little chance of the tax being declared unconstitutional for tax years before 2019 (2019 is different as that is the year the ACA individual health insurance mandate ended under the 2017 Tax Cuts and Jobs Act). We understand that almost all national CPA firms have reached the same conclusion. As such, they are not recommending that their clients go to the expense of filing a protective claim. We are making the same recommendation and do not advise action.

The decision on your part. If you feel that you would like to file a protective claim for a refund for 2016 through 2018 despite our belief that a recovery is very unlikely, please contact us. Some of our clients paid a significant amount of these taxes and would be willing to incur some cost to file the claim based on the unlikely chance that the tax could be refunded.

R. Milton Howell III, CPA, CSEP
R. Milton Howell III, CPA, CSEP

Milton is experienced in taxation issues including, tax research for both open and closed transactions, structuring complex tax transactions, estate and income tax planning, and representing clients before tax authorities. As DMJ’s Director of Tax Services, Milton regularly writes and reviews articles in local, regional, and national publications on tax matters and spends significant time monitoring current tax issues and legislation.

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