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Protective Claims for Refund from Potential Ruling on Affordable Care Act

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The United States Supreme Court has agreed to hear the case of Texas V. United States, which could result in the determination that some or all parts of the Affordable Care Act ("ACA") is unconstitutional and may remove the entire legislation. 

When the ACA was enacted, several taxes were created. The specific ones applicable here are:

  • The additional Medicare tax, which is an additional 0.9% tax on earned income in excess of $200,000 for single taxpayers and $250,000 for taxpayers filing as married filing jointly.
  • The net investment income tax which is an additional 3.8% tax on net investment income, imposed on those with adjusted gross income over $200,000 for single taxpayers, and $250,000 for taxpayers filing as married filing jointly.

If the ACA is ruled to be unconstitutional, taxpayers may be able to file an amended tax return to request a refund of the taxes imposed by the ACA, provided that the statute of limitations is still open for that year.

The statute of limitations to file an amended tax return is normally three years from date of original filing.

For example, if 2016 tax return was filed on August 1, 2017, the statute of limitations expires on August 1, 2020. Since IRS extended due dates for filing income tax returns that were due April 15, 2020 in response to COVID-19, the statute of limitations for taxpayers that filed their 2016 tax return between April 15, 2017, and July 15, 2017 expires on July 15, 2020. These taxpayers, however have the opportunity to file a protective claim for refund, before the statute of limitations expires (July 15, 2020) to preserve their right to receive a refund of the additional taxes imposed by the ACA, even if the case is decided after the statute of limitation expires.

If you have any question, or if you would like to file a protective claim for a potential refund for tax years 2016, please contact your tax advisors at SobelCo LLC.

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