This fall, the Supreme Court of the United States will hear arguments regarding the legality of the Affordable Care Act (ACA). They will most likely announce their decision in 2021. If the law is declared unconstitutional, refunds for taxes paid related to the ACA legislation may be available. These taxes include the Additional Medicare Tax (0.9%) and the Net Investment Tax (NIIT) (3.8%), which are assessed for high-income taxpayers whose income exceeds certain thresholds.
Though the likelihood of the ACA being overturned is considered low, we recommend that you consult with your tax professional on this topic. They will determine if you would be eligible for a refund, and if so, assess what the best course of action is, based on your specific situation. Some CPA firms are filing a protective claim letter on behalf of their clients, others are preparing amended returns, while other tax professionals recommend taking no action at this time. It is possible that even if the ACA is overturned, the IRS would not refund ACA tax retroactively.
Protective claims are not available for tax years 2015 and earlier, as the three-year statute of limitations has passed. Taxpayers who filed their 2016 tax returns on the October 15, 2017 deadline (through an extension) will have until October 15, 2020 (or 3 years from the date they filed, if earlier than October 15) to file a protective claim for a refund of the 2016 taxes related to the ACA.
Given that the Supreme Court decision is not likely to be handed down before October 15, some CPAs advise that filing a protective claim letter would be sufficient to hold your claim to a 2016 refund, rather than amending your tax return at this time. However, other CPA firms recommend amending your returns now. These firms feel that an amended return (Form 1040-X) creates a better likelihood for a refund, compared to the protective claim letter.
Additional guidance from the IRS is available here. The July 15 references are applicable to taxpayers who filed their 2016 returns between July 15, 2017 and October 15, 2017 even though the site has not been updated.
For the 2017 tax year, if you filed by April 15, 2018, you would have until April 15, 2021 to file a protective claim to preserve a potential 2017 tax refund.
Because each situation is unique, we suggest you contact your tax professional for specific guidance. Please contact a member of your JDJ team with any questions.