Taxpayers should consider filing a protective refund claim with respect to their 2016 tax return by July 15, 2020. Doing so may allow them to obtain a refund on Affordable Care Act (ACA) taxes paid with that return if the Supreme Court, which has accepted a case dealing with the constitutionality of the ACA, determines that the ACA is unconstitutional.
The Supreme Court has agreed to hear the case of California v. Texas (known as Texas v. U.S. in the lower courts). When the Court of Appeals for the Fifth Circuit heard the case, it found the ACA’s minimum essential coverage provision to be unconstitutional. (State Of Texas v. U.S., (2019, CA5) 124 AFTR 2d 2019-7031 , cert granted sub nom Texas v. California, (2020, S Ct) 2020 WL 981805)
The ACA includes the following taxes:
- the 3.8% Net Investment Income Tax, imposed on those with AGI over $200,000 for single taxpayers and $250,000 for married taxpayers; and
- 9% Additional Medicare Tax, imposed on those with the same AGI limits as the 3.8% tax.
Notice 2020-23, 2020-18 IRB , provided tax filing relief because of COVID-19. Among other things, it extended the deadline for 2016 tax year refund claims to the later of when the deadline would otherwise have been, or July 15, 2020.
While there is no guarantee that the Supreme Court will find the ACA unconstitutional, and, even if it does, there is no guarantee that its ruling will create a refund opportunity for taxes paid in 2016, taxpayers who paid a significant amount of ACA tax for 2016 should seriously consider filing a protective refund for 2016 and must do so by July 15, 2020 unless they filed their 2016 return after July 15, 2017.
Those same taxpayers should consider filing protective refund claims for 2017-2020 as well, although the July 15, 2020 deadline doesn’t apply to those protective refunds.
There has been speculation in the financial press that 2019 would be the first year that any refunds would apply. This speculation is based on the fact that the reduction of the shared responsibility that began in 2019 is what would have made the ACA unconstitutional.