Later this year, the US Supreme Court will deliberate on a case that could potentially lead to the Affordable Care Act (ACA) and its associated taxes being found retroactively unconstitutional. If the Court does find the ACA unconstitutional, taxpayers may be entitled to refunds for the taxes imposed by the ACA. While we and most legal scholars consider this outcome to be highly unlikely, we wanted to offer a little more information about the deadlines and risks involved.
The potential refund opportunity applies to individuals as well as estates and trusts that paid ACA-related taxes in tax years that remain open under the statute of limitations. This would include the additional 0.9% Medicare tax on earned income and the 3.8% net investment income tax. In general, individuals whose adjusted gross income exceeds $250,000 married filing jointly or $200,000 filing single are subject to these taxes. In addition, estates and trusts with adjusted gross income in excess of the dollar amount at which the highest tax bracket begins may also be subject to the 3.8% net investment income tax.
Should this improbable outcome result, a taxpayer must file a minimum of a protective claim prior to the closing of the statute of limitations in order to be eligible for the refund of taxes, which should be claimed via amended return. The statute of limitations for 2016 returns filed by July 15, 2017 closes on July 15, 2020.
We believe that the inherent costs in filing such a claim and the risk involved in opening previously closed tax returns to potential fresh scrutiny or even audit by the IRS are not justified by the low likelihood of a successful claim in the event the ACA is found unconstitutional. However, our clients’ needs and preferences come first and we are here to serve. Please contact your GP advisor if you feel filing a claim is the right step for you.