POTENTIAL TAX SAVINGS: You May Need a Protective Claim Before October 15th

The Obamacare created some additional taxes for some taxpayers. You may be able to claim a refund for some of the taxes paid.

This refund applies to taxpayers who have paid the extra 0.9% Medicare tax on wages or self-employment income, or the 3.8% tax on net investment income since 2016. Currently before the Supreme Court is a case challenging the legality of the ACA and if the Supreme Court decides in the taxpayer’s favor, taxpayer’s may be entitled to refunds on the Medicare and net investment income taxes paid beginning in 2016. Below is a brief history of the case.

The ACA included a requirement for individuals to have health insurance coverage starting in 2014 and imposed a penalty if they didn’t. As part of the Tax Cuts and Jobs Act (TCJA) of 2017, Congress set the penalty rate at 0% starting in 2018, effectively repealing this part of the ACA. However, other parts of the health care law were left intact, including the additional Medicare tax and the net investment income tax. The additional Medicare tax of 0.9% is paid by workers when their wages (or a self-employed individual’s income) exceed $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately, and $200,000 for all others. The net investment income tax is 3.8% of the lesser of (1) an individual’s net investment income; or (2) the excess of the individual’s modified adjusted gross income (MAGI) over $250,000 for a joint return, $125,000 for married taxpayers filing separately, and $200,000 for most other returns. The issue in the current court case of whether eliminating the individual mandate makes all or part of the ACA unconstitutional. The case (California v. Texas) is now at the Supreme Court, which isn’t likely to rule on the case until late this year or possibly not until 2021.

If the Court does find that the ACA is unconstitutional, taxpayers may be entitled to refunds for the taxes imposed by the ACA. If so, refunds would only be able to be claimed for years when the statute of limitations is still open. Usually, a claim for refund must be made within three years of the due date of the return, so that date would be July 15, 2020 for 2016 returns (since the regular April due date was extended because of the COVID-19 pandemic). If you filed your 2016 return after April 15, 2017 because you had an extension, the deadline is three years from the later date it was filed or the extended due date.

We recommend that all our clients take advantage of this potential tax savings and lock in your right to a possible refund for 2016 by filing what is called a Protective Claim before October 15, 2020. This applies to individual taxpayers. This also applies to trusts and estates, so fiduciaries should review their 2016 tax returns and see if filing a Protective Claim may be beneficial.

If you wish to make a Protective Claim for 2016 as well as subsequent years, please contact Caler, Donten, Levine, Cohen, Porter & Veil, P.A. (West Palm Beach: 561-832-9292; Stuart: 772-872-2123). Your tax team will take immediate steps to identify your potential refund, file appropriate forms with the IRS and keep you updated on the Supreme Court Case as it progresses.

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