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Rödl & Partner Tax Matters Vol 2020 – 12 published September, 28 2020
California v. Texas (Docket 19-840) is a pending case before the United States Supreme Court dealing with the constitutionality of the 2010 Affordable Care Act (“ACA”) following the passage of the Tax Cuts and Jobs Act of 2017 (“TCJA”). The TCJA retained the “individual mandate” but eliminated the related tax penalty. A lower court found that the individual mandate, as a result, can no longer be justified under Congress’s taxing power. Without it, some or all of the ACA is potentially unconstitutional. The Supreme Court is scheduled to hear oral arguments on November 10, 2020.
If the Court were to determine that the ACA is unconstitutional, this could affect the legality of certain taxes including the:
1) Additional .9% Medicare tax on wages in excess of $250,000 for a married taxpayer filing a joint return, $125,000 for married filing separately, and $200,000 for all other filers.
2) 3.8% tax on net investment income: This 3.8% Medicare tax applies to 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 filing separately, and $200,000 for most other returns.
In the event the Court finds ACA unconstitutional, a taxpayer will only be able to claim a refund for the above mentioned taxes if the statute of limitations is open for a particular tax year, or the limitations period has been tolled with the filing of a protective claim.
A decision by the Court regarding the constitutionality of the ACA is not expected until after the election and possibly not until next year. If you paid these taxes on your 2016 tax return and want to preserve your right to a potential refund, you will need to file a protective claim. For 2016 tax returns, a protective claim must be filed no later than three years from the date you filed your 2016 return. For many taxpayers, this date is October 15, 2020. Please note that even if the Court declares the ACA unconstitutional, this does not mean a refund is automatically allowed. A protective claim preserves your right to a refund if it is allowed.
To be a valid protective claim, there are several criteria which must be satisfied. If you are interested in filing a protective claim, please contact your local Rödl & Partner representative.
We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.
Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.
No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Rödl Langford de Kock LP.
Copyright © September 2020 Rödl Langford de Kock LPAll rights reserved.
Elisa Fay
CPA
Partner-in-Charge Rödl National Tax
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