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PROTECTIVE REFUND CLAIMS FOR TAXES PAID UNDER THE AFFORDABLE CARE ACT (ACA)

March 2, 2021

April 15th is not just Tax Day. It is also the deadline to file a protective refund claim for timely-filed 2017 tax returns.

Currently there is litigation pending in the Supreme Court challenging the constitutionality of the tax provisions of the Affordable Care Act (“ACA”). This litigation may not be decided until the summer. In the event the Court determines the ACA tax provisions are unconstitutional, taxpayers may preserve their right to a refund by filing a protective refund claim for taxes paid in tax years where the statute of limitations remains open, generally 2017 and after.

While the Court decision could go either way, most commentators believe it is unlikely the ACA tax provisions, particularly for tax years prior to 2019, will be declared unconstitutional. Notwithstanding, depending on your tax situation, the potential refund of taxes for calendar year 2017 and later years could be significant.

The taxes at issue are the additional Medicare tax and the Net Investment Income Tax (NIIT), which impact individual taxpayers, trusts, and estates. The additional Medicare tax is 0.9 percent on earned income and applies when earned income is over $250,000 for a married couple. The NIIT is an additional 3.8 percent on investment income and applies when adjusted gross income is over $250,000 for a married couple. These taxes can be found in the tax return on Forms 8959 and 8960.

If either or both of these taxes are ruled unconstitutional, a taxpayer who files a protective refund claim before the statute of limitations closes may receive a refund. A protective refund claim for calendar year 2017 generally must be filed by April 15, 2021. If your 2017 tax return was extended, the protective refund claim must be filed within three years of the actual filing date of the 2017 return. If the Supreme Court ultimately declares the ACA tax provisions unconstitutional, you may then file an amended return to obtain a refund.

If you paid either of these taxes and/or do not know how much you paid for 2017, please contact us.

We can help analyze the benefit of filing a protective refund claim. You will need to consider the amount of tax involved and the likelihood the Supreme Court will rule in the taxpayers’ favor, as well as any risks inherent in filing a protective refund claim and possibly an amended tax return.

Sincerely,

Roy M. Fairman, CPA/PFS, Managing Partner
Marianne Inforzato, CFP®, Partner
Shawn Kindt, CPA/PFS, CFP®, Partner
Doug Morisoli, CPA, CFA, CFP®, Partner

Contact OUR ADVISORS AT FAIRMAN GROUP FAMILY OFFICE to learn more.

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