News

Impact of California V. Texas

Impact of California V. Texas

15.07.2020

…While this case continues to be litigated, the Statute of Limitation for tax returns[3] that reported such taxes continues to roll along, and could potentially expire before a decision is reached by the courts regarding this matter. One option that might be worth exploring is the filing of a Protective Claim.

The Constitutionality of the ACA and the Protective Claim Option
With the coronavirus pandemic taking up most of the bandwidth on local news channels, smaller items of ‘lesser’ interest tend to pass under the radar. But, some of these news tidbits do have the ability to affect us financially in a positive way. One such item is the pending supreme court case of California v. Texas.

Background:
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 following the passage of the Tax Cuts and Jobs Act of 2017. … § 5000A) that created a tax penalty for Americans without insurance was eliminated.

The TCJA (Tax Cuts and Jobs Act of 2017) rendered the individual mandate moot by setting the limit for individual coverage to $0. Now that the mandate is eliminated, the constitutionality of the ACA is once again being challenged in court, the theory being that once the individual mandate is no longer, the ability of Congress to institute the taxes created by the ACA are being called into question.

Of critical importance is the Additional Medicare Tax[1] (.9% reported on Form 8959) and the Net Investment Income Tax[2] (3.8% reported on Form 8960). These taxes were included provisions of the ACA, and are now being called into question.

Protective Claim:
While this case continues to be litigated, the Statute of Limitation for tax returns[3] that reported such taxes continues to roll along, and could potentially expire before a decision is reached by the courts regarding this matter. One option that might be worth exploring is the filing of a Protective Claim. The Protective Claim is a request to the IRS to keep the Statute of Limitation alive while the tax matter is litigated, and if the outcome is in favor of the taxpayer, then an amended tax return could still be filed to claim refund for these ACA taxes even after the Statute of Limitations runs out.

If you believe that this matter affects your tax filings from tax year 2016 and 2017, please feel free to give us a call and discuss whether or not this option would benefit you.

Footnotes:
[1] Increase in Medicare Tax on Wages:  The ACA increased the Health Insurance (HI) tax payable by the employee by 0.9%.  The additional 0.9% tax applies to an individual’s taxable wages (and any self‑employment income) 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] Tax on Net Investment Income: The PPACA also expanded the Medicare tax to certain individual’s Net Investment Income (NII). 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.
[3] Statute of Limitations for Income Tax Filing runs three years after you file your tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after the due date, not the filing date.