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You May Need a Protective Claim Before July 15

Article Highlights:

  • Pending Supreme Court Case 
  • Past ACA Taxes May be Invalidated 
  • Who May be Impacted by the Court Ruling 
  • 2016 Tax Statute of Limitations
  • Protective Claim for 2016 Refund
Taxpayers who in the last few years have paid the extra 0.9% Medicare tax on wages or self-employment income, or the 3.8% tax on net investment income, both taxes that were created as part of the 2010 Patient Protection and Affordable Care Act (ACA; often called Obamacare), may be able to claim a refund of these taxes. However, it will be up to the Supreme Court as to whether anyone will qualify for a refund. Currently before the Court is a case challenging the legality of the ACA. Here’s what the case is about.

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 has been making its way through the courts, and 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 has been extended because of the COVID-19 pandemic). However, you can lock in your right to a possible refund for 2016 by filing what’s called a protective claim by July 15, 2020. If you filed your 2016 return after April 15, 2017 because you were on extension, the deadline is three years from the date it was filed.

Usually, a claim for refund of an individual’s income tax is made on IRS Form 1040-X, but a protective claim can be done less formally by writing to the IRS. So, if you wish to make a protective claim for 2016, you can use the format below – be sure that both you and your spouse have signed if you filed a married joint return. Also, be sure to get a proof of mailing since it is so close to the deadline, and keep the proof of mailing and a copy of the letter with your tax records.

If you need assistance, please give this office a call.


SAMPLE LETTER:


Date

Attn: Internal Revenue Service
Re: Taxpayer’s (& Spouse’s if filed joint) Name
Taxpayer’s address
Taxpayer’s Social Security Number
Spouse’s Social Security Number (if joint)
Taxpayer’s phone number Tax Year 2016 – Form 1040

This letter is my (our) formal written Protective Claim for Refund of Additional Medicare Tax and/or Net Investment Income Tax liabilities paid for tax year 2016. These taxes are contingent on the pending Supreme Court case California, et al., Petitioners vs. Texas, et al. No. 19-840 (U.S. Supreme Court).

These taxes were assessed and timely paid with my (our) individual income tax return Form 1040, under provisions of the Patient Protection and Affordable Care Act (ACA) of 2010.
  • Additional Medicare Tax of .9% was assessed in total on Form 8959, Part IV, Line 18. 
  • Net Investment Income Tax was assessed in total on Form 8960, Part III, Line 17. 
Upon favorable decision of this case, I am (we are) requesting a full refund of these assessed taxes and interest, as provided by law, on the principal amount of the tax overpayment.

Please contact me (us) if you need any additional information to process this claim.

Thank you.

Sincerely,

______________________
Taxpayer’s signature

______________________ 
Spouse’s signature (if joint)


Mail the claim to the appropriate address below:


IF you live in: THEN Mail to:
Florida, Louisiana, Mississippi, Texas

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0052

Alaska, Arkansas, California, Hawaii, Illinois,
Indiana, Iowa, Michigan, Minnesota, Ohio,
Oklahoma,  Washington, Wisconsin

Department of the Treasury
Internal Revenue Service
Fresno, CA 93888-0422

Arizona, Colorado, Idaho, Kansas, Montana,
Nebraska, Nevada, New Mexico, North Dakota,
Oregon, South Dakota, Utah, Wyoming

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0052

Alabama, Connecticut, Delaware,
District of Columbia, Georgia, Kentucky, Maine,
Maryland, Massachusetts, Missouri, New Hampshire, 
New Jersey, New York, North Carolina, Pennsylvania, 
Rhode Island,  South Carolina,  Tennessee, Vermont,
Virginia, West Virginia

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999-0052

A foreign country, U.S. possession or territory*;
or use an APO or FPO address, or file Form 2555,
2555-EZ, or 4563; or are a dual-status alien

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215

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