The Supreme Court will consider whether to invalidate the ACA in its next term.
Photo: Craig Hudson/Bloomberg NewsTaxpayers and their advisers are rushing to file claims for refunds of 2016 taxes in case the Affordable Care Act, often known as Obamacare, is struck down. For many higher earners who could benefit, the deadline to file such claims is Wednesday.
The rush is occurring because the Supreme Court will consider whether to invalidate the ACA in its next term. The decision probably won’t come before Election Day.
“These refunds are a long shot. But you never know what will happen, and putting in the request is worth a small amount of time and postage,” says David Lifson, a CPA with Crowe who advises high-net-worth clients. He expects the firm to file hundreds of refund claims for its clients.
If the court does strike down the ACA, the decision could also invalidate two taxes on higher-income people that were enacted as part of the law to help fund it. One is the net investment income tax, a 3.8% surtax on capital gains, dividends and similar income. The other is a 0.9% increase in their Medicare tax rate. The threshold for both levies is income of $200,000 for most single filers and $250,000 for most married filers.
If these two taxes are struck down along with the ACA, then filers who paid them could ask the Internal Revenue Service for refunds, as long as a three-year statute of limitations hasn’t expired. In 2016, nearly 4 million tax filers owed $15.8 billion due to the 3.8% surtax.
For most taxpayers who filed tax year 2016 returns by the April 18, 2017 due date, the statute of limitations for requesting refunds expires July 15, 2020, because of the three-month pandemic extension.
For those who got six-month filing extensions for 2016, the deadline is normally three years from the date they filed. So if a taxpayer with an extension for 2016 filed a return by August 15, 2017, the deadline for a refund request would be August 15, 2020.
However, taxpayers can file a “protective” refund claim that extends the statute if it is about to expire and a law is in question—as is the case with the ACA. This enables them to request refunds after a statute has expired, if they have filed a protective claim by the deadline.
While some tax advisers are filing protective claims for clients, others are providing clients with a template form they can file themselves. Andrew C. Levine, a tax attorney in Poughkeepsie, N.Y., says he has sent such forms to more than 100 clients.
The Taxpayer Advocate Service’s website lists the requirements for a valid protective claim.
The request doesn’t have to give a dollar amount or ask for an immediate refund. But it must be signed, and it must include the taxpayer’s name and address, Social Security number or taxpayer ID number and the specific year for which the refund may be sought. It must also explain why the taxpayer is making the claim.
Mr. Levine notes that the protective claim must be postmarked by the deadline, although the IRS doesn’t have to receive it by that date, and recommends getting and saving a proof of mailing.
Write to Laura Saunders at laura.saunders@wsj.com
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