The U.S. Supreme Court recently determined that the plaintiffs in California v. Texas lacked standing necessary to challenge the constitutionality of certain provisions of the Affordable Care Act (ACA). The Court’s decision means that all provisions of the ACA remain constitutional. Taxpayers that filed protective claims on the possibility that all or part of the ACA would be deemed unconstitutional should not expect tax refunds from such claims.
When the ACA was signed into law in 2010, one provision required many taxpayers to obtain a certain minimum health coverage, or otherwise face a monetary penalty (the “individual mandate”). In 2017, the Tax Cuts and Jobs Act (TCJA) effectively removed that penalty. Over a dozen states, as well as two individuals, sued federal officials, stating that requiring individuals to obtain a minimum health coverage without imposing a monetary penalty was unconstitutional. In March 2020, the Supreme Court agreed to hear the case.
On June 17, 2021, the Supreme Court decided that the plaintiffs lacked standing and therefore would not rule on the constitutionality of the ACA nor on the individual mandate therein. Generally, standing is a legal requirement for parties to a lawsuit. It might generally be thought of as a party’s “legal interest” in the case for which the suit is brought. The Court’s decision means that the ACA and provisions therein remain constitutional.
What does CohnReznick think?
Certain taxpayers filed protective claims for refund on the possibility that the Supreme Court would rule all or part of the ACA unconstitutional. These protective claims were generally made for taxes paid under certain tax provisions of the ACA during the 2016-2018 tax years. Tax provisions enacted under the ACA include the Net Investment Income Tax (NIIT), Medicare tax, and others.
Because the tax provisions of the ACA remain valid after the Court’s decision, taxpayers should not expect refunds related to protective claims made for taxes paid under these provisions. Please consult your tax advisor to determine how this may impact you or your business.
Subject matter expertise
CPA, Partner, Practice Leader, Federal Tax Services
CPA, JD, Managing Partner - Tax
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