Potential Tax Benefits if Affordable Care Act is Repealed

The Affordable Care Act (ACA) was enacted in March 2010 and had three primary goals: increase the availability of affordable health insurance to more people, expand the Medicaid program for adults below the poverty line, and support innovative medical care delivery methods designed to lower the costs of health care generally.  This program was funded through a number of adjustments to the tax code, such as the penalty to taxpayers who did not have health insurance coverage, the 3.8% additional tax on net investment income (NIIT), and the 0.9% additional tax on high wages (Medicare surtax). In late 2017, the Tax Cuts and Jobs Act (TCJA) effectively repealed the penalty by setting the penalty rate at 0% beginning in 2018. However, the other parts of the ACA are still applicable.

In late 2019, the US Court of Appeals for the Fifth Circuit ruled that the individual mandate – the penalty for those who do not have health insurance – is unconstitutional. The United States Supreme Court has agreed to hear this case.  If the Supreme Court agrees with the Fifth Circuit Court that the individual mandate is unconstitutional, there is a chance they would move to declare all parts of the ACA (including the NIIT and 0.9% tax on high wages) unconstitutional. This decision is expected in the first half of 2021.

Taxpayers who paid a substantial amount of Medicare surtax (Form 8959) and NIIT (Form 8960) dating back to 2016 will be eligible for a potential refund if the ACA is declared unconstitutional.  Taxpayers can maintain their eligibility beyond the Federal statute of limitations (3 years from date of filing) by submitting a protective claim letter (click here to view). DKC will be completing a review of our clients’ qualifications for savings in this area and will send any claim forms requiring signature with your finalized tax returns. If you choose to complete the protective claim letter, we kindly request that you send a copy of the signed form to your DKC representative for recordkeeping purposes.

Please feel free to reach out to your DKC representative if you have any further questions or concerns.