If you have paid the extra Medicare tax on wages/self-employment income, you may be able to claim a refund of those taxes. It all depends on when you filed that extra tax. In other words, you may need to file a protective claim before July 15, 2020 to ensure your right to that possible refund.
The Affordable Care Act and Possible Refund Opportunity
Taxpayers who have paid the extra 0.9% Medicare tax on wages or self-employment income may be able to claim a refund of these taxes. Likewise, this also is the case for taxpayers who paid the 3.8% tax on net investment income. These taxes were created as part of the 2010 Patient Protection and Affordable Care Act (ACA; often called Obamacare).
Whether anyone will qualify for a refund is up to the Supreme Court. Currently there 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. This effectively repealed this part of the ACA. But other parts of the health care law were left intact. For instance, 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 the following amounts:
- $250,000 for married taxpayers filing jointly
- $125,000 for married taxpayers filing separately
- $200,000 for all others.
The net investment income tax is 3.8% of the lesser of:
- an individual’s net investment income or
- 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, or $200,000 for most other returns.
Was the ACA Unconstitutional?
The issue in the current court case is whether eliminating the individual mandate makes all or part of the ACA unconstitutional. And it’s been making its way through the courts. The case (California v Texas) is now at the Supreme Court. However, it isn’t likely to rule on the case until late this year. If the Court determines the ACA is unconstitutional, taxpayers may be entitled to refunds for the taxes imposed by the ACA.
File a Protective Claim Before July 15 to Lock in Your Right to a refund
If it’s determined that the ACA is unconstitutional, refunds can only 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. That date would be July 15, 2020 for 2016 returns. But, 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, the deadline is three years from the date it was filed. (For example, if you were on extension).
Sample IRS protective claim letter
Usually, a claim for refund of an individual’s income tax is made on IRS Form 1040-X. However you can file a protective claim less formally by writing to the IRS. Below, we’ll show you the best way to do this.
If you wish to make a protective claim for 2016, use the sample letter below to start.
First, be sure that both you and your spouse sign the letter if you filed a joint return. Two, get proof of when you mailed the letter, as it is so close to the deadline. Lastly, it’s also a good idea to 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 at (360) 778-2901.
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 |
Is the Government Keeping Your Refund?
