Tax and financial advice from the Silicon Valley expert.

Consider filing a protective claim for Obamacare taxes

The U.S. Supreme Court has agreed to hear California v. Texas (U.S. Supreme Court Docket 19-840.)  This case challenges the constitutionality of the Affordable Care Act, nicknamed Obamacare.

If the Supreme Court rules the Affordable Care Act to be unconstitutional, taxes and penalties enacted as part of the Act could be eliminated and taxpayers could apply for refunds of those taxes.  These include an extra 0.9% Medicare tax and the 3.8% net investment income tax.

Consider sending a protective claim to the IRS by July 15, 2020 for the tax year 2016.  Spidell Publishing has posted a suggested simple form for a claim.  Here is a URL for the form.  http://www.mmsend63.com/link.cfm?r=4MGaSk-8do9OSq5rWJozRA~~&pe=MLxUYHWRMJTah2hlVsRhufQV3c6p4SCiez5_l6NGi1-_VLwkya4_xaxcLOOmNGM5Qkg_z_cN4pc5N38k-Y3xTA~~&t=QIJYj7V5qtg-xGkCJ-dZlw~~

You might remember the Supreme Court previously upheld the Affordable Care Act as constitutional during 2012 in National Federation of Independent Businesses v. Sebelius, because the penalties enacted in that Act to enforce the Mandate that everyone have medical insurance were considered to be taxes and Congress has the power to levy taxes under the U.S. Constitution.

One of the provisions of the Tax Cuts and Jobs Act of 2017 was to change the penalty rate to zero.

The Fifth Circuit Court of Appeals ruled on December 18, 2019 that since the “tax” for the Mandate no longer applies, the Mandate is unconstitutional, and so is the Affordable Care Act.

California and other states are contesting the decision of the Fifth Circuit Circuit Court of Appeals.

This is a last-minute development.  Personally, I question whether the U.S. Supreme Court would retroactively strike down the Affordable Care Act when they previously upheld it and the penalty “tax” applied before 2019.  But I could be wrong.  If you don’t file a protective claim and the U.S. Supreme Court rules Obamacare was unconstitutional during 2016, you won’t be able to recover the taxes for that year.

Tax return preparers are probably already occupied with finishing 2019 income tax returns and extensions for the July 15, 2020 deadline.

If you paid these taxes and can get through to your tax advisor, discuss this matter with her or him.

Paycheck Protection Loan application deadline extended

President Trump signed legislation (S.4116) on July 4, 2020 extending the application deadline for Paycheck Protection Program (PPP) loans from June 30, 2020 to August 8, 2020.

Paycheck Protection Program loans were enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act.)

Certain businesses can apply for up to $10 million.  If certain requirements are met, the loan principal will be forgiven, tax free.  At this time, expenses paid using the loan proceeds are not tax deductible.

At this time $130 billion of $660 billion allocated hasn’t been committed for loans, yet.

If you haven’t been approved for a PPP loan and would like to apply, see your banker.

Tax and financial advice from the Silicon Valley expert.