California v. Texas: Supreme Court Upholds the Affordable Care Act / Applicable Taxes Still in Effect
In a 7-2 decision on June 17, 2021, the Supreme Court dismissed the case arguing against the constitutionality of the Patient Protection and Affordable Care Act (PPACA). The court held that the plaintiffs had no standing – meaning they had no legal right to sue – as they were unable to present any past or future injuries.
Overview of the case and the ruling
Under Sec. 5000A of the PPACA, individuals are required to pay a tax penalty if they fail to obtain minimum health insurance coverage. In 2017, the Tax Cuts and Jobs Act (TCJA) was passed and reduced this tax penalty to zero for months beginning after December 31, 2018. Texas, along with over a dozen other states and two individuals, sued federal officials, arguing that taking away the tax penalty would make Sec. 5000A unconstitutional and, because it was tied to the PPACA and could not be severed, the entire PPACA should also be ruled unconstitutional.
The case was heard under a district court and the Fifth Circuit where both courts agreed that Sec. 5000A was unconstitutional and that the plaintiffs had standing. California and other states then became involved and the case California v. Texas was brought before the Supreme Court. The court, in its 7-2 decision, held that the plaintiffs did not have standing as they could not show any injuries suffered or that they would suffer (including “pocketbook injuries”) as a result of Sec. 5000A and its zero-tax penalty. The health care law continues to remain in place along with its taxes.
Effect on prior year PPACA taxes and protective claims – no refunds currently
In anticipation of this Supreme Court case and the possibility of repeal of PPACA and its applicable taxes in 2020, there was speculation regarding potential refunds of the applicable taxes for 2016. As a result, in July 2020 we published this tax blog article July 15, 2020 Deadline Looms for Protecting Obamacare Tax Refunds and offered to prepare “protective claims for refund” for clients that incurred the PPACA related taxes in 2016.
In addition, in April 2021 we issued this tax blog article Consider Filing Claims to Protect 2017 Obamacare Tax Refunds Before May 17,2021 regarding potential “protective claims for refund” for clients that incurred PPACA related taxes in 2017.
Since the Supreme Court has dismissed the case and upheld PPACA and related taxes for now, there is no opportunity for refunds of PPACA related taxes for prior years.
PPACA related taxes still in effect
As a reminder, the PPACA has several tax-provisions that are still in effect including the 3.8% Net Investment Income Tax, the 0.9% Additional Medicare Tax, and employer penalties for large employers that do not offer health coverage or do not pay at least 60% of covered healthcare expenses.
By dismissing the case, the Supreme Court has avoided issuing an opinion on the constitutionality of the Affordable Care Act for a third time. This allows for the possibility of another lawsuit in the future to challenge the validity of the PPACA.
Please contact your Herbein tax consultant if you have questions regarding this article or the federal taxes related to the PPACA at firstname.lastname@example.org.
Article prepared by Paige Famous.