In a June 17, 2021 decision, the Affordable Care Act (ACA, “Obamacare”) survived its third and presumably final challenge as the Supreme Court rejected the challenge in a 7-2 decision. This margin of victory was wider than the 5-4 and 6-3 decisions from the prior two Supreme Court cases applicable to the ACA (in 2012 and 2015, respectively).  Former President Obama had originally signed the ACA into law. Beginning in the 2014 calendar year, the act mandated that individuals purchase insurance in order to avoid a noncompliance penalty. This penalty (when applicable) was reportable on the individual’s federal income tax return.  However, former President Donald Trump later signed the Tax Cuts and Jobs Act (TCJA). The TCJA removed this penalty for noncompliance starting in the 2019 tax year, though all other provisions of the ACA remain in effect.

In its current ruling, the court did not opine on the issue of whether the ACA could stand alone with the noncompliance penalty no longer in place. Rather, the court indicated that plaintiff (which included 18 states and 2 individuals) did not provide sufficient proof that direct injury was sustained by plaintiff and that therefore there was no basis for the lawsuit.

The provisions of the ACA that still remain in effect include:

The Additional Medicare Tax

The 0.9% Additional Medicare Tax first became applicable in the 2013 calendar year. This tax applies to the earned income of an individual that exceeds a threshold amount, based on the individual’s filing status. The threshold amount is $250,000 for married taxpayers who file using the married filing joint status, $125,000 for married taxpayers who file using the married filing separate status and $200,000 for all other filing statuses.  For purposes of the Additional Medicare Tax, earned income includes wages, bonuses, tips, certain noncash fringe benefits and self-employment income.

The Net Investment Income Tax

The 3.8% Net Investment Income Tax (NIIT) also went into effect for calendar years beginning January 1, 2013. The NIIT applies to individuals, estates and trusts that have investment income that exceeds certain threshold amounts.

Net investment income generally includes:

However, net investment income does not include wages, unemployment compensation, self-employment income, alimony received or social security benefits received.

The Premium Tax Credit

The refundable premium tax credit can help lower insurance premium costs when the taxpayer enrolls in a health insurance plan through the Health Insurance Marketplace. 

The amount of credit an individual is eligible to receive is dependent on estimated income and additional household information, which is included on the Marketplace application. If estimated income falls between 100% and 400% of the federal poverty level for a household of the taxpayer’s size, a taxpayer may be eligible to claim the premium tax credit.

When applying for coverage through the Marketplace, an individual can receive the premium tax credit in advance (through a direct reduction in health insurance premiums paid).

Alternatively, an individual can claim the premium tax credit directly on the federal individual tax return (by filing Federal Form 8962 – Premium Tax Credit with the return). If the taxpayer were to use less of the premium tax credit during the calendar year (through direct reduction in health insurance premiums) than he/she ultimately qualifies for, the taxpayer could receive the difference as a refundable tax credit on the Federal Form 8962.

Currently, for the 2020 calendar year only, if a taxpayer had claimed more premium tax credit (through direct reduction in health insurance premiums) than eligible for when 2020 individual tax return filed, the difference does not need to repaid (on the Federal individual tax return).  This provision was included in the American Rescue Plan Act of 2021.

Eligibility requirements for the premium tax credit:

An individual must meet each of these criteria below to qualify for the premium tax credit:

• Must receive healthcare coverage through the Marketplace
• Must not be eligible for healthcare coverage through an alternative option (such as an employer or the government)
• Income needs to fall within a certain range
• Another person is not eligible to claim taxpayer as a dependent on tax return
• If married, must use the married filing joint status on tax return (generally not eligible to use the married filing separate status).

According to former President Obama: “This ruling reaffirms what we have long known to be true: the Affordable Care Act is here to stay.”

David Silverstein, CPA, just retired from his 30-year career in the Comptroller’s Office. During the first half of this career, he performed audits that resulted in over $30 million in savings to New York City. During the second half, he administered the City’s system for keeping in compliance with the IRS. Among these responsibilities included creating the City’s system for ensuring payments to the City’s foreign vendors were in compliance with IRS tax laws and running bi-annual training classes for the entire city. He has also been running his own tax practice for over 25 years.