US Supreme Court will Hear ACA Challenge: What are the Ramifications for Tax?

Jesse Rooney
March 5, 2020

On March 2, the Supreme Court announced it would consider a challenge to the Affordable Care Act (ACA), more commonly referred to as Obamacare. The legal challenge, brought by the Attorney General of Texas and before the Supreme Court as California v. Texas, seeks to overturn the landmark healthcare law.

The challenge proposes that since the ACA only passes constitutional muster through its tax implications, the 2017’s Tax Cuts and Jobs Act, which eliminated the individual tax penalties for failing to maintain adequate coverage, renders the law unconstitutional.  A split decision by a panel of the 5th Circuit upheld the lower court’s finding for Texas in challenging the law. An appeal has now been fast tracked to the Supreme Court.

The question being posed to the Supreme Court is three-fold. First, does California have the legal standing to bring this appeal? Does the removal of the tax penalty for failing to secure coverage invalidate the individual mandate? And, if the individual mandate cannot stand on its own, does it render the entire ACA invalid?

It’s important to remember that the fate of the Affordable Care Act is yet to be decided. The structure of the US healthcare system will likely remain a hot political topic through the election cycle and into the next Presidential administration.  It’s highly unlikely that this case will affect filing obligations in reporting year 2020. In fact, a decision is not expected until sometime in 2021. 

Until that time, the ACA will remain the law of the land and employers and insurers must continue to comply with the employer shared responsibility under IRC §4980H and separate reporting requirements. This means that employers are mandated to provide affordable coverage and reporting requirements and potential penalties will remain in full force while the case is being decided.

Even if the ACA ultimately meets it demise in the courts, state governments are already stepping into the breach to impose their own requirements. Following the lead of Massachusetts (whose rules pre-date the ACA), the District of Colombia and New Jersey enacted requirements in 2019. California, Rhode Island and Vermont followed suit in 2020.

There are an additional 15 states that have gone on record as part of this litigation supporting the ACA and asking the court to uphold the law. These states are important to watch as they may ultimately move to impose their own requirements. 

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Jesse Rooney

Jesse Rooney is regulatory counsel for Sovos. His research focuses on tax information reporting. He is a member of the Massachusetts bar.
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