Health Care Premium Credit Rules Proposed

November 1, 2011

The IRS released proposed regulations in August (REG-131491-10) implementing the health insurance premium tax credit, which was enacted last year by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act and is effective starting in 2014.

The proposed regulations were part of a “next step” announced by the Treasury Department and the Department of Health and Human Services (HHS) to establish “affordable insurance exchanges” that under the health care acts will allow individuals and small businesses to purchase private health insurance coverage, also starting in 2014.

Together, the IRS and HHS released three sets of proposed rules. The proposed IRS regulations provide guidance to the insurance exchanges—and to individuals who enroll in the exchanges’ health plans—in claiming the premium tax credit, including an advance credit. The other proposed rules, released by HHS, provide guidance on eligibility determination for enrollment in a qualified health plan or insurance affordability program and address coordination of exchange coverage with Medicaid and the Children’s Health Insurance Program.

To be eligible for a premium tax credit (IRC § 36B(c)(1)), a taxpayer must (1) have household income between 100% and 400% of the federal poverty line amount for his or her family size, (2) not be claimed as a dependent by another taxpayer and (3) if married, file a joint return. The credit amount is the sum of “premium assistance amounts” for all coverage months, that is, any month the taxpayer or any family member is covered by a qualified health plan through an exchange and the premium is paid by the taxpayer or through an advance credit payment. The assistance amount is the lesser of (1) the premium amount for the qualified health plan in which a taxpayer or family member enrolls or (2) the result of a formula based on a “benchmark plan” and the taxpayer’s household income (section 36B(b)).

The IRS proposed regulations:

  • Address the eligibility criteria for the credit for a tax year, including who is an eligible taxpayer and the minimum essential coverage rules for government-sponsored coverage and employer-sponsored coverage.
  • Provide guidance on the computation of the premium tax credit.
  • Describe the requirements for reconciling the advance payments of the credit with the actual credit amount and determining the amount of any additional credit or additional income tax liability.

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