Health Care Premium Credit Rules Proposed

The IRS released proposed regulations Friday (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 are part of a “next step” announced Friday 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 Friday. 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 be an applicable taxpayer. To be an applicable taxpayer, the taxpayer must (1) have household income between 100% and 400% of the federal poverty line (FPL) 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 each month the taxpayer or any family member is covered by a qualified health plan through an exchange. The assistance amount is the lesser of (1) the premium amount 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 taxable year, including:
    • Who is an applicable 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.

The IRS invites written comments on the proposed regulations, which must be received by Oct. 31. They may be sent via or in writing as directed in the regulations’ summary. A public hearing is scheduled in the IRS building in Washington, D.C., on Nov. 17.

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