Proposed regulations revise premium tax credit’s affordability test

By Paul Bonner

The IRS issued proposed regulations Tuesday (REG-114339-21) that would reinterpret how affordability of employer health care coverage is determined for purposes of a premium tax credit (PTC) with respect to family members of an employee to whom the coverage is offered.

Under the current regulations adopted as final in 2013, the approach to determining eligibility for a PTC and health care coverage through an exchange under the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, "has potentially impacted millions of Americans," the proposed regulations' preamble states. "Among those impacted are families with children, some of whom have suffered economic hardship. In addition, the current approach has undermined access to more affordable health care coverage by preventing access to lower-premium subsidized Exchange plans."

At issue is how a statutory provision of PPACA has been interpreted previously. Sec. 36B(c)(2)(C) generally provides that an individual is ineligible for employer coverage (and may therefore be eligible for a PTC) if that coverage is unaffordable or does not provide minimum value. Affordability for that purpose is measured under Sec. 36B(c)(2)(C)(i)(II) as the share of the annual premium the employee must pay for self-only coverage, relative to household income. Generally, the employee's required contribution with respect to the plan must be less than or equal to 9.5% of household income.

An oddity emerges in that calculation, however, with respect to family coverage: Its affordability also is determined under the current regulations with respect to self-only coverage.

The proposed regulations reflect the IRS and Treasury's decision that the statute "does not compel the result that if self-only employer coverage is affordable for an employee, then the coverage also is affordable for a spouse and any dependents," the preamble states. That interpretation "unduly weakens" the PPACA and is "contrary to the policy of the [PPACA] to expand access to affordable health care coverage."

Accordingly, the IRS and Treasury are exercising their regulatory authority in Sec. 36B(h) to adopt an "alternative reading" of the statute, under which affordability of family coverage is based on the cost of covering the family, not just the employee. The preamble also calls this alternative reading "the better reading of these provisions" in the statutes, noting that Sec. 5000A(e)(1)(C), which states that the affordability test for related persons "shall be made by reference to [the] required contribution of the employee," does not specifically say that contribution must be for self-only coverage. It would also make better sense in light of other U.S. general statutes requiring exchange applicants to separately provide the required contributions of employees and of related individuals to determine PTC eligibility.

Consequently, the proposed regulations would provide that an eligible employer-sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for family coverage does not exceed 9.5% of household income. Family coverage for this purpose means all employer plans that cover any related individual other than the employee. They would similarly define the employee's required contribution for family coverage as the portion of the annual premium charged for coverage of the employee and all other individuals in the employee's family who are offered coverage.

The proposed regulations would also address situations where an individual has offers of coverage from more than one employer, either as an employee or a related individual.

They also would extend to related individuals the rule under existing Regs. Sec. 1.36B-6(a)(1) that an employer plan provides minimum value if its share of the total allowed cost of benefits provided to an employee is at least 60% (the "minimum-value" rule).

The proposed regulations' notice also withdraws previously proposed regulations (REG-143800-14), which had incorporated the substance of the minimum-value rule in final regulations issued by the Department of Health and Human Services.

A public hearing on the proposed regulations is scheduled for June 27, 2022, and written comments may be submitted, with hearing participation and comment submission details in the preamble. The regulations are proposed to be effective for tax years beginning after the date they are finalized, and the IRS expects them to be finalized this year.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at

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