IRS proposes regulations implementing premium tax credit changes

The IRS and Treasury on Wednesday proposed regulations (REG-101576-26) implementing Sec. 36B premium tax credit (PTC) changes enacted by H.R. 1, P.L. 119-21, commonly referred to as OBBBA.

Among other changes, the proposal would implement new eligibility and verification requirements, update reporting rules for marketplaces (also known as exchanges, which offer qualified health plans for purposes of the PTC), and reflect the repeal of limits on repayment of excess advance premium tax credits (APTCs).

One provision with direct tax-return implications reflects H.R. 1’s repeal of the excess-APTC repayment limitation. Under current rules, some taxpayers who received more advance credits than they ultimately qualified for are protected by income-based repayment caps. H.R. 1 eliminated those limits for tax years beginning after Dec. 31, 2025, and the proposed regulations would conform the regulations to that statutory change.

Treasury and the IRS estimated that about 3.7 million returns in 2028 will include repayment of excess APTCs.

The proposal also would implement H.R. 1 provisions affecting exchange verification procedures. For tax years beginning after Dec. 31, 2027, a month generally would not qualify as a PTC coverage month unless the exchange verifies required enrollment information. For individuals receiving advance credits, exchanges would be required to verify information such as household income, family size, eligibility for other minimum essential coverage, and, when applicable, “eligible-alien” status.

The proposed regulations also would implement statutory changes affecting individuals who are lawfully present in the United States but are not eligible aliens under Sec. 36B(e)(2)(B), as amended by H.R. 1. Beginning with tax years after Dec. 31, 2026, taxpayers generally would have to exclude premiums attributable to those individuals when calculating the credit. The proposal also would update rules governing households that include individuals who are not lawfully present in the United States or who are lawfully present but not eligible aliens.

Corresponding reporting changes would affect Form 1095-A, Health Insurance Marketplace Statement. For taxpayers receiving advance credits, exchanges would be required to exclude from reported enrollment premiums and benchmark-plan premiums amounts allocable to individuals who are not lawfully present or who are lawfully present but not eligible aliens.

The regulations also would remove regulatory language reflecting a prior rule that allowed certain lawfully present immigrants with household income below 100% of the federal poverty level to qualify for the credit if they were ineligible for Medicaid because of immigration status. H.R. 1 repealed that statutory provision for tax years beginning after Dec. 31, 2025.

Another section of the proposed regulations addresses H.R. 1’s Medicaid community-engagement provisions. Under the proposed regulations, individuals who would otherwise qualify for Medicaid but fail community-engagement requirements generally would be treated as eligible for Medicaid minimum essential coverage for PTC purposes, making them ineligible for the credit during those months. Community engagement can include working, being enrolled in an educational program, or participating in a work program or community service at least 80 hours a month. The proposal includes examples illustrating how eligibility changes if a taxpayer later becomes ineligible for Medicaid for another reason, such as increased income.

Treasury and the IRS estimated the regulations could affect about 5.6 million individuals enrolled in exchange coverage, including 13.5 million enrollees potentially eligible to claim the PTC.

Treasury said changes to exchange procedures needed to implement the verification requirements are expected to be addressed in parallel proposed regulations issued by the Department of Health and Human Services.

The comment period for the proposed regulations ends Nov. 30.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.