By Wolters Kluwer Editorial Staff
The IRS has released proposed regulations relating to the health insurance premium tax credit (premium tax credit) and the individual shared responsibility provision of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The proposed regulations provide guidance and clarification on eligibility for the premium tax credit (including guidance on opt-out arrangements), the amount of the tax credit, figuring out the benchmark plan premium, and information reporting. The proposed regulations are generally proposed to apply for tax years beginning after December 31, 2016, though taxpayers may rely on certain provisions of the proposed regulations for tax years ending after December 31, 2013. In addition, several rules are proposed to apply for tax years beginning after December 31, 2018 (Proposed rule, 81 FR 44557, July 8, 2016).
Coverage. Individuals must have qualifying healthcare coverage (called minimum essential coverage) or make an individual shared responsibility payment. Eligible individuals who purchase coverage under a qualified health plan through a health insurance exchange may claim a premium tax credit, the amount of which is determined in part by projections of the taxpayer’s household income and family size for the taxable year.
Taxpayers who receive the benefit of advance credit payments are required to file an income tax return to reconcile the amount of advance credit payments made during the year with the amount of the credit allowable for the taxable year. To avoid repayments of advance credit payments for taxpayers who experience an unforeseen decline in income, the existing regulations provide that if an exchange determines at enrollment that the taxpayer’s household income will be at least 100 percent but will not exceed 400 percent of the applicable federal poverty level (FPL), the taxpayer will not lose his or her status as an applicable taxpayer solely because household income for the year turns out to be below 100 percent of the applicable FPL.
Premium assistance. The proposed regulations provide that a taxpayer who is eligible for advance credit payments pursuant to an eligibility appeal for a member of the taxpayer’s family who, based on the appeals decision, retroactively enrolls in a qualified health plan, is considered to have met the requirement in for a month if the taxpayer pays the taxpayer’s share of the premium for coverage under the plan for the month on or before the 120th day following the date of the appeals decision. To provide consistency for all individuals who have a coverage month that is less than a full calendar month, the proposed regulations also provide that the premium assistance amount for a month is the lesser of the enrollment premiums for the month (reduced by any amounts that were refunded), or the excess of the benchmark plan premium over the contribution amount for the month. Taxpayers may rely on these rules for all taxable years beginning after December 31, 2013.
Benchmark plans. Additional under the Proposed rule if there is only one silver-level qualified health plan offered through the exchange that would cover all members of the taxpayer’s coverage family (whether under one policy or multiple policies), that silver-level plan is used for purposes of the taxpayer’s applicable benchmark plan. Similarly, if there is only one stand-alone dental plan offered through the exchange that would cover all members of the taxpayer’s coverage family (whether under one policy or multiple policies), the portion of the premium of that plan that is allocable to pediatric dental benefits is used for purposes of determining the taxpayer’s applicable benchmark plan.
Information reporting. If a qualified health plan covers more than one family under a single policy (for example, a plan covers a taxpayer and the taxpayer’s child who is 25 and not a dependent of the taxpayer), the premium tax credit is computed for each applicable taxpayer covered by the plan. In addition, in computing the tax credit for each taxpayer, premiums for the qualified health plan the taxpayers purchase (the enrollment premiums) are allocated to each taxpayer in proportion to the premiums for each taxpayer’s applicable benchmark plan. The existing regulations provide that the exchange must report the enrollment premiums for each family, but do not specify the manner in which the Exchange must divide the enrollment premiums among the families enrolled in the policy.
The Proposed rule clarifies that when multiple families enroll in a single qualified health plan and advance credit payments are made for the coverage, the enrollment premiums reported by the Exchange for each family is the family’s allocable share of the enrollment premiums, which is based on the proportion of each family’s applicable benchmark plan premium.
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