Guidance Provided on Health Insurance Premium Tax Credit (TDNR TG-1587; T.D. 9590)

The IRS and Treasury have provided guidance to individuals who enroll in qualified health plans through health insurance exchanges and claim the health insurance premium tax credit and to exchanges that provide qualified health plans to individuals and employers. The regulations are effective on May 23, 2012, and apply to tax years ending after December 31, 2013. The final regulations clarify the proposed regulations issued on August 17, 2011 (NPRM REG-131491-10) and contain examples.


The final regulations clarify the definition of a family and household income. While household income does not include the modified adjusted gross income of a family member who is required to file a tax return solely to report tax imposed under code sections other than Code Sec. 1, such as the early distribution penalty under Code Sec. 72(q) or self-employment tax under Code Sec. 1401. However, modified adjusted gross income does include Social Security benefits not included in gross income under Code Sec. 86 as required by The 3% Withholding Repeal and Job Creation Act (P.L. 112-56).


Further, to maintain consistency, the definition of “lawfully present in the United States” is cross-referenced to the final Health and Human Services regulations at 45 CFR 155.20. The final regulations also clarify that the higher federal poverty line applies if married taxpayers reside in separate states with different federal poverty guidelines, or if a taxpayer resides in states with different federal poverty lines during the year.


The final regulations also address situations where individuals fail to complete the requirements for benefits under a government-sponsored program by the last day of the third full calendar month following the eligibility event are eligible for coverage on the first day of the fourth calendar month. The three-month time period does not include the time needed for a government agency to process an application. The IRS expects to publish additional guidance clarifying when or if an individual becomes “eligible for government-sponsored minimum essential coverage” when the eligibility for that coverage is a result of a particular illness or condition. For example, the additional guidance would clarify the rules in the case of eligibility for Medicaid on the basis of blindness or disability.


If new or different employer-sponsored coverage becomes available after an individual enrolls in a qualified health plan, the individual must notify the exchange and get a new determination to extend the safe harbor. The affordability safe harbor applies only until available employer-sponsored coverage changes and the employee affirmatively provides information allowing an exchange to determine that employer-sponsored coverage is unaffordable. The final regulations also clarify that an employee is not eligible for coverage under the employer’s plan during a waiting period.


An employee is not enrolled in an eligible employer-sponsored plan if: (1) the employee is automatically enrolled in the plan, and (2) terminates the coverage before a specified date. Thus, an individual who is automatically enrolled in a plan that is unaffordable or that does not provide minimum value and who terminates that coverage by the specified date will not be treated as eligible for minimum essential coverage under the employer-sponsored plan for the period during which the individual was automatically enrolled. Accordingly, the individual will not be precluded by the automatic enrollment from inclusion in the taxpayer’s coverage family for computing the premium tax credit for that period.


The final regulations provide that an nondependent individual who may enroll in minimum essential coverage because of a relationship to another person is eligible for minimum essential coverage only for months that the related individual is enrolled in the coverage. Furthermore, a person who may not claim a related individual as a dependent is not responsible for the Code Sec. 5000A penalty for the related individual who does not receive coverage. Thus, the final regulations ensure that coverage available through another person does not create an obstacle to a related individual claiming a premium tax credit. The final regulations also clarify that a month is not a coverage month for a taxpayer if the taxpayer’s share of premiums is not paid in full by the unextended due date for filing the taxpayer’s income tax return for the tax year.


The applicable benchmark plan for family coverage is the plan that applies to the members of the taxpayer’s coverage family. The final regulations clarify that the coverage family includes only those individuals in the taxpayer’s family who are not eligible for other minimum essential coverage and enroll in a qualified health plan.


Comments Requested


Comments will be accepted until August 22, 2012, and should be mailed to the Internal Revenue Service, CC:PA:LPD:PR (REG-131491-10), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044, or may be hand-delivered to CC:PA:LPD:PR (REG-131491-10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, D.C., between the hours of 8:00 a.m. and 4:00 p.m. Monday to Friday. Electronic comments may be submitted at (IRS REG-131491-10).


Treasury Department News Release, TDNR TG-1587, 2012FED ¶46,364


T.D. 9590, 2012FED ¶47,028


Other References:


Code Sec. 36B


CCH Reference – 2012FED ¶4196C


CCH Reference – 2012FED ¶4196F


CCH Reference – 2012FED ¶4196I


CCH Reference – 2012FED ¶4196L


CCH Reference – 2012FED ¶4196O


CCH Reference – 2012FED ¶4196R


CCH Reference – 2012FED ¶4197.20


Code Sec. 6011


CCH Reference – 2012FED ¶35,129S


Code Sec. 6012


CCH Reference – 2012FED ¶35,143


Tax Research Consultant


CCH Reference – TRC INDIV: 58,150

CCH Reference – TRC IRS: 9,254.50



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