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 http:www.regulations.gov (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

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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