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Proposed regs address ACA premium tax credit

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Tax Hot Topics newsletter The IRS recently issued proposed regulations (REG-114339-21) that would require a separate premium tax credit (PTC) affordability determination for employees and for family members. Currently, under the Section 36B regulations, a PTC is not allowed for children and other family members who have been offered employer coverage if the cost of the employee’s self-only coverage is affordable, regardless of the employee’s cost to cover those family members.

The IRS re-examined the current regulations after President Joe Biden released Executive Order 14009, Strengthening Medicaid and the Affordable Care Act (ACA) which instructed agencies to review policies and practices that reduce the affordability of coverage or financial assistance for coverage.

The IRS concluded that it would be more consistent with the ACA for the regulations to provide that the determination of affordability of employer coverage considers not just the cost to the employee, but also to members of the employee’s family who may also enroll. The IRS acknowledged that the statutory language could be read to provide for the affordability for the employee and family members to be determined based solely on the cost of self-only coverage to the employee. The proposed regulations, however, would adopt an alternative reading, which provides for separate affordability determinations for employees and family members.

The proposed regulations provide examples on how the new affordability rules should be applied, while the preamble to the regulations provides an economic and affected entity analysis. Per the analysis, employers may see a shift for some of their employees from family coverage to self-only coverage when family members newly qualify for a PTC. The preamble states that the cost per enrollee could increase or decrease depending on the characteristics of those that remain covered, and notes the federal government’s increase on PTC spending could lead to a decrease in the total amount employers are spending on health insurance.

Contact:
Jeff Martin
Partner
Washington National Tax Office 
T +1 202 521 1526

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