IRS Issues Final And Proposed Regulations For Claiming The Premium Tax Credit

The Internal Revenue Service has issued temporary and proposed regulations, effective for tax years beginning after Dec. 31, 2013, and expiring July 24, 2017. These regulations affect individuals who enroll in qualified health plans through Affordable Insurance Exchanges and claim the premium tax credit, and Exchanges that make qualified health plans available to individuals. The regulations were published in the July 28 Federal Register.

The temporary and proposed regulations address circumstances in which a married taxpayer may claim a premium tax credit on a separate return. The regulations incorporate the rule in Notice 2014-23, for 2014 and subsequent tax years to provide relief from the joint filing requirement for victims of domestic abuse. The regulations also provide relief to victims of spousal abandonment. Taxpayers may not qualify for relief from the joint filing requirement for a period that exceeds three consecutive years.

The regulations address indexing with respect to the percentage table in Code Sec. 36B(b)(3)(A)(i) used to compute the applicable percentage used to determine the premium tax credit, and the affordability percentage provided in Code Sec. 36B(c)(2)(C)(i)(II) which is used to determine whether an employer’s offer of coverage to an employee is affordable to the employee. The regulations provide that premium growth and income growth will be determined in accordance with further published guidance. Rev. Proc. 2014-37, released simultaneously with the temporary and proposed regulations, provides further details on the measures to be used for premium growth and income growth.

The indexing methodology provided in the regulations is based on the same data sources as the methodology adopted by the Department of Health and Human Services (HHS) for adjusting the required contribution percentage in Code Sec. 5000A, which is used to determine eligibility for an exemption from the individual mandate. Accordingly, adjustments to the applicable percentages and affordability percentage should be consistent with the adjustments made by HHS to the required contribution percentage.

The temporary and proposed regulations provide rules to address how taxpayers determine their premium tax credit, and reconcile advance credit payments in cases in which an individual is enrolled by one taxpayer but another taxpayer claims a personal exemption deduction for the individual. The regulations also clarify how taxpayers who legally separate or divorce allocate the benchmark plan premium, the premium for the plan in which the taxpayers or their dependents enroll, and the advance credit payments to compute their respective premium tax credit and excess advance credit payments.

The temporary and proposed regulations provide rules for the interaction between the Code Sec. 162(l) deduction and both the premium tax credit and the limitation on additional tax under Code Sec. 36B(f)(2)(B). The regulations provide that a taxpayer is allowed a deduction under Code Sec. 162(l) for specified premiums not to exceed the lesser of: (1) the specified premiums less the premium tax credit attributable to the specified premiums; and (2) the sum of the specified premiums not paid through advance credit payments and the additional tax imposed (if any) under Code Sec. 36B(f)(2)(A) with respect to the specified premiums after applying the limitation in Code Sec. 36B(f)(2)(B).

Comments and hearing. The text of the temporary regulations also serves as the text of the proposed regulations. The IRS and the Treasury Department request comments on all aspects of the proposed rules. In particular, comments are requested on the methodology for indexing and whether the approach in the regulations properly captures the rate of premium growth relative to the rate of income growth and whether alternative indices or data sources should be used.

Comments and requests for a public hearing must be received by October 27, and may be submitted electronically to http://www.regulations.gov; or mailed to: CC:PA:LPD:PR (REG-104579-13), Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, D.C.

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