IRS Issues Final Rule On ACA Health Insurance Premium Tax Credit

The Internal Revenue Service has issued a final rule regarding the health insurance premium tax credit enacted by the Patient Protection and Affordable Care Act (ACA). The final rule was published in the February 1 Federal Register and applies to taxable years beginning after Dec. 31, 2013.

The final regulations provide guidance to individuals who enroll in qualified health plans through health insurance exchanges and claim the premium tax credit, and to exchanges that make qualified health plans available to individuals and employers. Beginning in 2014, under the ACA, individuals and small businesses will be able to purchase private health insurance through state-based competitive marketplaces called health insurance exchanges. In August 2011, the IRS issued proposed regulations on this topic, and the final rule adopts the previously-issued proposed regulations without any changes.

In the final rule, the IRS noted that the proposed regulation provided that, for taxable years beginning before Jan. 1, 2015, an eligible employer-sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for self-only coverage (the required contribution percentage) does not exceed 9.5 percent of the taxpayer’s household income. During the comment period, the IRS received several comments that the affordability of coverage for related individuals should be based on the portion of the annual premium the employee must pay for family coverage. However, the IRS noted that the language of the ACA specifies that self-only coverage should be used to determine health insurance affordability, and thus, the IRS adopts the proposed regulations with no changes.

For more information, contact Andrew S. Braden at (202) 622-4960.

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