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IRS announces ACA premium credit and individual mandate indexing adjustments

Rev Proc 2016-24, 2016-16 IRB

In a Revenue Procedure, IRS has provided indexing adjustments that are to be used in applying various Affordable Care Act (ACA) provisions under Code Sec. 36B (the premium tax credit) and Code Sec. 5000A (the individual mandate) for 2017. Included in the adjustments are: the 2017 Applicable Percentage Table in Code Sec. 36B(b)(3)(A)(i), which is used to calculate an individual’s premium tax credit; updates to the required contribution percentage in Code Sec. 36B(c)(2)(C)(i)(II), which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Code Sec. 36B for plan years beginning after 2016; and the required contribution percentage under Code Sec. 5000A(e)(1)(A), which is used to determine whether an individual is eligible for an exemption from the individual shared responsibility payment because of a lack of affordable minimum essential coverage for plan years beginning after 2016.

Background on the premium tax credit. Under Code Sec. 36B(a), certain taxpayers are allowed a refundable premium tax credit to help afford health insurance purchased through an Exchange. A taxpayer’s premium tax credit with respect to any coverage month is the lesser of: (a) the premiums for the plan or plans in which the taxpayer or one or more members of the taxpayer’s family enroll and (b) the excess of the premiums for the applicable second lowest cost silver plan covering the taxpayer’s family over the taxpayer’s contribution amount. (Code Sec. 36B(b)(2)) A taxpayer’s contribution amount is the product of the taxpayer’s household income and an “applicable percentage” that increases as the taxpayer’s household income increases, determined under rules specified in Code Sec. 36B(b)(3)(A)(i).Code Sec. 36B(b)(3)(A)(ii) provides that, for tax years beginning in 2015 and thereafter, the percentages in the table under Code Sec. 36B(b)(3)(A)(i) must be adjusted to reflect the excess of the rate of premium growth for the preceding calendar year over the rate of income growth for the preceding calendar year. The applicable percentage within an income category increases on a sliding scale in a linear manner from the initial to final percentages (see below).

Code Sec. 36B(c)(2)(B) provides that a coverage month does not include any month with respect to an individual if for such month the individual is eligible for minimum essential coverage other than eligibility for coverage in the individual market described in Code Sec. 5000A(f)(1)(C). Under Code Sec. 36B(c)(2)(C), an individual is not treated as eligible for employer-sponsored minimum essential coverage if the required contribution with respect to the plan exceeds 9.5% of the taxpayer’s household income (Code Sec. 36B required contribution percentage). For plan years beginning in 2015 and thereafter, the 9.5% is updated in the same manner that the applicable percentage is adjusted under Code Sec. 36B(b)(3)(A)(ii).

Background on the individual mandate. Code Sec. 5000A provides that each individual must have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his federal income tax return. Code Sec. 5000A(e)(1)(A) provides that an individual is exempt from Code Sec. 5000A for a month if the individual’s required contribution for minimum essential coverage exceeds 8% (Code Sec. 5000A required contribution percentage) of the individual’s household income.Code Sec. 5000A(e)(1)(D) provides that, for plan years beginning after 2014, the Code Sec. 5000A required contribution percentage is the percentage that the Secretary of Health and Human Services determines reflects the excess of the rate of premium growth between the preceding calendar year and 2013 over the rate of income growth for that period.

Adjusted items. For tax years beginning in 2017, the Applicable Percentage Table for purposes of Code Sec. 36B(b)(3)(A)(i) and Reg. § 1.36B-3T(g) is:

Where household income as a percentage of the Federal poverty line is:

  • less than 133%, then the initial percentage is 2.04% and the final percentage is 2.04%;
  • At least 133% but less than 150%, 3.06% and 4.08%;
  • At least 150% but less than 200%, 4.08% and 6.43%;
  • At least 200% but less than 250%, 6.43% and 8.21%;
  • At least 250% but less than 300%, 8.21% and 9.69%; and
  • At least 300% but not more than 400%, 9.69% and 9.69%.

For plan years beginning in 2017, the Code Sec. 36B required contribution percentage for purposes of Code Sec. 36B(c)(2)(C)(i)(II) and Reg. § 1.36B-2T(c)(3)(v)(C) is 9.69% (up from 9.66% for 2016).

Also for plan years beginning in 2017, the Department of Health in Human Services has announced that the Code Sec. 5000A required contribution percentage for purposes of Code Sec. 5000A(e)(1)(A) and Reg. § 1.5000A-3(e)(2) is 8.16% (up from 8.13% for 2016).

Rev Proc 2016-24 uses the methodology in Rev Proc 2014-37, 2014-33 IRB 363, to arrive at the above figures.

References: For the premium tax credit, see FTC 2d/FIN ¶  A-4241; United States Tax Reporter ¶  36B4; TaxDesk ¶  138,700; TG ¶  1381.

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