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IRS Regulations and Other Guidance Address Health Insurance Premium Tax Credits

Rules Regarding the Health Insurance Premium Tax Credit, 26 CFR Part 1, 79 Fed. Reg. 43622 and 43693 (July 28, 2014); Rev. Proc. 2014-37 (July 24, 2014); Rev. Proc. 2014-41 (July 24, 2014); Rev. Proc. 2014-46 (July 24, 2014); Questions and Answers on the Premium Tax Credit

Final and Temporary Regulations

Proposed Regulations

Rev. Proc. 2014-37

Rev. Proc. 2014-41

Rev. Proc. 2014-46


Visit the Health Care Reform Community on Checkpoint to join the discussion on this development (for Checkpoint subscribers to EBIA’s Health Care Reform manual).

The IRS has released regulations and sub-regulatory guidance, addressing various aspects of health care reform’s premium tax credit. Here are highlights of the issues covered by this latest round of developments:

  • Guidance for Complex Cases. The regulations, and related IRS Q&As, provide relief and guidance for a number of complex premium tax credit situations. For instance, although married taxpayers generally must file a joint return to claim the premium tax credit, the regulations extend a 2014 IRS exception for certain married victims of domestic abuse who live apart, file returns as “married filing separately,” and meet a number of other requirements. The relief is available for up to three consecutive years for any individual and is now available to victims of spousal abandonment. Definitions of domestic abuse and spousal abandonment are included. Guidance is also provided on how to allocate advance credit payments in various complex situations, such as divorced or separated taxpayers and midyear changes in dependent status. [EBIA Comment: In addition to the relief previously provided by the IRS to victims of domestic violence in Notice 2014-23 , HHS had granted a special enrollment period in the federally facilitated Exchanges for victims of domestic abuse—it expired on May 31, 2014 (see our article).]
  • Guidance on Indexing. In computing the premium tax credit, taxpayers determine the amount they must contribute by multiplying an “applicable percentage” (which increases with income) by their household income. Beginning in 2015, the applicable percentage is to be adjusted, based on the excess of the projected growth rate of employer-sponsored health insurance premiums over the projected growth rate of per-capita gross domestic product. The regulations describe the bases for the adjustments and explain that the “affordability percentage,” which is used to determine whether employer-sponsored coverage is “affordable,” is updated in the same manner for plan years beginning in 2015. Simultaneously released Rev. Proc. 2014-37 provides details on the indexing methodology and updated applicable percentage tables for 2015, as well as an increase in the affordability percentage from 9.5% to 9.56%. [EBIA Comment: The affordability percentage affects employees (who are ineligible for premium tax credits if offered employer-sponsored coverage that is affordable and provides minimum value) and employers (who are potentially liable for shared responsibility penalties if they do not offer affordable, minimum value coverage to full-time employees). The 9.56% affordability percentage gives some cushion to employers who have already priced the employee cost of coverage for 2015 using the 9.5% affordability percentage.]
  • Guidance for Self-Employed Individuals. Self-employed individuals are generally permitted to deduct the cost of health insurance premiums. The deduction is limited to the earned income from their trade or business, and no deduction is allowed for the portion of the premium covered by a premium tax credit. Guidance in the regulations clarifies which family members’ premiums may be considered and, along with Rev. Proc. 2014-41, describes how to resolve the “circularity” that arises in computing income when a deduction and credit for premiums are simultaneously permitted. [EBIA Comment: This guidance is designed to resolve the circular relationship inherent in the fact that the amount of the premium deduction for self-employed individuals is based on the amount of the premium tax credit, and the amount of the premium tax credit is based on the amount of the deduction.]

EBIA Comment: This concentrated release of loosely related guidance also includes Rev. Proc. 2014-46, which provides the monthly national average premium to be used to determine maximum individual shared responsibility payments for 2014. In addition, the IRS has released draft Form 8962 (Premium Tax Credit (PTC)), which taxpayers will use to calculate their premium tax credit and reconcile the actual credit amount to advance payments, and draft Form 8965 (Health Coverage Exemptions), which taxpayers will use if they claim specified exemptions from the individual mandate. For more information, see EBIA’s Health Care Reform manual at Sections XXIX.F (“Premium Tax Credits for Lower-Income Individuals”) and XXVIII.E (“Assessable Payment (Penalty Tax) When Coverage Offered to Full-Time Employees and Dependents (the ‘Subsection (b) Penalty’)”). You may also be interested in our recorded web seminar, “Final IRS Regulations on Employer Play or Pay: Health Care Reform’s Shared Responsibility Requirements.”

Contributing Editors: EBIA Staff.