Proposed Regs Amend Definition of ‘Coverage Month’ for Premium Tax Credit

The IRS issued proposed regs on September 16 amending the computation of the Premium Tax Credit (PTC) by adjusting what is considered a “coverage month.” (REG-16787-23)

One of the eligibility requirements for the PTC under Code Sec. 36B is that a member of the taxpayer’s family must enroll in a qualified health plan (QHP) through an Affordable Care Act Exchange via the federal government’s online marketplace for health insurance that opened in 2014.

Section 36B describes a coverage month for an individual to mean a month where the individual is enrolled in a QHP through an Exchange as of the first day of the month. Further, the taxpayer’s share of the premium for the individual’s coverage for that month must be paid (or covered by advance payments of the PTC, commonly shorthanded to APTC), and the individual cannot be eligible for minimum essential coverage other than coverage outlined in Code Sec. 5000A(f)(1)(C) for the full calendar month.

The PTC for a coverage month is calculated based on the monthly premium and factors in any refunded amounts, unless the excess of the adjusted monthly premium for the applicable benchmark plan over a twelfth of the product of a taxpayer’s household income and the applicable percentage for the tax year is less.

According to the preamble of the regs, the Centers for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services (HHS), alerted the Treasury Department and the IRS that the CMS does not collect premium payments from an enrollee, making implementing the Section 36B definition of a coverage month “challenging” when the “taxpayer’s share of the premium is not paid in full but the taxpayer (or the taxpayer’s enrollee) nevertheless may remain enrolled in a QHP with APTC.”

The proposed regs clarify that for PTC purposes, a coverage month is considered as such if an individual’s paid premium amount is “sufficient to avoid termination of the individual’s coverage for that month.”

This amendment was necessary, the IRS said, because of a discrepancy between states in how premium information is reported to the agency on Form 1095-A, Health Insurance Marketplace Statement. QHP issuers generally allow for a grace period of three consecutive months before the issuer can terminate coverage of an enrollee whose APTC is paid but their share of the coverage premium is not. The amended definition of a coverage plan addresses differences in how states address these grace periods. A PTC is not allowed for a month if $0 is reported on Form 1095-A.

But even if a state does follow these instructions, it was found in an HHS audit that the CMS reports the full enrollment premium for the first month of a grace period, notwithstanding that the taxpayer’s share of the full premium for that month may never have been paid. This can create situations when a month is treated as a coverage month for which APTC is allowed, but the IRS would not have information to disallow a PTC for the month because the full enrollment premium is reported for the month, and not $0.

The regs affect taxpayers who enroll themselves or a family member in a QHP and are eligible for a PTC. A public hearing has been scheduled for December 13, 2024. Comments are due November 1.

For more on the computation of the PTC, see Checkpoint’s Federal Tax Coordinator ¶A-4244.2.