Fixing the family glitch

Proposed regulations; applicable statutes; (partial) legislative history; regulatory proposals 2010-2013

Proposed regulations

Affordability of Employer Coverage for Family Members of Employees, 87 Fed. Reg. 20354 (April 7, 2022)

2022-07158-2

Non-Federal-Register version, April 5, 2022

2022-07158

Final regulations

Affordability of Employer Coverage for Family Members of Employees, [] Fed. Reg. [] (October [], 2022)

Non-Federal-Register version, October 11, 2022

2022-22184

Applicable statutes

26 U.S.C. sec. 36B

26 U.S. Code § 36B – Refundable credit for coverage under a qualified health plan

(c) Definition and rules relating to applicable taxpayers, coverage months, and qualified health planFor purposes of this section—

(1) Applicable taxpayer

(A) In general

The term “applicable taxpayer” means, with respect to any taxable year, a taxpayer whose household income for the taxable year equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved.

(B) Special rule for certain individuals lawfully present in the United StatesIf—

(i)

a taxpayer has a household income which is not greater than 100 percent of an amount equal to the poverty line for a family of the size involved, and

(ii)

the taxpayer is an alien lawfully present in the United States, but is not eligible for the medicaid program under title XIX of the Social Security Act by reason of such alien status,

the taxpayer shall, for purposes of the credit under this section, be treated as an applicable taxpayer with a household income which is equal to 100 percent of the poverty line for a family of the size involved.

If the taxpayer is married (within the meaning of section 7703) at the close of the taxable year, the taxpayer shall be treated as an applicable taxpayer only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

(D) Denial of credit to dependents

No credit shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.

(E) Temporary rule for 2021 and 2022

In the case of a taxable year beginning in 2021 or 2022, subparagraph (A) shall be applied without regard to “but does not exceed 400 percent”.

(2) Coverage monthFor purposes of this subsection—

(A) In general. The term “coverage month” means, with respect to an applicable taxpayer, any month if—

(i)

as of the first day of such month the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer is covered by a qualified health plan described in subsection (b)(2)(A) that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act, and

(ii)

the premium for coverage under such plan for such month is paid by the taxpayer (or through advance payment of the credit under subsection (a) under section 1412 of the Patient Protection and Affordable Care Act).

(B) Exception for minimum essential coverage

(i) In general

The term “coverage month” shall 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 described in section 5000A(f)(1)(C) (relating to coverage in the individual market).

(ii) Minimum essential coverage

The term “minimum essential coverage” has the meaning given such term by section 5000A(f).

(C) Special rule for employer-sponsored minimum essential coverage. For purposes of subparagraph (B)—

(i) Coverage must be affordable. Except as provided in clause (iii), an employee shall not be treated as eligible for minimum essential coverage if such coverage—

(I)

consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)), and

(II)

the employee’s required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer’s household income.

This clause shall also apply to an individual who is eligible to enroll in the plan by reason of a relationship the individual bears to the employee.

(ii) Coverage must provide minimum value

Except as provided in clause (iii), an employee shall not be treated as eligible for minimum essential coverage if such coverage consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) and the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.

(iii) Employee or family must not be covered under employer plan

Clauses (i) and (ii) shall not apply if the employee (or any individual described in the last sentence of clause (i)) is covered under the eligible employer-sponsored plan or the grandfathered health plan.

(iv) Indexing

In the case of plan years beginning in any calendar year after 2014, the Secretary shall adjust the 9.5 percent under clause (i)(II) in the same manner as the percentages are adjusted under subsection (b)(3)(A)(ii).

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26 U.S.C. sec. 5000A

26 U.S. Code § 5000A – Requirement to maintain minimum essential coverage

(e) Exemptions. No penalty shall be imposed under subsection (a) with respect to—

(1) Individuals who cannot afford coverage

(A) In general

Any applicable individual for any month if the applicable individual’s required contribution (determined on an annual basis) for coverage for the month exceeds 8 percent of such individual’s household income for the taxable year described in section 1412(b)(1)(B) of the Patient Protection and Affordable Care Act. For purposes of applying this subparagraph, the taxpayer’s household income shall be increased by any exclusion from gross income for any portion of the required contribution made through a salary reduction arrangement.

(B) Required contribution. For purposes of this paragraph, the term “required contribution” means—

(i)

in the case of an individual eligible to purchase minimum essential coverage consisting of coverage through an eligible-employer-sponsored plan, the portion of the annual premium which would be paid by the individual (without regard to whether paid through salary reduction or otherwise) for self-only coverage, or

(ii)

in the case of an individual eligible only to purchase minimum essential coverage described in subsection (f)(1)(C), the annual premium for the lowest cost bronze plan available in the individual market through the Exchange in the State in the rating area in which the individual resides (without regard to whether the individual purchased a qualified health plan through the Exchange), reduced by the amount of the credit allowable under section 36B for the taxable year (determined as if the individual was covered by a qualified health plan offered through the Exchange for the entire taxable year).

For purposes of subparagraph (B)(i), if an applicable individual is eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination under subparagraph (A) shall be made by reference to [1] required contribution of the employee.

(D) Indexing

In the case of plan years beginning in any calendar year after 2014, subparagraph (A) shall be applied by substituting for “8 percent” the percentage 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 such period.

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42 U.S.C. sec. 18081

42 U.S. Code § 18081 – Procedures for determining eligibility for Exchange participation, premium tax credits and reduced cost-sharing, and individual responsibility exemptions

(a) Establishment of programThe Secretary shall establish a program meeting the requirements of this section for determining—

(1)

whether an individual who is to be covered in the individual market by a qualified health plan offered through an Exchange, or who is claiming a premium tax credit or reduced cost-sharing, meets the requirements of sections 18032(f)(3), 18071(e), and 18082(d) of this title and section 36B(e) of title 26 that the individual be a citizen or national of the United States or an alien lawfully present in the United States;

(2) in the case of an individual claiming a premium tax credit or reduced cost-sharing under section 36B of title 26 or section 18071 of this title—

(A)

whether the individual meets the income and coverage requirements of such sections; and

(B)

the amount of the tax credit or reduced cost-sharing;

(3)

whether an individual’s coverage under an employer-sponsored health benefits plan is treated as unaffordable under sections 36B(c)(2)(C) and 5000A(e)(2) of title 26; [1] and

(4)

whether to grant a certification under section 18031(d)(4)(H) of this title attesting that, for purposes of the individual responsibility requirement under section 5000A of title 26, an individual is entitled to an exemption from either the individual responsibility requirement or the penalty imposed by such section.

(b) Information required to be provided by applicants

(1) In generalAn applicant for enrollment in a qualified health plan offered through an Exchange in the individual market shall provide—

(A)

the name, address, and date of birth of each individual who is to be covered by the plan (in this subsection referred to as an “enrollee”); and

(B)

the information required by any of the following paragraphs that is applicable to an enrollee.

(2) Citizenship or immigration statusThe following information shall be provided with respect to every enrollee:

(A)

In the case of an enrollee whose eligibility is based on an attestation of citizenship of the enrollee, the enrollee’s social security number.

(B)

In the case of an individual whose eligibility is based on an attestation of the enrollee’s immigration status, the enrollee’s social security number (if applicable) and such identifying information with respect to the enrollee’s immigration status as the Secretary, after consultation with the Secretary of Homeland Security, determines appropriate.

(3) Eligibility and amount of tax credit or reduced cost-sharing. In the case of an enrollee with respect to whom a premium tax credit or reduced cost-sharing under section 36B of title 26 or section 18071 of this title is being claimed, the following information:

(A) Information regarding income and family size

The information described in section 6103(l)(21) of title 26 ¹ for the taxable year ending with or within the second calendar year preceding the calendar year in which the plan year begins.

(B) Certain individual health insurance policies obtained through small employers

The amount of the enrollee’s permitted benefit (as defined in section 9831(d)(3)(C) of title 26) under a qualified small employer health reimbursement arrangement (as defined in section 9831(d)(2) of such title).

The information described in section 18082(b)(2) of this title, including information with respect to individuals who were not required to file an income tax return for the taxable year described in subparagraph (A) or individuals who experienced changes in marital status or family size or significant reductions in income.

(4) Employer-sponsored coverage. In the case of an enrollee with respect to whom eligibility for a premium tax credit under section 36B of title 26 or cost-sharing reduction under section 18071 of this title is being established on the basis that the enrollee’s (or related individual’s) employer is not treated under section 36B(c)(2)(C) of title 26 as providing minimum essential coverage or affordable minimum essential coverage, the following information:

(A)

The name, address, and employer identification number (if available) of the employer.

(B)

Whether the enrollee or individual is a full-time employee and whether the employer provides such minimum essential coverage.

(C)

If the employer provides such minimum essential coverage, the lowest cost option for the enrollee’s or individual’s enrollment status and the enrollee’s or individual’s required contribution (within the meaning of section 5000A(e)(1)(B) of title 26) under the employer-sponsored plan.

(D)

If an enrollee claims an employer’s minimum essential coverage is unaffordable, the information described in paragraph (3).

If an enrollee changes employment or obtains additional employment while enrolled in a qualified health plan for which such credit or reduction is allowed, the enrollee shall notify the Exchange of such change or additional employment and provide the information described in this paragraph with respect to the new employer.

(5) Exemptions from individual responsibility requirementsIn the case of an individual who is seeking an exemption certificate under section 18031(d)(4)(H) of this title from any requirement or penalty imposed by section 5000A of title 26,¹ the following information:

(A)

In the case of an individual seeking exemption based on the individual’s status as a member of an exempt religious sect or division, as a member of a health care sharing ministry, as an Indian, or as an individual eligible for a hardship exemption, such information as the Secretary shall prescribe.

(B)

In the case of an individual seeking exemption based on the lack of affordable coverage or the individual’s status as a taxpayer with household income less than 100 percent of the poverty line, the information described in paragraphs (3) and (4), as applicable.

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Legislative history (of 36B)

S. 1796, sec. 1205

PART II—PREMIUM CREDITS, COST-SHARING SUBSIDIES, AND SMALL BUSINESS CREDITS

Subpart A—Premium Credits and Cost-sharing Subsidies

SEC. 1205. REFUNDABLE CREDIT PROVIDING PREMIUM ASSISTANCE FOR COVERAGE UNDER A QUALIFIED HEALTH BENEFITS PLAN.

(a) IN GENERAL.—Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by inserting after section 36A the following new section:

‘‘SEC. 36B. REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH BENEFITS PLAN.

‘‘(a) IN GENERAL.—In the case of an applicable taxpayer, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year.

‘‘(b) PREMIUM ASSISTANCE CREDIT AMOUNT.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘premium assistance credit amount’ means, with respect to any taxable year, the sum of the premium assistance

amounts determined under paragraph (2) with respect to all coverage months of the taxpayer occurring during the taxable year.

‘‘(2) PREMIUM ASSISTANCE AMOUNT.—The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the excess (if any) of—

‘‘(A) the lesser of—

‘‘(i) the monthly premiums for such month for 1 or more qualified health benefits plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an exchange established by the State under subpart B of title XXII of the Social Security Act, or

‘‘(ii) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over

‘‘(B) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.

‘‘(3) OTHER TERMS AND RULES RELATING TO PREMIUM ASSISTANCE AMOUNTS.—For purposes of paragraph (2)—

‘‘(A) APPLICABLE PERCENTAGE.—

‘‘(i) IN GENERAL.—The applicable percentage with respect to any taxpayer for any taxable year is equal to 2 percent, increased by the number of percentage points (not greater than 10) which bears the same ratio to 10 percentage pointsas—

‘‘(I) the taxpayer’s household income for the taxable year in excess of 100 percent of the poverty line for a family of the size involved, bears to

‘‘(II) an amount equal to 200 percent of the poverty line for a family of the size involved.

‘‘(ii) INDEXING.—In the case of taxable years beginning in any calendar year after 2013, the Secretary shall adjust the initial and final applicable percentages for the calendar year to reflect the excess of the rate of premium growth between the preceding calendar year and 2012 over the rate of income growth for such period.

‘‘(B) APPLICABLE SECOND LOWEST COST SILVER PLAN.—The applicable second lowest cost silver plan with respect to any applicable taxpayer is the second lowest cost silver plan in the individual market which—

‘‘(i) is offered through the same exchange through which the qualified health benefits plans taken into account under paragraph (2)(A)(i) were offered, and

‘‘(ii) in the case of—

‘‘(I) an applicable taxpayer whose tax for the taxable year is determined under section 1(c) (relating to unmarried individuals other than surviving spouses and heads of households), provides self-only coverage, and

‘‘(II) any other applicable taxpayer, provides family coverage.

If a taxpayer files a joint return and no credit is allowed under this section with respect to 1 of the spouses by reason of subsection (e), the taxpayer shall be treated as described in clause (ii)(I) unless a deduction is allowed under section 151 for the taxable year with respect to a dependent other than either spouse.

‘‘(C) ADJUSTED MONTHLY PREMIUM.—

The adjusted monthly premium for an applicable second lowest cost silver plan is the monthly premium which would have been charged for the plan if each individual covered under a qualified health benefits plan taken into account under paragraph (2)(A)(i) were covered by the plan and the premium was adjusted only for the age of each such individual in the manner allowed under section 2204 of the Social Security Act.

‘‘(4) REDUCTION TO ELIMINATE FEDERAL BUDGET DEFICIT.—The premium assistance credit amount (determined without regard to this paragraph) with respect to a month in a plan year for which a reduction is required in such amount under section 1209 of the America’s Healthy Future Act of 2009 shall be reduced by the percentage specified in such section.

‘‘(c) DEFINITION AND RULES RELATING TO APPLICABLE TAXPAYERS, COVERAGE MONTHS, AND QUALIFIED HEALTH BENEFITS PLAN.—For purposes of this section—

‘‘(1) APPLICABLE TAXPAYER.—

‘‘(A) IN GENERAL.—The term ‘applicable taxpayer’ means, with respect to any taxable year, a taxpayer whose household income for the taxable year exceeds 100 percent (133 percent in the case of taxable years beginning in 2013) but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved.

‘‘(B) SPECIAL RULE FOR CERTAIN INDIVIDUALS LAWFULLY PRESENT IN THE UNITED STATES.—In the case of any taxable year beginning after December 31, 2013, if—

‘‘(i) a taxpayer has a household income which is not greater than 100 percent of an amount equal to the poverty line for a family of the size involved, and

‘‘(ii) the taxpayer is an alien lawfully admitted to the United States for permanent residence, or an alien lawfully present in the United States, but is not eligible for the medicaid program under title XIX of the Social Security Act by reason of such alien status, the taxpayer shall be treated as an applicable taxpayer.

‘‘(C) MARRIED COUPLES MUST FILE JOINT RETURN.—If the taxpayer is married (within the meaning of section 7703) at the close of the taxable year, the taxpayer shall be treated as an applicable taxpayer only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

‘‘(D) DENIAL OF CREDIT TO DEPENDENTS.—No credit shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.

‘‘(2) COVERAGE MONTH.—For purposes of this subsection—

‘‘(A) IN GENERAL.—The term ‘coverage month’ means, with respect to an applicable taxpayer, any month if—

‘‘(i) as of the first day of such month the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer is covered by a qualified health benefits plan described in subsection (b)(2)(A)(i), and

‘‘(ii) the premium for coverage under such plan for such month is paid by the taxpayer (or through advance payment of the credit under subsection (a) under section 2248 of the Social Security Act).

‘‘(B) EXCEPTION FOR ESSENTIAL HEALTH BENEFITS COVERAGE.—

‘‘(i) IN GENERAL.—The term ‘coverage month’ shall not include any month with respect to an individual if for such month the individual is eligible for essential health benefits coverage other than eligibility for coverage under a qualified health benefits plan in the individual market offered through an exchange.

‘‘(ii) ESSENTIAL HEALTH BENEFITS COVERAGE.—The term ‘essential health benefits coverage’ has the meaning given such term by section 5000A.

‘‘(C) SPECIAL RULE FOR EMPLOYER-SPONSORED ESSENTIAL COVERAGE.—For purposes of subparagraph (B)—

‘‘(i) COVERAGE MUST BE AFFORDABLE.—Except as provided in clause (iii), an employee shall not be treated as eligible for essential health benefits coverage if such coverage—

‘‘(I) consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) or a grandfathered health benefits plan maintained by the employee’s employer, and

‘‘(II) the employee’s required contribution (within the meaning of section 5000A(e)(2)) with respect to the plan exceeds 10 percent of the applicable taxpayer’s household income.

This clause shall also apply to an individual who is eligible to enroll in the plan by reason of a relationship the individual bears to the employee.

‘‘(ii) COVERAGE MUST PROVIDE MINIMUM VALUE.—Except as provided in clause (iii), an employee shall not be treated as eligible for essential health benefits coverage if such coverage consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) or a grandfathered health benefits plan maintained by the employee’s employer and the plan’s share of the total allowed costs of benefits provided under the plan is less than 65 percent of such costs.

‘‘(iii) EMPLOYEE OR FAMILY MUST NOT BE COVERED UNDER EMPLOYER PLAN.—Clauses (i) and (ii) shall not apply if the employee (or any individual described in the last sentence of clause (i)) is covered under the eligible employer-sponsored plan or the grandfathered health benefits plan.

‘‘(iv) INDEXING.—In the case of plan years beginning in any calendar year after 2013, clause (i)(II) shall be applied by substituting for 10 percent a percentage equal to the sum of—

‘‘(I) 10 percent, plus

‘‘(II) 10 percent multiplied by the premium adjustment percentage (as defined in section 2242(c)(7) of the Social Security Act) for the calendar year.

‘‘(D) SPECIAL RULE FOR MEDICAID INDIVIDUALS.—An individual shall not be treated as eligible for essential health benefits coverage if under title XIX of the Social Security Act the individual may elect to enroll in the medicaid program or in a qualified health benefits plan in the individual market through an exchange and elects to enroll in such plan even if under the medicaid program the individual receives coverage for items and services or cost-sharing which is provided under the medicaid program but not under such plan.

‘‘(3) DEFINITIONS.—For purposes of this paragraph—

‘‘(A) QUALIFIED HEALTH BENEFITS PLAN.—The term ‘qualified health benefits plan’ has the meaning given such term by section 2201(b) of the Social Security Act.

‘‘(B) GRANDFATHERED HEALTH BENEFITS PLAN.—The term ‘grandfathered health benefits plan’ has the meaning given such term by section 2221 of the Social Security Act.

‘‘(d) TERMS RELATING TO INCOME AND FAMILIES.—

For purposes of this section—

‘‘(1) FAMILY SIZE.—The family size involved with respect to any taxpayer shall be equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to al lowance of deduction for personal exemptions) for the taxable year.

‘‘(2) HOUSEHOLD INCOME.—

‘‘(A) IN GENERAL.—The term ‘household income’ means, with respect to any taxpayer, an amount equal to the sum of—

‘‘(i) the modified gross income of the taxpayer, plus

‘‘(ii) the aggregate modified gross incomes of all other individuals taken into account in determining the taxpayer’s family size under paragraph (1).

‘‘(B) MODIFIED GROSS INCOME.—The term ‘modified gross income’ means gross income—

‘‘(i) decreased by the amount of any deduction allowable under paragraphs (1), (3), or (4) of section 62(a),

‘‘(ii) increased by the amount of interest received or accrued during the taxable year which is exempt from tax imposed by this chapter, and

‘‘(iii) determined without regard to sections 911, 931, and 933.

‘‘(3) POVERTY LINE.—

‘‘(A) IN GENERAL.—The term ‘poverty line’ has the meaning given that term in section 2110(c)(5) of the Social Security Act (42 U.S.C. 1397jj(c)(5)).

‘‘(B) POVERTY LINE USED.—In the case of any qualified health benefits plan offered through an exchange for coverage during a taxable year beginning in a calendar year, the poverty line used shall be the most recently published poverty line as of the 1st day of the regular enrollment period for coverage during such calendar year.

‘‘(e) RULES FOR UNDOCUMENTED ALIENS.—

‘‘(1) IN GENERAL.—If any individual for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year is an undocumented alien—

‘‘(A) no credit shall be allowed under subsection (a) with respect to any portion of any premium taken into account under clause (i) or (ii) of subsection (b)(2)(A) which is attributable to the individual, and

‘‘(B) the individual shall not be taken into account in determining the family size involved but the individual’s modified gross income shall be taken into account in determining household income.

‘‘(2) UNDOCUMENTED ALIEN.—For purposes of this section—

‘‘(A) The term ‘undocumented alien’ means an individual who is not, or who is reasonably not expected to be for the entire taxable year, a citizen or national of the United States, an alien lawfully admitted to the United States for permanent residence, or an alien lawfully present in the United States.

‘‘(B) IDENTIFICATION REQUIREMENT.—An individual shall be treated as an undocumented alien unless the information required under section 2238(b)(2) of the Social Security Act has been provided with respect to such individual.

‘‘(f) RECONCILIATION OF CREDIT AND ADVANCE CREDIT.—

‘‘(1) IN GENERAL.—The amount of the credit allowed under this section for any taxable year shall be reduced (but not below zero) by the amount of any advance payment of such credit under section 2248 of the Social Security Act.

‘‘(2) EXCESS ADVANCE PAYMENTS.—

‘‘(A) IN GENERAL.—If the advance payments to a taxpayer under section 2248 of the Social Security Act for a taxable year exceed the credit allowed by this section (determined without regard to paragraph (1)), the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess.

‘‘(B) LIMITATION ON INCREASE WHERE INCOME LESS THAN 300 PERCENT OF POVERTY LINE.—In the case of an applicable taxpayer whose household income is less than 300 percent of the poverty line for the size of the family involved for the taxable year, the amount of the increase under subparagraph (A) shall in no event exceed $400 ($250 in the case of a taxpayer whose tax is determined under section 1(c) for the taxable year).

‘‘(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section, including regulations which provide for—

‘‘(1) the coordination of the credit allowed under this section with the program for advance payment of the credit under section 2248 of the Social Security Act,

‘‘(2) requirements for information required to be included on a return of tax with respect to the modified gross income of individuals other than the taxpayer, and

‘‘(3) the application of subsection (f) where the filing status of the taxpayer for a taxable year is different from such status used for determining the advance payment of the credit.’’.

(b) DISALLOWANCE OF DEDUCTION.—Section 280C of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

‘‘(g) CREDIT FOR HEALTH INSURANCE PREMIUMS.—

No deduction shall be allowed for the portion of the premiums paid by the taxpayer for coverage of 1 or more individuals under a qualified health benefits plan which is equal to the amount of the credit determined for the taxable year under section 36B(a) with respect to such premiums.’’.

(c) TREATMENT OF FAILURE TO PROVIDE DOCUMENTATION AS MATHEMATICAL ERROR.—Section 6213(g)(2) of the Internal Revenue Code of 1986 is amended by striking ‘‘and’’ at the end of subparagraph (M), by striking the period at the end of subparagraph (N) and inserting ‘‘, and’’, and by inserting after subparagraph (N) the following new subparagraph:

‘‘(O) the omission of identifying information described in section 2238(b)(1) of the Social Security Act and required under section 36B(e)(2)(B).’’.

(d) STUDY.—Not later than 5 years after the date of the enactment of this Act, the Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, shall conduct a study of whether the percentage of household income used for purposes of section 36B(c)(2)(C) of the Internal Revenue Code of 1986 (as added by this section) is the appropriate level for determining whether employer-provided coverage is affordable for an employee and whether such level may be lowered without significantly increasing the costs to the Federal Government and reducing employer-provided coverage. The Secretary shall report the results of such study to the appropriate committees of Congress, including any recommendations for legislative changes.

(e) CONFORMING AMENDMENTS.—

(1) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting ‘‘36B,’’ after ‘‘36A,’’.

(2) The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 36A the following new item:

‘‘Sec. 36B. Refundable credit for coverage under a qualified health benefits plan.’’.

(f) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

S. Rep. No. 111-89

PART II—LOW INCOME AND SMALL BUSINESS CREDITS AND SUBSIDIES

‘‘Subpart A—Low-Income Credits and Subsidies’’

SEC. 1205. PREMIUM TAX CREDITS AND COST-SHARING SUBSIDIES

Present Law

Currently there is no tax credit that is generally available to low or middle income individuals or families for the purchase of health insurance. Some individuals may be eligible for health coverage through State Medicaid programs which consider income, assets, and family circumstances. However, these Medicaid programs are not in the Code.

Health Coverage Tax Credit

Certain individuals are eligible for the health coverage tax credit (HCTC). The HCTC is a refundable tax credit equal to 80 percent of the cost of qualified health coverage paid by an eligible individual. In general, eligible individuals are individuals who receive a trade adjustment allowance (and individuals who would be eligible to receive such an allowance but for the fact that they have not exhausted their regular unemployment benefits), individuals eligible for the alternative trade adjustment assistance program, and individuals over age 55 who receive pension benefits from the Pension Benefit Guaranty Corporation. The HCTC is available for ‘‘qualified health insurance,’’ which includes certain employer-based insurance, certain State-based insurance, and in some cases, insurance purchased in the individual market.

The credit is available on an advance basis through a program established and administered by the Treasury Department. The credit generally is delivered as follows: the eligible individual sends his or her portion of the premium to the Treasury, and the Treasury then pays the full premium (the individual’s portion and the amount of the refundable tax credit) to the insurer. Alternatively, an eligible individual is also permitted to pay the entire premium during the year and claim the credit on his or her income tax return. Individuals entitled to Medicare and certain other governmental health programs, covered under certain employer-subsidized health plans, or with certain other specified health coverage are not eligible for the credit.

COBRA Continuation Coverage Premium Reduction

The Consolidated Omnibus Reconciliation Act of 1985 (COBRA, P.L. No. 99–272) requires that a group health plan must offer continuation coverage to qualified beneficiaries in the case of a qualifying event (such as a loss of employment). A plan may require payment of a premium for any period of continuation coverage. The amount of such premium generally may not exceed 102 percent of the ‘‘applicable premium’’ for such period and the premium must be payable, at the election of the payor, in monthly installments.

Section 3001 of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. No. 111–5) provides that, for a period not exceeding nine months, an assistance eligible individual is treated as having paid any premium required for COBRA continuation coverage under a group health plan if the individual pays 35 percent of the premium. Thus, if the assistance eligible individual pays 35 percent of the premium, the group health plan must treat the individual as having paid the full premium required for COBRA continuation coverage, and the individual is entitled to a subsidy for 65 percent of the premium. An assistance eligible individual generally is any qualified beneficiary who elects COBRA continuation coverage and the qualifying event with respect to the covered employee for that qualified beneficiary is a loss of group health plan coverage on account of an involuntary termination of the covered employee’s employment (for other than gross misconduct). In addition, the qualifying event must occur during the period beginning September 1, 2008, and ending December 31, 2009.

The COBRA continuation coverage subsidy also applies to temporary continuation coverage elected under the Federal Employees Health Benefits Program and to continuation health coverage under State programs that provide coverage comparable to continuation coverage. The subsidy is generally delivered by requiring employers to pay the subsidized portion of the premium for assistance eligible individuals. The employer then treats the payment of the subsidized portion as a payment of employment taxes and offsets its employment tax liability by the amount of the subsidy. To the extent that the aggregate amount of the subsidy for all assistance eligible individuals for which the employer is entitled to a credit for a quarter exceeds the employer’s employment tax liability for the quarter, the employer can request a tax refund or can claim the credit against future employment tax liability.

There is an income limit on the entitlement to the COBRA continuation coverage subsidy. Taxpayers with modified adjusted gross income exceeding $145,000 (or $290,000 for joint filers), must repay any subsidy received by them, their spouse, or their dependent, during the taxable year. For taxpayers with modified adjusted gross incomes between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the subsidy that must be repaid is reduced proportionately. The subsidy is also conditioned on the individual not being eligible for certain other health coverage. To the extent that an eligible individual receives a subsidy during a taxable year to which the individual was not entitled due to income or being eligible for other health coverage, the subsidy overpayment is repaid on the individual’s income tax return as additional tax. However, in contrast to the HCTC, the subsidy for COBRA continuation coverage may only be claimed through the employer and cannot be claimed at the end of the year on an individual tax return.

Committee Bill

Premium Tax Credit

The Committee Bill provides a refundable tax credit for eligible individuals and families who purchase health insurance through the state exchanges. The premium tax credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through the state exchanges.

The premium tax credit is available for individuals (single or joint filers) with modified gross incomes (MGI) up to 400 percent of the Federal poverty level (FPL). MGI is defined as an individual’s (or couple’s) total income without regard to sections 911 (regarding the exclusion from gross income for citizen or residents living abroad), 931 (regarding the exclusion for residents of specified possessions), and 933 (regarding the exclusion for residents of Puerto Rico), plus any tax-exempt interest received during the tax year, plus the MGI of dependents listed on the return. Thus, certain deductions from gross income that are allowed in determining adjusted gross income but not total income, such as the deduction for contributions to an individual retirement arrangement, are disregarded.

In order to be eligible for the premium tax credit taxpayers who are married (within the meaning of Code section 7703) must file a joint return. Individuals who are listed as dependants on a return are ineligible for the premium tax credit. Under the Committee Bill, an eligible individual enrolls in a plan offered through a state exchange and reports his or her MGI to the exchange. States are permitted to enter into contracts with State Medicaid agencies to make eligibility determinations for the credit. Based on the information provided to the state exchange, the individual receives a premium tax credit based on income according to the schedule outlined below, and the Treasury pays the premium

1 Although the credit is generally payable in advance directly to the insurer, individuals may elect to purchase health insurance out-of-pocket and apply to the IRS for the credit at the end of the taxable year.

tax credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium tax credit amount and the total premium charged for the plan.1 Individuals who fail to pay all or part of the remaining premium amount are given a mandatory three-month grace period prior to an involuntary termination of their participation in the plan. For employed individuals who purchase health insurance through a state exchange, the premium payments are made through payroll deductions. Initial eligibility for the premium tax credit is based on the individual’s MGI for the tax year ending two years prior to the enrollment period. Individuals (or couples) who experience a change in marital status or other household circumstance, experience a decrease in income of more than 20 percent, or receive unemployment insurance, may update eligibility information or request a redetermination of their tax credit eligibility.

For purposes of the premium tax credit, state exchange participants must provide information from their tax return from two years prior during the open enrollment period for coverage during the next calendar year. The IRS is authorized to disclose to HHS limited tax return information to verify a taxpayer’s MGI based on the most recent return information available to establish eligibility for the premium tax credit. Existing privacy and safeguard requirements apply. As described above, individuals who do not qualify for the premium tax credit on the basis of their prior year income may apply for the premium tax credit based on specified changes in circumstances. For individuals and families who did not file a tax return in the prior tax year, the Secretary of HHS will establish alternative income documentation that may be provided to determine income eligibility for the premium tax credit.

In all cases, eligibility is reconciled annually on the individual’s Federal income tax return, subject to a ‘‘safe harbor.’’ For filers whose current income is less than 300 percent of FPL—and who received a premium tax credit in excess of the level for which they qualified—the ‘‘safe harbor’’ limits the amount that the taxpayer has to repay to $250 for single filers and $400 for joint filers (and for those filing as the head of household). For filers whose current income exceeds 300 percent of FPL, however, there is no a safe harbor and they must repay any premium tax credit received. Filers who overpaid will receive the balance of their credit as a refund from the IRS.

Beginning in 2013, premium tax credits are available on a sliding scale basis for individuals and families between 134–300 percent of FPL to help offset the cost of private health insurance premiums.

Beginning in 2014, the credits are also available to individuals and families between 100–133 percent of FPL. However, individuals subject to a five-year waiting period under Medicaid or CHIP are eligible for the premium tax credit beginning in 2013.

The credits are based on the percentage of income the cost of premiums represents, rising from two percent of income for those at 100 percent of FPL to 12 percent of income for those at 300 percent of FPL. Individuals between 300–400 percent of FPL are eligible for a premium tax credit based on capping an individual’s share of the premium at a flat 12 percent of income. The percentages of income are indexed to the excess of premium growth over income growth beginning in 2014 (in order to hold the share of premiums that enrollees at a given poverty level pay the same over time). For purposes of calculating household size, illegal immigrants are not included in FPL. The premium tax credit amount is tied to the cost of the second lowest-cost silver plan in the area where the individual resides (by age according to standard age factors defined by the Secretary of Health and Human Services), and is available for any plan purchased through the Exchange.

A credit-eligible individual enrolled in any exchange offered plan pays the lesser of the applicable percentage of income or the plan premium. If an individual purchases the second lowest cost silver plan in the area where he or she resides, or any less expensive silver or bronze plan, the individual must only pay the applicable percentage of income (e.g., 12 percent for an individual at 300 percent of FPL). If, however, an individual enrolls in a plan that is more expensive than the second lowest cost silver plan the individual is responsible for the applicable percentage of income plus the difference in premium between the second lowest cost silver plan and the premium of the chosen plan.

Employer Offer of Health Insurance Coverage

As a general matter, if an employee is offered employer-provided health insurance coverage, the individual is ineligible for the premium tax credit for health insurance purchased through a state exchange.

If an employee is offered unaffordable coverage by his or her employer or the coverage offered to the employee (and his or her dependent) has an actuarial value of less than 65 percent, or the however, the employee can be eligible for the premium tax credit, but only if the employee declines to enroll in the coverage and purchases coverage through the exchange instead. Unaffordable is defined as coverage with a premium required to be paid by the employee that is ten percent or more of the employee’s income, based on the type of coverage applicable (e.g., individual or family coverage).

This income limit is indexed to the per capita growth in premiums for the insured market as determined by the Secretary of HHS. If the employee seeks to receive a credit on the basis that an employer offered plan is unaffordable, the employee must seek an affordability waiver from the state exchange and provide information as to family income and the premium of the lowest cost employer option offered to them. The state exchange then provides the waiver to the employee.

For purposes of determining if coverage is unaffordable, required salary reduction contributions are treated as payments required to be made by the employee. However, if an employee is reimbursed by the employer for any portion of the premium for health insurance coverage purchased through the exchange, including any reimbursement through salary reduction contributions under a cafeteria plan, the coverage is employer-provided and the employee is not eligible for premium tax credits. Thus, an individual is not permitted to purchase coverage through the exchange, apply for the premium tax credit, and pay for the individual’s portion of the premium using salary reduction contributions under the cafeteria plan of the individual’s employer.

No later than five years after the date of the enactment of the provision, the Secretary of the Treasury, in consultation with the Secretary of HHS, must conduct a study of whether the percentage of household income used for purposes of determining whether coverage is affordable is the appropriate level for determining whether coverage is affordable for an employee and whether such level can be lowered without significantly increasing the costs to the Federal Government and reducing employer-provided health coverage. The Secretary of the Treasury reports the results of such study to the appropriate committees of Congress, including any recommendations for legislative changes.

Eligibility Verification

In order to prevent undocumented aliens from obtaining the premium tax credits, the provision requires that an individual’s personal data be verified under the procedures established by Section 2238 of the Social Security Act.

Information Used to Determine Tax Credit Eligibility

All personal information used to determine eligibility for the tax credit submitted to a state exchange shall be protected by restrictions on use and disclosure in Section 2238 of the Social Security Act and Section 6103 of the Internal Revenue Code.

Cost-Sharing Subsidy

A cost-sharing subsidy is provided to buyout any difference in cost sharing between the insurance purchased and the actuarial values specified below. For individuals between 100–150 percent of FPL, the subsidy brings the value of the plan to 90 percent actuarial value. For those between 150–200 percent of FPL, the subsidy brings the value of the plan to 80 percent actuarial value. For individuals above 200 percent of FPL, no subsidy for cost sharing is provided. The amount received by an insurer in a cost-sharing subsidy on behalf of an individual, as well as any spending by the individual out-of-pocket, counts towards the out-of-pocket limit. As with the premium tax credit, the IRS is authorized to disclose to HHS limited tax return information to verify a taxpayer’s MGI based on the most recent return information available.

Effective Date

The provision is effective July 1, 2013.

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Joint Committee on Taxation, Technical Explanation of Revenue Provisions (March 21, 2010)

x-18-10

ERRATA FOR JCX-18-10
Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” as Amended, in Combination with the “Patient Protection and Affordable Care Act”
A. Refundable Tax Credit Providing Premium Assistance for Coverage Under a Qualified Health Plan (secs. 1401, 1411, and 1412 of the Senate amendment and new sec. 36B of the Code)
On page 15, Minimum essential coverage and employer offer of health insurance coverage, in the second sentence of the second paragraph, “the type of coverage applicable (e.g.,
individual or family coverage)” should be replaced with “self-only coverage.”

* * *

Minimum essential coverage and employer offer of health insurance coverage

Generally, if an employee is offered minimum essential coverage33 in the group market,
including employer-provided health insurance coverage, the individual is ineligible for the
premium tax credit for health insurance purchased through a State exchange.
If an employee is offered unaffordable coverage by his or her employer or the plan’s
share of provided benefits is less than 60 percent, the employee can be eligible for the premium
tax credit, but only if the employee declines to enroll in the coverage and satisfies the conditions
for receiving a tax credit through an exchange. Unaffordable is defined as coverage with a
premium required to be paid by the employee that is 9.5 percent or more of the employee’s
household income, based on the type of coverage applicable (e.g., individual or family
coverage).34 The percentage of income that is considered unaffordable is indexed in the same
manner as the percentage of income is indexed for purposes of determining eligibility for the
credit (as discussed above). The Secretary of the Treasury is informed of the name and employer
identification number of every employer that has one or more employees receiving a premium
tax credit.

No later than five years after the date of the enactment of the provision the Comptroller
General must conduct a study of whether the percentage of household income used for purposes of determining whether coverage is affordable is the appropriate level, and whether such level can be lowered without significantly increasing the costs to the Federal Government and reducing employer-provided health coverage. The Secretary reports the results of such study to the appropriate committees of Congress, including any recommendations for legislative changes.

33 As defined in section 5000A(f) of the Senate amendment.
34 The 9.5 percent amount is indexed for calendar years beginning after 2014.

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Regulations development, 2011-2013

Proposed premium tax credit regulations, 76 Fed. Reg. 50931 (Aug. 17, 2011)

2011-20728

[Some] comments, fall 2011

https://www.regulations.gov/document/IRS-2011-0024-0001/comment?pageNumber=4

Advocates fear tax-credit rule will exclude some from health-care benefit, Washington Post, April 15, 2012

https://www.washingtonpost.com/politics/advocates-fear-tax-credit-rule-will-exclude-some-from-health-care-benefit/2012/04/15/gIQAJuW6JT_story.html

[Some] comments, spring 2012

https://www.regulations.gov/document/IRS-2011-0024-0205/comment

Final premium tax credit regulations (with gap re affordability), 77 Fed. Reg. 30377 (May 23, 2012)