IRS Issues Final Regulations To Revise Premium Tax Credit’s Affordability Test
The IRS recently issued final regulations T.D. 9968, modifying the affordability test for employer-sponsored minimum essential coverage for the Sec. 36B premium tax credit to take into consideration the cost of covering an employee's family members. The final regulations adopt largely unchanged this past April’s proposed regulations.
The final regulations address what has been called a "family glitch" in the regulations that were issued in 2013. Those regulations based the affordability test on self-only coverage even if the coverage being tested for extended to the employee's family members. In 2013, the IRS and Treasury said they believed they were constrained to that reading of the statute, particularly Sec. 36B(c)(2)(C)(i)(II) and its cross-references to Sec. 5000A(e)(1)(B).
Last year, President Joe Biden issued an executive order instructing the Treasury to review all regulations and other agency actions for their consistency with, and support for, the 2010 Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, which enacted Secs. 36B and 5000A. This led the Treasury and IRS to propose the change addressing the “family glitch.” The proposed regulations stated that for the purpose of determining premium tax credit eligibility, affordability of employer coverage for related individuals in an employee's family would be determined based on the cost of covering the employee and related individuals instead of the employee only.
The IRS and Treasury said they recognized that although Sec. 5000A(e)(1)(B)(i) bases an employee's required contribution to the cost of coverage on self-only coverage, a special rule includes related individuals. The agencies also acknowledged in the preamble to the proposed and final regulations that the flush language in Sec. 36B(c)(2)(C)(i) does not clearly state how it or its cross-reference to Sec. 5000A(e)(1)(B) applies to related individuals.
The final regulations also adopt proposed regulations that make a similar change to the rules for determining whether employer coverage offers minimum value. A separate minimum-value rule is specified for related individuals based on their level of coverage under an employer-sponsored plan. The rule says that a plan's share of the total allowed costs of benefits provided to related individuals must be at least 60%.
The final regulations apply for tax years beginning after Dec. 31, 2022.