[Federal Register Volume 76, Number 159 (Wednesday, August 17, 2011)]
[Proposed Rules]
[Pages 50931-50949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20728]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-131491-10]
RIN 1545-BJ82


Health Insurance Premium Tax Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to the 
health insurance premium tax credit enacted by the Patient Protection 
and Affordable Care Act and the Health Care and Education 
Reconciliation Act of 2010, as amended by the Medicare and Medicaid 
Extenders Act of 2010, the Comprehensive 1099 Taxpayer Protection and 
Repayment of Exchange Subsidy Overpayments Act of 2011, and the 
Department of Defense and Full-Year Continuing Appropriations Act, 
2011. These proposed regulations provide guidance to individuals who 
enroll in qualified health plans through Affordable Insurance Exchanges 
and claim the premium tax credit, and to Exchanges that make qualified 
health plans available to individuals and

[[Page 50932]]

employers. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written (including electronic) comments must be received by 
October 31, 2011. Outlines of topics to be discussed at the public 
hearing scheduled for November 17, 2011, at 10 a.m. must be received by 
November 10, 2011.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-131491-10), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
131491-10), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-131491-10). 
The public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Shareen S. Pflanz, (202) 622-4920, or Frank W. Dunham III, (202) 622-
4960; concerning the submission of comments, the public hearing, and to 
be placed on the building access list to attend the public hearing, 
Funmi Taylor, (202) 622-7180 (not toll-free calls).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by October 17, 2011. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.36B-5. The collection of information is necessary to properly 
reconcile the amount of the premium tax credit with advance credit 
payments made under section 1412 of the Patient Protection and 
Affordable Care Act (42 U.S.C. 18082). The collection of information is 
required to comply with the provisions of section 36B(f)(3) of the 
Internal Revenue Code (Code). The likely respondents are Affordable 
Insurance Exchanges established under section 1311 or 1321 of the 
Patient Protection and Affordable Care Act (42 U.S.C. 13031 or 42 
U.S.C. 18041).
    The burden for the collection of information contained in proposed 
regulation Sec.  1.36B-5 will be reflected in the burden on a form that 
the IRS will create to request the information in the proposed 
regulation.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

Background

    Beginning in 2014, under the Patient Protection and Affordable Care 
Act, Public Law 111-148 (124 Stat. 119 (2010)), and the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 
1029 (2010)) (collectively, the Affordable Care Act), individuals and 
small businesses will be able to purchase private health insurance 
through State-based competitive marketplaces called Affordable 
Insurance Exchanges (Exchanges). Exchanges will offer Americans 
competition and choice. Insurance companies will compete for business 
on a level playing field, driving down costs. Consumers will have a 
choice of health plans to fit their needs and Exchanges will give 
individuals and small businesses the same purchasing power as big 
businesses. The Departments of Health and Human Services and Treasury 
are working in close coordination to release guidance related to 
Exchanges, in several phases. The first in this series was a Request 
for Comment relating to Exchanges, published in the Federal Register on 
August 3, 2010 (75 FR 45584). Second, Initial Guidance to States on 
Exchanges was issued on November 18, 2010. Third, proposed regulations 
on the application, review, and reporting process for waivers for State 
innovation was published in the Federal Register on March 14, 2011 (76 
FR 13553). Fourth, two proposed regulations were published in the 
Federal Register on July 15, 2011 (76 FR 41866 and 76 FR 41930) to 
implement components of the Exchange and health insurance premium 
stabilization policies in the Affordable Care Act. Fifth, three 
proposed regulations, including this one, are being published in the 
Federal Register on August 17, 2011 to provide guidance on the 
eligibility determination process related to enrollment in a qualified 
health plan or insurance affordability program; on Medicaid, the 
Children's Health Insurance Program (CHIP), and other State health 
coverage programs; and these proposed regulations on the premium tax 
credit.
    Section 1401 of the Affordable Care Act amended the Code to add 
section 36B, allowing a refundable premium tax credit to help 
individuals and families afford health insurance coverage. Section 36B 
was subsequently amended by the Medicare and Medicaid Extenders Act of 
2010, Public Law 111-309 (124 Stat. 3285 (2010)); the Comprehensive 
1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments 
Act of 2011, Public Law 112-9 (125 Stat. 36 (2011)); and the Department 
of Defense and Full-Year Continuing Appropriations Act, 2011, Public 
Law 112-10 (125 Stat. 38 (2011)). The section 36B credit is designed to 
make a qualified health plan affordable by reducing a taxpayer's out-
of-pocket premium cost.
    Under section 1411 of the Affordable Care Act (42 U.S.C. 18081), an 
Exchange makes an advance determination of credit eligibility for 
individuals enrolling in coverage through the Exchange and seeking 
financial assistance. Using information available at the time of 
enrollment, the Exchange determines (1) whether the individual meets 
the income and other requirements for advance credit payments, and (2) 
the amount of the advance payments. Advance payments are made monthly 
under section 1412 of the Affordable Care Act (42 U.S.C. 18082) to the 
issuer of the qualified health plan in which the individual enrolls.

[[Page 50933]]

Eligibility

    To be eligible for a premium tax credit, an individual must be an 
applicable taxpayer. Under section 36B(c)(1), an applicable taxpayer is 
a taxpayer (1) With household income for the taxable year between 100 
percent and 400 percent of the federal poverty line (FPL) for the 
taxpayer's family size, (2) who may not be claimed as a dependent by 
another taxpayer, and (3) who files a joint return if married.
    Section 36B(c)(1)(B) provides that a taxpayer who is an alien 
lawfully present in the United States, whose household income is 100 
percent of the FPL or less, and who is not eligible for Medicaid, 
nonetheless is treated as an applicable taxpayer. Under section 
36B(e)(2), an individual is lawfully present if the individual is, and 
is reasonably expected to be for the entire period of enrollment for 
which the credit is claimed, a U.S. citizen or national or an alien 
lawfully present in the United States.
    Under section 36B(d)(1), a taxpayer's family consists of the 
individuals for whom the taxpayer claims a personal exemption deduction 
under section 151 for the taxable year. Taxpayers may claim a personal 
exemption deduction for themselves, a spouse, and each of their 
dependents. Section 152 provides that a taxpayer's dependent may be a 
qualifying child or qualifying relative, including an unrelated 
individual who lives with the taxpayer. Family size is equal to the 
number of individuals in the taxpayer's family.
    Section 36B(d)(2) defines household income as the modified adjusted 
gross income of all individuals included in family size who are 
required to file an income tax return. Modified adjusted gross income 
means adjusted gross income (within the meaning of section 62) 
increased by amounts excluded from gross income under section 911 and 
tax-exempt interest a taxpayer receives or accrues during the taxable 
year.
    Under section 36B(b)(1), a taxpayer's premium assistance credit 
amount is the sum of the premium assistance amounts for all coverage 
months in the taxable year for individuals in the taxpayer's family. 
Section 36B(c)(2)(A) provides that a coverage month is any month for 
which the taxpayer or any family member is covered by a qualified 
health plan enrolled in through an Exchange and the premium is paid by 
the taxpayer or through an advance credit payment.
    Under section 36B(c)(2)(B), a coverage month for an individual does 
not include a month in which the individual is eligible for minimum 
essential coverage, as defined in section 5000A(f), other than coverage 
offered in the individual market. Minimum essential coverage may be 
government-sponsored coverage such as Medicare, Medicaid, CHIP, 
TRICARE, and veterans' health care under Title 38 U.S.C. Certain 
employer-sponsored plans also may be minimum essential coverage. In 
general, under section 36B(c)(2)(C), an individual is eligible for 
employer-sponsored minimum essential coverage only if the employee's 
share of the premiums is affordable and the coverage provides minimum 
value. However, under section 36B(c)(2)(C)(iii), an individual is 
treated as eligible for employer-sponsored minimum essential coverage 
if the individual actually enrolls in an eligible employer-sponsored 
plan, even if the coverage does not meet the affordability and minimum 
value requirements.
    Under section 5000A(f)(1)(E), the Department of Health and Human 
Services, in coordination with the Treasury Department, may designate 
other health benefits coverage as minimum essential coverage. 
Regulations under section 5000A are expected to provide additional 
guidance on minimum essential coverage.

Credit Computation

    Section 36B(b)(1) provides that the premium assistance credit 
amount is the sum of the premium assistance amounts for all coverage 
months in the taxable year for individuals in the taxpayer's family. 
The premium assistance amount for a coverage month is the lesser of (1) 
the premiums for the month for one or more qualified health plans that 
cover a taxpayer or family member, or (2) the excess of the adjusted 
monthly premium for the second lowest cost silver plan (as described in 
section 1302(d)(1)(B) of the Affordable Care Act (42 U.S.C. 
18022(d)(1)(B))) (the benchmark plan) that applies to the taxpayer over 
\1/12\ of the product of the taxpayer's household income and the 
applicable percentage for the taxable year. The adjusted monthly 
premium, in general, is the premium an insurer would charge for the 
plan adjusted only for the ages of the covered individuals.
    Therefore, the monthly premium assistance amount is the lesser of 
the premium for the qualified health plan in which a taxpayer or family 
member enrolls, or the excess of the premium for the benchmark plan 
over the applicable percentage of the taxpayer's household income. In 
general, this percentage of the taxpayer's household income represents 
the amount of the taxpayer's required out-of-pocket contribution to the 
premium cost if the taxpayer purchases the benchmark plan. The 
remainder of the premium for the benchmark plan is the premium 
assistance amount.
    A taxpayer's applicable percentage increases as the taxpayer's 
household income as a percentage of the FPL (FPL percentage) for the 
taxpayer's family size increases. For 2014, the applicable percentage 
is 2 percent for taxpayers with household income up to 133 percent of 
the FPL and increases from 3 percent to 9.5 percent for taxpayers with 
household incomes between 133 percent and 400 percent of the FPL. The 
applicable percentages may be adjusted after 2014.
    Taxpayers must pay the difference between the premium assistance 
amount and the premium for the plan they choose. The amount of a 
taxpayer's credit is limited to the amount of actual premiums for the 
taxable year.
    Individuals not lawfully present are not eligible to enroll in a 
qualified health plan through an Exchange. Accordingly, section 
36B(e)(1)(A) provides that, for a household with at least one 
individual not lawfully present, the portion (if any) of the premium 
attributable to that individual is not included in determining the 
taxpayer's credit. Section 36B(e)(1)(B) provides that the family size 
for computing the FPL percentage for a family with at least one 
unlawfully present individual is determined by excluding the unlawfully 
present individual. Household income for computing the FPL percentage 
and determining the applicable percentage is the product of the 
taxpayer's household income (determined without regard to section 
36B(e)) and a fraction, the numerator of which is the FPL for the 
taxpayer's family size excluding individuals who are not lawfully 
present, and the denominator of which is the FPL for the taxpayer's 
family size including individuals who are not lawfully present.

Reconciliation

    A taxpayer must reconcile the actual credit for the taxable year 
computed on the taxpayer's tax return with the amount of advance 
payments. If a taxpayer's credit amount exceeds the amount of the 
taxpayer's advance payments for the taxable year, the taxpayer may 
receive the excess as an income tax refund. If a taxpayer's advance 
payments exceed the taxpayer's credit amount, the taxpayer owes the 
excess as an additional income tax liability. However, section 
36B(f)(2)(B) places a graduated set of caps on the additional tax 
liability for taxpayers with household income under 400 percent of the 
FPL. The repayment

[[Page 50934]]

limitation amounts range from $600 to $2,500 (one-half that amount for 
single taxpayers) depending on FPL, and are adjusted to reflect changes 
in the cost of living beginning in 2015.
    Section 36B(g) directs the Secretary of the Treasury to issue 
regulations that provide for coordinating the premium tax credit with 
the program for advance payments and for reconciling the credit and 
advance payments when the taxpayer's filing status changes during the 
taxable year.

Information Reporting

    Section 36B(f)(3) directs an Exchange to report to the IRS and 
taxpayers certain information relating to health plans provided through 
the Exchange, including the amount of any advance credit payments.

Explanation of Provisions

1. Eligibility for the Premium Tax Credit

    The proposed regulations provide that a taxpayer is eligible for 
the credit for a taxable year if the taxpayer is an applicable taxpayer 
and the taxpayer or a member of the taxpayer's family (1) is enrolled 
in one or more qualified health plans through an Exchange established 
under section 1311 or 1321 of the Affordable Care Act (42 U.S.C. 13031 
or 42 U.S.C. 18041) and (2) is not eligible for minimum essential 
coverage other than coverage in the individual market.
a. Applicable Taxpayer
i. Lawfully Present Aliens
    In general, to be an applicable taxpayer, a taxpayer must have 
household income that is at least 100 percent but not more than 400 
percent of the FPL. Under section 36B(c)(1)(B), a lawfully present 
alien with household income under 100 percent of the FPL and not 
eligible for Medicaid is treated as having household income of 100 
percent of the FPL for purposes of qualifying as an applicable 
taxpayer. The proposed regulations provide that premium assistance 
amounts for these taxpayers are computed based on actual household 
income. The proposed regulations define lawfully present by reference 
to 45 CFR 152.2, which determines lawful presence for purposes of the 
Pre-Existing Condition Insurance Plan Program.
ii. Taxpayers With Household Income Under 100 Percent of the FPL
    The proposed regulations clarify the treatment of a taxpayer who 
receives advance credit payments but has household income below 100 
percent of the FPL for the taxable year.
    Taxpayers with household incomes below 100 percent of the FPL 
(other than lawfully present aliens) are not eligible for the premium 
tax credit because they are eligible to receive assistance through 
Medicaid. However, an Exchange may approve a taxpayer for advance 
credit payments based on projecting a level of household income for the 
taxable year that makes the taxpayer ineligible for Medicaid. If, 
contrary to that projection, the taxpayer's actual household income for 
the taxable year is under 100 percent of the FPL (for example, because 
the taxpayer experiences a change in circumstances, such as a job loss, 
during the year), the taxpayer would not be an applicable taxpayer, and 
would not be eligible for the credit under the general rule. 
Accordingly, the proposed regulations provide a special rule treating a 
taxpayer with household income below 100 percent of the FPL as an 
applicable taxpayer if, when a taxpayer enrolls in a qualified health 
plan, an Exchange projects that household income for the taxpayer will 
be between 100 and 400 percent of the FPL for the taxable year and 
approves advance credit payments. Premium assistance amounts for these 
taxpayers also are computed based on actual household income and not a 
deemed household income that equals 100 percent of the FPL.
iii. Individuals Who Are Incarcerated or Not Lawfully Present
    Under section 1312(f) of the Affordable Care Act, individuals who 
are incarcerated (other than pending disposition of charges) or not 
lawfully present in the United States may not enroll in a qualified 
health plan through an Exchange. However, these individuals may have 
family members who are eligible for Exchange coverage. Accordingly, the 
proposed regulations provide that an individual who is not lawfully 
present in the United States or is incarcerated, although not eligible 
to enroll in a qualified health plan, may be an applicable taxpayer if 
a family member is eligible to and does enroll in a qualified health 
plan.
b. Minimum Essential Coverage
i. Government-Sponsored Coverage
    Under the proposed regulations, an individual generally is eligible 
for government-sponsored minimum essential coverage for any month that 
the individual meets the requirements for coverage under a government-
sponsored program described in section 5000A(f)(1)(A). However, for 
purposes of the premium tax credit, an individual is eligible for 
minimum essential coverage under a veterans' health care program only 
if the individual is enrolled in a veteran's health care program 
identified as minimum essential coverage in regulations issued under 
section 5000A. The Commissioner may define eligibility for specific 
government-sponsored programs further in published guidance of general 
applicability, see Sec.  601.601(d)(2) of this chapter. For example, it 
is expected that future guidance will provide that a person is eligible 
for Medicaid on the basis of being blind or disabled or needing long-
term care services only when a State Medicaid agency or the Social 
Security Administration, as appropriate, determines that the individual 
is blind or disabled or requires long-term care services.
    In general, an individual is treated as eligible for a government-
sponsored program on the first day of the first full month in which the 
individual may receive benefits. Thus, taxpayers would not lose 
eligibility for the credit for a month in which the taxpayer or a 
family member is technically eligible for a government program but 
cannot yet receive benefits due to, for example, the need for 
administrative processing. However, an individual who fails to complete 
the requirements to obtain coverage available under a government-
sponsored program (other than coverage under the veteran's health care 
program) reasonably promptly is treated as eligible for the coverage on 
the first day of the second calendar month following the event that 
establishes eligibility (such as reaching age 65 for Medicare).
    An individual receiving advance credit payments may apply and be 
approved for government-sponsored minimum essential coverage such as 
Medicaid that, after approval, is effective retroactively (overlapping 
some advance payment coverage months). The proposed regulations provide 
that an individual in this situation is treated as eligible for minimum 
essential coverage no sooner than the first day of the first calendar 
month after the approval.
    Comments are requested on whether rules should provide additional 
flexibility if operational challenges prevent timely transition from 
coverage under a qualified health plan to coverage under a government-
sponsored program.
    A taxpayer whom an Exchange has determined to be ineligible for 
Medicaid, CHIP, or a similar program at the time of enrollment may end 
up with household income for the taxable year within the eligibility 
criteria for these

[[Page 50935]]

programs. Therefore, the proposed regulations provide that an 
individual is treated as not eligible for Medicaid, CHIP, or a similar 
program for the months of coverage under a qualified health plan if an 
Exchange determines that the individual is not eligible when the 
individual enrolls. If the individual subsequently enrolls in Medicaid, 
CHIP, or a similar program, however, the full months of enrollment in 
the government-sponsored coverage are not coverage months.
ii. Employer-Sponsored Coverage
A. In General
    Section 5000A(f)(1)(B) provides that minimum essential coverage 
includes coverage under an eligible employer-sponsored plan. Under 
section 5000A(f)(2), an eligible employer-sponsored plan is a group 
health plan or group health insurance coverage offered by an employer 
to an employee that is a governmental plan (within the meaning of 
section 2791(d)(8) of the Public Health Service Act (42 U.S.C. 300gg-
91(d)(8))), any other plan or coverage offered in the small or large 
group market, or a grandfathered plan offered in the group market. 
Regulations under section 5000A are expected to provide that an 
employer-sponsored plan will not fail to be minimum essential coverage 
solely because it is a plan to reimburse employees for medical care for 
which reimbursement is not provided under a policy of accident and 
health insurance (a self-insured plan).
    Continuation coverage required under federal law or required under 
a state law that provides comparable continuation coverage is eligible 
employer-sponsored coverage. The proposed regulations provide a special 
rule that an individual eligible to enroll in continuation coverage is 
eligible for minimum essential coverage only if the individual enrolls 
in the coverage.
    The proposed regulations provide that an individual generally is 
eligible for minimum essential coverage through an eligible employer-
sponsored plan for a month during a plan year if the individual had the 
opportunity to enroll in the plan, even if the enrollment period has 
since closed. Thus, once an individual fails to enroll in eligible 
employer-sponsored coverage during an employer-sponsored plan's 
enrollment period after having had the opportunity to do so (assuming 
the coverage is affordable and provides minimum value), the months 
during the plan year are not coverage months for the individual, 
notwithstanding that the individual is precluded from later enrolling 
in the employer-sponsored coverage for those months because the 
enrollment period has expired.
    Under section 36B(c)(2)(C), an individual generally is eligible for 
employer-sponsored minimum essential coverage only if the employee's 
share of the premiums is affordable and the coverage provides minimum 
value. An individual is treated as eligible for minimum essential 
coverage through an eligible employer-sponsored plan, however, if the 
individual actually enrolls in the coverage, including coverage that 
does not meet the requirements for affordability and minimum value.
B. Affordability of Employer-Sponsored Coverage
    Section 36B(c)(2)(C)(i) prescribes the standards for determining 
whether employer-sponsored coverage is affordable for an employee as 
well as for other individuals. In the case of an employee, under 
section 36B(c)(2)(C)(i), an employer-sponsored plan is not affordable 
if ``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'' for the taxable year. This 
percentage may be adjusted after 2014.\1\
---------------------------------------------------------------------------

    \1\ In addition, the statute provides for the Comptroller 
General, within 5 years of enactment, to conduct a study, including 
legislative recommendations, on the affordability of coverage, 
including whether the percentage of household income specified in 
section 36B(c)(2)(C) ``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.'' See section 1401(c)(1) of the Affordable Care Act.
---------------------------------------------------------------------------

    In the case of an individual other than an employee, section 
36B(c)(2)(C)(i) provides that ``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.'' The cross-
referenced section 5000A(e)(1)(B) defines the term ``required 
contribution'' for this purpose as ``the portion of the annual premium 
which would be paid by the individual * * * for self-only coverage.''
    Thus, the statutory language specifies that for both employees and 
others (such as spouses or dependents) who are eligible to enroll in 
employer-sponsored coverage by reason of their relationship to an 
employee (related individuals), the coverage is unaffordable if the 
required contribution for ``self-only'' coverage (as opposed to family 
coverage or other coverage applicable to multiple individuals) exceeds 
9.5 percent of household income. See Joint Committee on Taxation, 
General Explanation of Tax Legislation Enacted in the 111th Congress, 
JCS-2-11 (March 2011) at 265 (stating that, for purposes of the premium 
tax credit provisions of the Act, ``[u]naffordable is defined as 
coverage with a premium required to be paid by the employee that is 
more than 9.5 percent of the employee's household income, based on the 
self-only coverage'').
    Consistent with these statutory provisions, the proposed 
regulations provide that an employer-sponsored plan also is affordable 
for a related individual for purposes of section 36B if the employee's 
required contribution for self-only coverage under the plan does not 
exceed 9.5 percent of the applicable taxpayer's household income for 
the taxable year, even if the employee's required contribution for the 
family coverage does exceed 9.5 percent of the applicable taxpayer's 
household income for the year.
    Although the affordability test for related individuals for 
purposes of the premium tax credit is based on the cost of self-only 
coverage, future proposed regulations under section 5000A are expected 
to provide that the affordability test for purposes of applying the 
individual responsibility requirement to related individuals is based 
on the employee's required contribution for employer-sponsored family 
coverage. Section 5000A addresses affordability for employees in 
section 5000A(e)(1)(B) and, separately, for related individuals in 
section 5000A(e)(1)(C).
C. Employee Affordability Safe Harbor
    The proposed regulations provide an employee safe harbor for 
individuals who were offered eligible employer-sponsored coverage that 
ultimately proves to be affordable based on household income for the 
taxable year but who declined the offer because, at the time of 
enrollment in a qualified health plan, the Exchange determined that the 
employer coverage would be unaffordable. Under the safe harbor, an 
eligible employer-sponsored plan is treated as unaffordable for an 
entire plan year. Thus, for the months during the plan year (which may 
coincide or overlap with the taxable year) a taxpayer will not lose 
credit eligibility because, as a result of changes during the taxable 
year, the employer coverage would have been affordable based on the 
household income for that taxable year. The taxpayer may, however, lose 
credit eligibility for other reasons, for example if the taxpayer's 
household income for

[[Page 50936]]

the taxable year exceeds 400 percent of the FPL. Regulations under 
section 4980H are expected to provide that an employer is not subject 
to a penalty merely because an employee receives a premium tax credit 
under this employee safe harbor if the employer offered to its 
employees affordable coverage that otherwise meets the requirements of 
section 4980H.
D. Affordability Safe Harbor for Employers
    In general, an applicable large employer (as defined in section 
4980H(c)(2)) that offers health coverage to its full-time employees and 
their dependents is subject to the assessable payment under section 
4980H(b) if at least one full-time employee is certified to receive a 
premium tax credit or cost-sharing reduction because the employer-
sponsored coverage either does not provide minimum value or is 
unaffordable to the employee.
    Employers have commented that they will not know their employees' 
actual household income. As a result, even if an employer intends to 
offer affordable coverage to all full-time employees, one or more full-
time employees may be certified to receive the premium tax credit, and 
the employer may be subject to the assessable payment under 4980H(b). 
Future proposed regulations under section 4980H are expected to provide 
an affordability safe harbor for employers. Under this anticipated safe 
harbor, an employer that meets certain requirements, including offering 
its full-time employees (and their dependents) the opportunity to 
enroll in eligible employer-sponsored coverage, will not be subject to 
an assessable payment under section 4980H(b) with respect to an 
employee who receives a premium tax credit or cost-sharing reduction 
for a taxable year if the employee portion of the self-only premium for 
the employer's lowest cost plan that provides minimum value does not 
exceed 9.5 percent of the employee's current W-2 wages from the 
employer.
    Giving employers the ability to base their affordability 
calculations on their employees' wages (which employers know) instead 
of employees' household income (which employers generally do not know) 
is intended to provide a more workable and predictable method of 
facilitating affordable employer-sponsored coverage for the benefit of 
both employers and employees. Notwithstanding this safe harbor, 
employees' eligibility for a premium tax credit would continue to be 
based on affordability of employer-sponsored coverage relative to 
employees' household income. Accordingly, some employees--among the 
small percentage of employees whose household income is less than their 
wages from the employer--would receive a premium tax credit without 
resulting in an assessable payment by their employer. The Treasury 
Department and the IRS intend to issue a request for comments on this 
affordability safe harbor for employers.
E. Minimum Value
    Section 36B(c)(2)(C)(ii) provides that an eligible employer-
sponsored plan generally provides minimum value if the plan's share of 
the total allowed costs of benefits provided under the plan is at least 
60 percent of those costs. Under section 1302(d)(2) of the Affordable 
Care Act (42 U.S.C. 18022(d)(2)), regulations to be issued by the 
Secretary of Health and Human Services will apply in determining the 
percentage of ``the total allowed costs of benefits'' provided under a 
group health plan or health insurance coverage that are covered by that 
plan or coverage. The regulations under section 1302(d)(2) are expected 
to be proposed later this year and to reflect the fact that employer-
sponsored group health plans and health insurance coverage in the large 
group market are not required to provide each of the essential health 
benefits or each of the 10 categories of benefits described in section 
1302(b)(1) of the Affordable Care Act. It is also anticipated that the 
regulations will seek to further the objective of preserving the 
existing system of employer-sponsored coverage, but without permitting 
the statutory employer responsibility standards to be avoided. We also 
are contemplating whether to provide appropriate transition relief with 
respect to the minimum value requirement for employers currently 
offering health care coverage.

2. Computing the Premium Tax Credit

    A taxpayer's credit is the sum of the premium assistance amounts 
for each coverage month in the taxable year. A premium assistance 
amount is computed for each coverage month during the taxable year 
based on several factors: household income, family size, applicable 
percentage, benchmark plan premium, and actual plan premium. A month 
during which no one in the taxpayer's family is enrolled in a qualified 
health plan through an Exchange is not a coverage month. A month is a 
coverage month only if the taxpayer pays the premium for coverage or 
receives the benefit of an advance payment. The premium assistance 
amount for a month that is not a coverage month is zero. Household 
income is determined on an annual basis and is prorated for each month 
to determine the monthly premium assistance amount. The applicable 
percentage is the same for each month because it is derived from annual 
household income and family size. A taxpayer's benchmark plan premium 
may change during the year if, for example, there are changes in the 
members of the household covered through the Exchange or the taxpayer 
moves to a new State with different plan rates.
a. Premiums Paid on Behalf of the Taxpayer
    The proposed regulations provide that, in determining whether a 
month is a coverage month, premiums that another person pays for the 
coverage of the taxpayer or a family member are treated as paid by the 
taxpayer.
b. Applicable Benchmark Plan
    Under section 36B(b)(2), the monthly premium for the applicable 
second lowest cost silver plan offered through an Exchange is the 
benchmark for computing a taxpayer's monthly premium assistance amount. 
To determine the amount of premium tax credit, a taxpayer must compute 
the difference between the premium for this plan and the applicable 
percentage of the taxpayer's household income, regardless of the 
qualified health plan the taxpayer purchases.
i. Multiple Categories of Coverage Offered on an Exchange
    Section 36B(b)(3)(B)(ii) identifies only self-only and family as 
the categories of coverage for the benchmark plan. However, qualified 
health plans may offer other categories of coverage based on family 
composition, such as children only, two adults, or one adult plus 
children. See proposed 45 CFR 156.255(b). Thus, the proposed 
regulations define family coverage as any health insurance that covers 
more than one individual.
    Under the proposed regulations, the ``applicable'' benchmark plan 
for a taxpayer is determined by finding the second lowest cost plan at 
the silver level that would cover those family members actually 
enrolled in a qualified health plan, not eligible for minimum essential 
coverage other than coverage in the individual market, not 
incarcerated, and lawfully present in the United States (the coverage 
family). Thus, the applicable benchmark plan is the self-only category 
of coverage for a taxpayer who files as single with no dependents, a 
taxpayer who purchases

[[Page 50937]]

self-only coverage, and a taxpayer whose family includes only one 
individual who is not eligible for minimum essential coverage or one 
lawfully present individual (thus excluding from the credit computation 
the portion of the premium attributable to an individual not lawfully 
present, as required by section 36B(e)(1)(A)). If an Exchange offers 
more categories of coverage than self-only and family, the applicable 
benchmark plan is the coverage category that applies to the members of 
the taxpayer's coverage family.
ii. Families Who Purchase More Than One Qualified Health Plan
    Section 36B determines family size by reference to individuals for 
whom the taxpayer claims a personal exemption, and family coverage 
under some qualified health plans may not extend to certain tax 
dependents (for example, a niece). We note that the Department of 
Health and Human Services has requested comments in its proposed 
regulations on Exchanges on whether qualified health plans offered on 
an Exchange should be required to cover all members of the family if 
they live in the same Exchange service area. Pending the issuance of 
additional guidance on this issue by Health and Human Services, the 
proposed regulations provide that, if the applicable benchmark plan 
does not cover a taxpayer's full family, the applicable benchmark plan 
premium for these families is the sum of the premiums for the benchmark 
plans that cover the taxpayer's family (for example, for an uncle and 
two adult dependent nieces, a self-only benchmark plan for the uncle 
and a two-adult or family plan for the nieces). The applicable 
benchmark plan is similarly modified for taxpayers with family members 
residing in different rating areas (also known as Exchange service 
areas, see proposed 45 CFR155.20). However, the IRS and Treasury 
Department are considering other approaches for determining the 
applicable benchmark plan in these cases. For example, the applicable 
benchmark plan for these families could be the benchmark plan that 
would apply to the family composition (such as one adult plus children) 
if one plan covered all members of the taxpayer's family. 
Alternatively, the applicable benchmark plan premium could be the 
lesser of (1) the premium for a combination of plans that cover the 
taxpayer's entire family, or (2) the premium for a single plan that 
covers the taxpayer's entire family and is more expensive than the 
second lowest cost silver plan. Comments are requested on these and 
other possible approaches.
iii. One Qualified Health Plan Covering More Than One Family
    If a single qualified health plan covers more than one taxpayer's 
family (for example a plan that covers adult children under age 26 who 
are not tax dependents), the allowable section 36B credit is computed 
for each applicable taxpayer covered by the plan. An individual 
applicable percentage is determined for each taxpayer based on the 
taxpayer's household income and family size, and the separate 
applicable benchmark plan. The premiums for the qualified health plan 
the taxpayers purchase are allocated to each taxpayer in proportion to 
the premiums for each taxpayer's benchmark plan to determine whether 
the premiums paid are less than the benchmark premium minus the 
taxpayer's applicable percentage of household income.
iv. Applicable Benchmark Plan That Terminates or Closes to Enrollment
    A qualified health plan that is the second lowest cost silver plan 
for a particular category of coverage, or the lowest cost silver plan 
in that category, may close to enrollment or terminate during the 
taxable year. The proposed regulations clarify that an applicable 
benchmark plan is a plan offered through the Exchange when a taxpayer 
or family member enrolls in a qualified health plan. Unless the 
taxpayer or a family member is enrolled in the applicable benchmark 
plan, a plan does not cease to be the applicable benchmark plan solely 
because the plan or the lowest cost silver plan terminates or closes to 
further enrollment during the taxable year.
c. Pediatric Dental Coverage
    Section 36B(b)(3)(E) provides that, for purposes of determining the 
amount of any monthly premium, if an individual enrolls in both a 
qualified health plan and a plan providing dental coverage as described 
in section 1311(d)(2)(B)(ii) of the Affordable Care Act (42 U.S.C. 
13031(d)(2)(B)(ii)), the portion of the premium for the dental plan 
that is properly allocable to pediatric dental benefits that are 
essential health benefits is treated as a premium payable for the 
individual's qualified health plan. Thus, the portion of the premium 
for the separate pediatric dental coverage is added to the premium for 
the benchmark plan in computing the credit. Comments are requested on 
methods of determining the amount of the premium properly allocable to 
pediatric dental benefits.

3. Reconciling the Credit and Advance Credit Payments

    The proposed regulations describe the requirements for reconciling 
advance payments of the credit with the actual credit amount and 
determining the amount of any resulting additional credit or additional 
income tax liability. The proposed regulations explain that the credit 
is computed by using the household income and family size for the 
taxable year, but premium assistance amounts for different coverage 
months may be based on different applicable benchmark plans if, for 
example, the taxpayer's family composition changes during the taxable 
year.
a. Changes in Filing Status
    Section 36B(g)(2) directs the Secretary to provide regulations 
specifying how to reconcile advance payments with the actual credit 
when the taxpayer's filing status on the return claiming the credit 
differs from the filing status used to determine advance payments of 
the credit. Filing status may be any of the following: single, married 
filing jointly, married filing separately, head of household, or 
surviving spouse.
i. Computing the Credit When Taxpayer's Marital Status Changes
    The proposed regulations provide that, for a taxpayer who has a 
change in marital status during the taxable year, the credit generally 
is computed according to the same rules that apply to other taxpayers, 
using the applicable benchmark plan or plans that apply to the 
taxpayer's marital status as of the first day of each month. However, 
the proposed regulations include special rules for computing the credit 
for taxpayers who divorce during the taxable year. Comments are 
requested on special rules for taxpayers who marry during the taxable 
year and for married taxpayers who face challenges in being able to 
file a joint return.
ii. Taxpayers Who Divorce During the Taxable Year
    The proposed regulations provide that, for purposes of 
reconciliation, taxpayers who for some months during a taxable year 
were married (within the meaning of section 7703) and were covered by 
the same qualified health plan but are no longer married on the last 
day of the taxable year, may agree to allocate between themselves, in 
the same proportion, the premiums for the benchmark plan, premiums paid 
and advance credit payments made during the marriage. If the taxpayers 
do not agree on an allocation, the taxpayers must allocate 50 percent 
of these amounts to each taxpayer. If only one of

[[Page 50938]]

the formerly married taxpayers was enrolled in the plan, 100 percent of 
the benchmark premiums, premiums for the plan that taxpayer purchases, 
and advance payments are allocated to that taxpayer.
iii. Taxpayers Who Marry During the Taxable Year
    For individuals who marry during a taxable year and receive advance 
credit payments during the time before they are married, the general 
rules for credit computation and reconciliation could lead to the 
individuals facing additional tax upon reconciliation, even if the 
Exchange accurately determines each individual's separate income for 
the year at the time of enrollment. This may occur, for example, in 
situations in which the combination of two individuals' household 
incomes and families results in the combined family having a higher FPL 
percentage than either of the component families would have had if the 
individuals had not married, and therefore having a higher applicable 
percentage or being ineligible for a credit. Comments are requested on 
rules providing relief to certain individuals who would owe additional 
tax because they marry during a taxable year when one or both 
individuals receive advance credit payments prior to marriage. Comments 
are requested on how the premium assistance credit amount should be 
computed in this circumstance, including how household income (which is 
required to be determined on an annual basis) and dependents for the 
taxable year would be taken into account in the credit computation.
iv. Married Taxpayers Filing Separately
    Married taxpayers who file their returns as married filing 
separately are not applicable taxpayers and generally are ineligible 
for the premium tax credit for any month during the taxable year. The 
proposed regulations provide that taxpayers who receive advance credit 
payments and file their tax returns as married filing separately must 
allocate 50 percent of any advance credit payments to each spouse for 
purposes of determining their excess advance payment amounts as part of 
the reconciliation process. Although the taxpayers owe additional tax 
for the entire amount of the advance credit payments, the section 
36B(f)(2)(B) repayment limitation applies to each taxpayer whose 
household income is below 400 percent of the federal poverty line based 
on the household income and family size reported on the return.
    Some taxpayers who are married at the time they enroll in a 
qualified health plan and begin to receive advance credit payments may 
not be able to file a joint return for the coverage year. For example, 
in situations involving domestic abuse, when a divorce is pending but 
not yet final, or when one spouse is incarcerated, filing a joint 
return may not be possible or prudent. Comments are requested on rules 
to provide relief for those married taxpayers who have received advance 
credit payments but face challenges in being able to file a joint 
return. Comments are requested in particular on whether rules should 
take into account whether (1) The spouses have filed jointly for the 
preceding taxable year, (2) the spouses attested to an expectation to 
file jointly for purposes of receiving the advance credit payments, and 
(3) the spouses should be allowed relief of this type for more than one 
year.
    Comments are requested on other rules for reconciling the credit 
with advance payments for taxpayers whose filing status changes during 
the taxable year.
b. Requirement To File a Return
    The proposed regulations require every taxpayer receiving advance 
credit payments to file an income tax return on or before the fifteenth 
day of the fourth month following the close of the taxable year. The 
requirement to file a return applies whether or not a taxpayer is 
otherwise required to file a return under section 6012 or claims a 
premium tax credit for the taxable year. Under section 6081, the 
Commissioner may grant a reasonable extension of time for filing any 
income tax return.

Effective/Applicability Date

    These regulations are proposed to apply for taxable years ending 
after December 31, 2013.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It has also been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations, and, because the regulations do 
not impose a collection of information requirement on small entities, 
the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (either electronic 
or a signed paper original and eight (8) copies) that are submitted 
timely to the IRS. The IRS and Treasury Department request comments on 
the clarity of the proposed rules and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for November 17, 2011, at 10 
a.m., in the auditorium, Internal Revenue Building, 1111 Constitution 
Avenue, NW., Washington, DC. Due to building security procedures, 
visitors must enter at the Constitution Avenue entrance. All visitors 
must present photo identification to enter the building. Because of 
access restrictions, visitors will not be admitted beyond the immediate 
entrance more than 30 minutes before the hearing starts. For 
information about having your name placed on the building access list 
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section 
of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written 
comments (electronic or a signed paper original and eight (8) copies) 
and an outline of topics to be discussed and the time devoted to each 
topic by November 10, 2011. A period of 10 minutes will be allotted to 
each person for making comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal authors of these proposed regulations are Shareen S. 
Pflanz, Frank W. Dunham III, and Stephen J. Toomey of the Office of 
Associate Chief Counsel (Income Tax and Accounting). However, other 
personnel from the IRS and the Treasury Department participated in the 
development of the regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

[[Page 50939]]

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 1.36B-4 also issued under 26 U.S.C. 36B(g).
    Par. 2. Sections 1.36B-0, 1.36B-1, 1.36B-2, 1.36B-3, 1.36B-4, and 
1.36B-5 are added to read as follows:


Sec.  1.36B-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.36B-1 
through 1.36B-5.


Sec.  1.36B-1  Premium tax credit definitions.

    (a) In general.
    (b) Affordable Care Act.
    (c) Qualified health plan.
    (d) Family and family size.
    (e) Household income.
    (1) In general.
    (2) Modified adjusted gross income.
    (f) Dependent.
    (g) Lawfully present.
    (h) Federal poverty line.
    (i) Reserved.
    (j) Advance credit payment.
    (k) Exchange.
    (l) Self-only coverage.
    (m) Family coverage.
    (n) Rating area.
    (o) Effective/applicability date.


Sec.  1.36B-2  Eligibility for premium tax credit.

    (a) In general.
    (b) Applicable taxpayer.
    (1) In general.
    (2) Married taxpayers must file joint return.
    (3) Dependents.
    (4) Individuals not lawfully present or incarcerated.
    (5) Individuals lawfully present.
    (6) Special rule for taxpayers with household income below 100 
percent of the federal poverty line for the taxable year.
    (7) Computation of premium assistance amounts for taxpayers with 
household income below 100 percent of the federal poverty line.
    (c) Minimum essential coverage.
    (1) In general.
    (2) Government-sponsored minimum essential coverage.
    (i) In general.
    (ii) Special rule for coverage under the veteran's health care 
program under chapter 17 or 18 of Title 38, U.S.C.
    (iii) Time of eligibility.
    (A) In general.
    (B) Retroactive effect of eligibility determination.
    (iv) Determination of Medicaid or Children's Health Insurance 
Program (CHIP) ineligibility.
    (v) Examples.
    (3) Employer-sponsored minimum essential coverage.
    (i) In general.
    (ii) Plan year.
    (iii) Eligibility for coverage months during a plan year.
    (A) In general.
    (B) Example.
    (iv) Special rule for continuation coverage.
    (v) Affordable coverage.
    (A) In general.
    (1) Affordability.
    (2) Employee safe harbor.
    (B) Required contribution percentage.
    (C) Examples.
    (vi) Minimum value.
    (vii) Enrollment in eligible employer-sponsored plan.
    (A) In general.
    (B) Example.


Sec.  1.36B-3  Computing the premium assistance credit amount.

    (a) In general.
    (b) Definitions.
    (c) Coverage month.
    (1) In general.
    (2) Premiums paid for the taxpayer.
    (3) Examples.
    (d) Premium assistance amount.
    (e) Adjusted monthly premium.
    (f) Applicable benchmark plan.
    (1) In general.
    (2) Family coverage.
    (3) Second lowest cost silver plan not covering the taxpayer's 
family.
    (4) Benchmark plan terminates or closes to enrollment.
    (5) Examples.
    (g) Applicable percentage.
    (1) In general.
    (2) Applicable percentage table.
    (3) Examples.
    (h) Plan covering more than one family.
    (1) In general.
    (2) Example.
    (i) Reserved.
    (j) Additional benefits.
    (1) In general.
    (2) Method of allocation.
    (k) Pediatric dental coverage.
    (1) In general.
    (2) Method of allocation.
    (l) Families including individuals not lawfully present.
    (1) In general.
    (2) Revised household income computation.
    (i) Statutory method.
    (ii) Comparable method.


Sec.  1.36B-4  Reconciling the premium tax credit with advance credit 
payments.

    (a) Reconciliation.
    (1) In general.
    (2) Credit computation.
    (3) Limitation on additional tax.
    (i) In general.
    (ii) Additional tax limitation table.
    (4) Examples.
    (b) Changes in filing status.
    (1) In general.
    (2) Taxpayers not married to each other at the end of the taxable 
year.
    (3) Married taxpayers filing separate returns.
    (4) Examples.


Sec.  1.36B-5  Information reporting by Exchanges.

    (a) Information required to be reported.
    (b) Time and manner of reporting.


Sec.  1.36B-1  Premium tax credit definitions.

    (a) In general. Section 36B allows a refundable premium tax credit 
for taxable years ending after December 31, 2013. The definitions in 
this section apply to this section and Sec. Sec.  1.36B-2 through 
1.36B-5.
    (b) Affordable Care Act. The term Affordable Care Act refers to the 
Patient Protection and Affordable Care Act, Public Law 111-148 (124 
Stat. 119 (2010)), and the Health Care and Education Reconciliation Act 
of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), as amended by the 
Medicare and Medicaid Extenders Act of 2010, Public Law 111-309 (124 
Stat. 3285 (2010)), the Comprehensive 1099 Taxpayer Protection and 
Repayment of Exchange Subsidy Overpayments Act of 2011, Public Law 112-
9 (125 Stat. 36 (2011)), and the Department of Defense and Full-Year 
Continuing Appropriations Act, 2011, Public Law 112-10 (125 Stat. 38 
(2011)).
    (c) Qualified health plan. The term qualified health plan has the 
same meaning as in section 1301(a) of the Affordable Care Act (42 
U.S.C. 18021(a)) but does not include a catastrophic plan described in 
section 1302(e) of the Affordable Care Act (42 U.S.C. 18022(e)).
    (d) Family and family size. A taxpayer's family means the 
individuals for whom a taxpayer properly claims a deduction for a 
personal exemption under section 151 for the taxable year. Family size 
means the number of individuals in the family. Family and family size 
include an individual who is exempt from the requirement to maintain 
minimum essential coverage under section 5000A.

[[Page 50940]]

    (e) Household income--(1) In general. Household income means the 
sum of--
    (i) A taxpayer's modified adjusted gross income; plus
    (ii) The aggregate modified adjusted gross income of all other 
individuals who--
    (A) Are included in the taxpayer's family under paragraph (d) of 
this section; and
    (B) Are required to file an income tax return for the taxable year 
(determined without regard to the exception under section (1)(g)(7) to 
the requirement to file a return).
    (2) Modified adjusted gross income. Modified adjusted gross income 
means adjusted gross income (within the meaning of section 62) 
increased by amounts excluded from gross income under section 911 and 
tax-exempt interest the taxpayer receives or accrues during the taxable 
year.
    (f) Dependent. Dependent has the same meaning as in section 152.
    (g) Lawfully present. Lawfully present has the same meaning as in 
45 CFR 152.2.
    (h) Federal poverty line. The federal poverty line means the most 
recently published poverty guidelines (updated periodically in the 
Federal Register by the Secretary of Health and Human Services under 
the authority of 42 U.S.C. 9902(2)) as of the first day of the regular 
enrollment period for coverage by a qualified health plan offered 
through an Exchange for a calendar year. Thus, the federal poverty line 
for computing the premium tax credit for a taxable year is the federal 
poverty line in effect on the first day of the initial or annual open 
enrollment period preceding that taxable year. See 45 CFR 155.410.
    (i) [Reserved]
    (j) Advance credit payment. Advance credit payment means an advance 
payment of the premium tax credit as provided in section 1412 of the 
Affordable Care Act (42 U.S.C. 18082).
    (k) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
    (l) Self-only coverage. Self-only coverage means health insurance 
that covers one individual.
    (m) Family coverage. Family coverage means health insurance that 
covers more than one individual.
    (n) Rating area. Rating area means an Exchange service area, as 
described in 45 CFR 155.20.
    (o) Effective/applicability date. This section and Sec. Sec.  
1.36B-2 through 1.36B-5 apply for taxable years ending after December 
31, 2013.


Sec.  1.36B-2  Eligibility for premium tax credit.

    (a) In general. An applicable taxpayer (within the meaning of 
paragraph (b) of this section) is allowed a premium assistance amount 
only for any month that the applicable taxpayer, or the applicable 
taxpayer's spouse or dependent--
    (1) Is enrolled in one or more qualified health plans through an 
Exchange; and
    (2) Is not eligible for minimum essential coverage (within the 
meaning of paragraph (c) of this section) other than coverage described 
in section 5000A(f)(1)(C) (relating to coverage in the individual 
market).
    (b) Applicable taxpayer--(1) In general. Except as otherwise 
provided in this paragraph (b), an applicable taxpayer is a taxpayer 
whose household income is at least 100 percent but not more than 400 
percent of the federal poverty line for the taxpayer's family size for 
the taxable year.
    (2) Married taxpayers must file joint return. A taxpayer who is 
married (within the meaning of section 7703) at the close of the 
taxable year is an applicable taxpayer only if the taxpayer and the 
taxpayer's spouse file a joint return for the taxable year.
    (3) Dependents. An individual is not an applicable taxpayer if 
another taxpayer may claim a deduction under section 151 for the 
individual for a taxable year beginning in the calendar year in which 
the individual's taxable year begins.
    (4) Individuals not lawfully present or incarcerated. An individual 
who is not lawfully present in the United States or is incarcerated 
(other than incarceration pending disposition of charges) may not be 
covered by a qualified health plan through an Exchange. However, the 
individual may be an applicable taxpayer if a family member is eligible 
to enroll in a qualified health plan. See sections 1312(f)(1)(B) and 
1312(f)(3) of the Affordable Care Act (42 U.S.C. 18032(f)(1)(B) and 
(f)(3)) and Sec.  1.36B-3(b)(2).
    (5) Individuals lawfully present. If a taxpayer's household income 
is less than 100 percent of the federal poverty line for the taxpayer's 
family size and the taxpayer or a member of the taxpayer's family is an 
alien lawfully present in the United States, the taxpayer is treated as 
an applicable taxpayer if--
    (i) The taxpayer or family member is not eligible for the Medicaid 
program; and
    (ii) The taxpayer would be an applicable taxpayer if the taxpayer's 
household income for the taxable year was between 100 and 400 percent 
of the federal poverty line for the taxpayer's family size.
    (6) Special rule for taxpayers with household income below 100 
percent of the federal poverty line for the taxable year. A taxpayer 
(other than a taxpayer described in paragraph (b)(5) of this section) 
whose household income for a taxable year is less than 100 percent of 
the federal poverty line for the taxpayer's family size is treated as 
an applicable taxpayer if--
    (i) The taxpayer or a family member enrolls in a qualified health 
plan through an Exchange;
    (ii) An Exchange estimates at the time of enrollment that the 
taxpayer's household income will be between 100 and 400 percent of the 
federal poverty line for the taxable year;
    (iii) Advance credit payments are authorized and paid for one or 
more months during the taxable year; and
    (iv) The taxpayer would be an applicable taxpayer if the taxpayer's 
household income for the taxable year was between 100 and 400 percent 
of the federal poverty line for the taxpayer's family size.
    (7) Computation of premium assistance amounts for taxpayers with 
household income below 100 percent of the federal poverty line. If a 
taxpayer is treated as an applicable taxpayer under paragraph (b)(5) or 
(b)(6) of this section, the taxpayer's actual household income for the 
taxable year is used to compute the premium assistance amounts under 
Sec.  1.36B-3(d).
    (c) Minimum essential coverage--(1) In general. Minimum essential 
coverage is defined in section 5000A(f) and regulations issued under 
that section. As described in section 5000A(f), government-sponsored 
programs, eligible employer-sponsored plans, grandfathered health 
plans, and certain other health benefits coverage are minimum essential 
coverage.
    (2) Government-sponsored minimum essential coverage--(i) In 
general. Except as provided in paragraph (c)(2)(ii) of this section, 
for purposes of section 36B, an individual is eligible for government-
sponsored minimum essential coverage if the individual meets the 
criteria for coverage under a government-sponsored program described in 
section 5000A(f)(1)(A). The Commissioner may define eligibility for 
specific government-sponsored programs further in published guidance of 
general applicability, see Sec.  601.601(d)(2) of this chapter.
    (ii) Special rule for coverage under the veteran's health care 
program under chapter 17 or 18 of Title 38, U.S.C. An individual is 
eligible for minimum

[[Page 50941]]

essential coverage under the veteran's health care program authorized 
under chapter 17 or 18 of Title 38, U.S.C., only if the individual is 
enrolled in a veteran's health care program identified as minimum 
essential coverage in regulations issued under section 5000A.
    (iii) Time of eligibility--(A) In general. An individual generally 
is treated as eligible for a government-sponsored program on the first 
day of the first full month in which the individual may receive 
benefits under the program. However, an individual who fails to 
complete the requirements necessary to receive benefits available under 
a government-sponsored program (other than a veteran's health care 
program) reasonably promptly is treated as eligible for government-
sponsored minimum essential coverage as of the first day of the second 
calendar month following the event that establishes eligibility under 
paragraph (c)(2)(i) of this section.
    (B) Retroactive effect of eligibility determination. If an 
individual receiving advance credit payments is determined to be 
eligible for government-sponsored minimum essential coverage that is 
effective retroactively (such as Medicaid), the individual is treated 
as eligible for minimum essential coverage under that program no 
earlier than the first day of the first calendar month beginning after 
the approval.
    (iv) Determination of Medicaid or Children's Health Insurance 
Program (CHIP) ineligibility. An individual is treated as not eligible 
for Medicaid, CHIP, or a similar program for a period of coverage under 
a qualified health plan if an Exchange determines that the individual 
is not eligible for the program when the individual enrolls in the 
qualified health plan.
    (v) Examples. The following examples illustrate the provisions of 
this paragraph (c)(2).

    Example 1. Delay in coverage effectiveness. On April 10, 
Taxpayer D applies for coverage under a government-sponsored health 
care program. D's application is approved on July 12 but her 
coverage is not effective until September 1. Under paragraph 
(c)(2)(iii)(A) of this section, D is eligible for government-
sponsored minimum essential coverage on September 1.
    Example 2. Time of eligibility. Taxpayer E turns 65 on June 3 
and becomes eligible for Medicare. Under section 5000A(f)(1)(A), 
Medicare is minimum essential coverage. However, E must enroll in 
Medicare to receive benefits. E enrolls in Medicare on June 11 and 
may receive benefits immediately. Under paragraph (c)(2)(iii)(A) of 
this section, E is eligible for government-sponsored minimum 
essential coverage on July 1, the first day of the first full month 
that E may receive benefits under the program.
    Example 3. Time of eligibility, individual fails to complete 
necessary requirements. The facts are the same as in Example 2, 
except that E fails to enroll in the Medicare coverage. E is treated 
as eligible for government-sponsored minimum essential coverage 
under paragraph (c)(2)(iii)(A) of this section as of August 1, the 
first day of the second month following the event that establishes 
eligibility (E turning 65).
    Example 4. Retroactive effect of eligibility. On April 10, 2015, 
Taxpayer G applies for coverage under the Medicaid program. G's 
application is approved on May 15, 2015, and her Medicaid coverage 
is effective as of April 1, 2015. Under paragraph (c)(2)(iii)(B) of 
this section, G is eligible for government-sponsored minimum 
essential coverage on June 1, 2015, the first day of the first 
calendar month after approval.
    Example 5. Determination of Medicaid ineligibility. In November 
2014, Taxpayer H applies to the Exchange to enroll in a qualified 
health plan and for advance credit payments for 2015. The Exchange 
estimates that H's household income will be 140 percent of the 
federal poverty line for H's family size and determines that H is 
not eligible for Medicaid. The Exchange authorizes advance credit 
payments for H for 2015. H experiences a loss of household income in 
June 2015 but does not return to the Exchange in 2015 to apply for 
Medicaid benefits or report his change in income. H's household 
income for 2015 is 130 percent of the federal poverty line (within 
the Medicaid income threshold). Under paragraph (c)(2)(iv) of this 
section, H is treated as not eligible for Medicaid for 2015.
    Example 6. Mid-year Medicaid eligibility redetermination. The 
facts are the same as in Example 5, except that H returns to the 
Exchange in July 2015 and the Exchange determines H is eligible for 
Medicaid. The Exchange discontinues H's advance credit payments 
effective August 1. Under paragraphs (c)(2)(iii)(B) and (c)(2)(iv) 
of this section, H is treated as not eligible for Medicaid for the 
coverage months when H is covered by a qualified health plan. H is 
eligible for government-sponsored minimum essential coverage for the 
coverage months after H is approved for Medicaid, August through 
December 2015.

    (3) Employer-sponsored minimum essential coverage--(i) In general. 
For purposes of section 36B, an employee who may enroll in an eligible 
employer-sponsored plan (as defined in section 5000A(f)(2)) and an 
individual who may enroll in the plan because of a relationship to the 
employee (a related individual) are eligible for minimum essential 
coverage under the plan for any month only if the plan is affordable 
and provides minimum value. Government-sponsored programs described in 
section 5000A(f)(1)(A) are not eligible employer-sponsored plans.
    (ii) Plan year. For purposes of this paragraph (c)(3), a plan year 
is an eligible employer-sponsored plan's regular 12-month coverage 
period (or the remainder of a 12-month coverage period for a new 
employee or an individual who enrolls during a special enrollment 
period).
    (iii) Eligibility for coverage months during a plan year--(A) In 
general. An employee or related individual may be eligible for minimum 
essential coverage under an eligible employer-sponsored plan for a 
coverage month during a plan year if the employee or related individual 
could have enrolled in the plan for that month during an open or 
special enrollment period.
    (B) Example. The following example illustrates the provisions of 
this paragraph (c)(3)(iii).

    Example.  (i) Taxpayer B is an employee of Employer X. X offers 
its employees a health insurance plan that has a plan year (within 
the meaning of paragraph (c)(3)(ii) of this section) from October 1 
through September 30. Employees may enroll during an open season 
from August 1 to September 15. B does not enroll in X's plan for the 
plan year October 1, 2014, to September 30, 2015. In November 2014 B 
enrolls in a qualified health plan through an Exchange for calendar 
year 2015.
    (ii) B could have enrolled in X's plan during the August 1 to 
September 15 enrollment period. Therefore, unless X's plan is not 
affordable for B or does not provide minimum value, B is eligible 
for minimum essential coverage for the months that B is enrolled in 
the qualified health plan during X's plan year (January through 
September 2015).

    (iv) Special rule for continuation coverage. An individual who may 
enroll in continuation coverage required under federal law or a state 
law that provides comparable continuation coverage is eligible for 
minimum essential coverage only if the individual enrolls in the 
coverage.
    (v) Affordable coverage--(A) In general--(1) Affordability. Except 
as provided in paragraph (c)(3)(v)(A)(2) of this section, an eligible 
employer-sponsored plan is affordable for an employee or a related 
individual if the portion of the annual premium the employee must pay, 
whether by salary reduction or otherwise (required contribution), for 
self-only coverage for the taxable year does not exceed the required 
contribution percentage (as defined in paragraph (c)(3)(v)(B) of this 
section) of the applicable taxpayer's household income for the taxable 
year.
    (2) Employee safe harbor. An employer-sponsored plan is treated as 
not affordable for an employee or a related individual for a plan year 
if, when the employee or a related individual enrolls in a qualified 
health plan for a period coinciding with the plan year (in whole or in 
part), an Exchange determines that the eligible

[[Page 50942]]

employer-sponsored plan is not affordable.
    (B) Required contribution percentage. The required contribution 
percentage is 9.5 percent. The percentage may be adjusted in published 
guidance of general applicability, see Sec.  601.601(d)(2) of this 
chapter, for taxable years beginning after December 31, 2014, to 
reflect rates of premium growth relative to growth in income and, for 
taxable years beginning after December 31, 2018, to reflect rates of 
premium growth relative to growth in the consumer price index.
    (C) Examples. The following examples illustrate the provisions of 
this paragraph (c)(3)(v). Unless stated otherwise, in each example the 
taxpayer is single and has no dependents, the employer's plan is an 
eligible employer-sponsored plan and provides minimum value, the 
employee is not eligible for other minimum essential coverage, and the 
taxpayer, related individual, and employer-sponsored plan have a 
calendar taxable year.

    Example 1. Basic determination of affordability. In 2014 
Taxpayer C has household income of $47,000. C is an employee of 
Employer X, which offers its employees a health insurance plan that 
requires C to contribute $3,450 for self-only coverage for 2014 (7.3 
percent of C's household income). Because C's required contribution 
for self-only coverage does not exceed 9.5 percent of household 
income, under paragraph (c)(3)(v)(A)(1) of this section, X's plan is 
affordable for C, and C is eligible for minimum essential coverage 
for all months in 2014.
    Example 2. Basic determination of affordability for a related 
individual. The facts are the same as in Example 1, except that C is 
married to J and X's plan requires C to contribute $5,300 for 
coverage for C and J for 2014 (11.3 percent of C's household 
income). Because C's required contribution for self-only coverage 
($3,450) does not exceed 9.5 percent of household income, under 
paragraph (c)(3)(v)(A)(1) of this section, X's plan is affordable 
for C and J, and C and J are eligible for minimum essential coverage 
for all months in 2014.
    Example 3. Determination of unaffordability at enrollment. (i) 
Taxpayer D is an employee of Employer X. In November 2013 the 
Exchange in D's rating area projects that D's 2014 household income 
will be $37,000. It also verifies that D's required contribution for 
self-only coverage under X's health insurance plan will be $3,700 
(10 percent of household income). Consequently, the Exchange 
determines that X's plan is unaffordable. D enrolls in a qualified 
health plan and not in X's plan. In December 2014, X pays D a $2,500 
bonus. Thus, D's actual 2014 household income is $39,500 and D's 
required contribution for coverage under X's plan is 9.4 percent of 
household income.
    (ii) Based on D's actual 2014 household income, D's required 
contribution does not exceed 9.5 percent of household income and X's 
health plan is affordable for D. However, when D enrolled in a 
qualified health plan for 2014, the Exchange determined that X's 
plan was not affordable for D for 2014. Consequently, under 
paragraph (c)(3)(v)(A)(2) of this section, X's plan is treated as 
not affordable for D and D is treated as not eligible for minimum 
essential coverage for 2014.
    Example 4. Determination of unaffordability for plan year. The 
facts are the same as in Example 3, except that X's employee health 
insurance plan year is September 1 to August 31. The Exchange in D's 
rating area determines in August 2014 that X's plan is unaffordable 
for D based on D's projected household income for 2014. D enrolls in 
a qualified health plan as of September 1, 2014. Under paragraph 
(c)(3)(v)(A)(2) of this section, X's plan is treated as not 
affordable for D and D is treated as not eligible for minimum 
essential coverage under X's plan for the coverage months September 
to December 2014 and January through August 2015.
    Example 5. Determination of unaffordability for part of plan 
year. (i) Taxpayer E is an employee of Employer X beginning in May 
2015. X's employee health insurance plan year is September 1 to 
August 31. E's required contribution for self-only coverage for May 
through August is $150 per month ($1,800 for the full plan year). 
The Exchange in E's rating area determines E's household income for 
purposes of eligibility for advance credit payments as $18,000. E's 
actual household income for the 2015 taxable year is $20,000.
    (ii) Whether coverage under X's plan is affordable for E is 
determined for the remainder of X's plan year (May through August). 
E's required contribution for a full plan year ($1,800) exceeds 9.5 
percent of E's household income (1,800/18,000 = 10 percent). 
Therefore, the Exchange determines that X's coverage is unaffordable 
for May through August. Although E's actual household income for 
2015 is $20,000 (and E's required contribution of $1,800 does not 
exceed 9.5 percent of E's household income), under paragraph 
(c)(3)(v)(A)(2) of this section, X's plan is treated as unaffordable 
for E for the part of the plan year May through August 2015. 
Consequently, E is not eligible for minimum essential coverage under 
X's plan for the period May through August 2015.
    Example 6. Affordability determined for part of a taxable year 
(part-year period). (i) Taxpayer F is an employee of Employer X. X's 
employee health insurance plan year is September 1 to August 31. F's 
required contribution for self-only coverage for the period 
September 2014 through August 2015 is $150 per month or $1,800 for 
the plan year. F does not ask the Exchange in his rating area to 
determine whether X's coverage is affordable for F. F does not 
enroll in X's plan during X's open season but enrolls in a qualified 
health plan for September through December 2014. F's household 
income in 2014 is $18,000.
    (ii) Because F is a calendar year taxpayer and Employer X's plan 
is not a calendar year plan, F must determine the affordability of 
X's coverage for the part-year period in 2014 (September-December). 
F determines the affordability of X's plan for the September through 
December 2014 period by comparing the annual premiums ($1,800) to 
F's 2014 household income. F's required contribution of $1,800 is 10 
percent of F's 2014 household income. Because F's required 
contribution exceeds 9.5 percent of F's 2014 household income, X's 
plan is not affordable for F for the part-year period September 
through December 2014 and F is not eligible for minimum essential 
coverage under X's plan for that period.
    (iii) F enrolls in Exchange coverage for 2015 and does not ask 
the Exchange to determine whether X's coverage is affordable. F's 
2015 household income is $20,000.
    (iv) F must determine if X's plan is affordable for the part-
year period January 2015 through August 2015. F's annual required 
contribution ($1,800) is 9 percent of F's 2015 household income. 
Because F's required contribution does not exceed 9.5 percent of F's 
2015 household income, X's plan is affordable for F for the part-
year period January through August 2015 and F is eligible for 
minimum essential coverage for that period.
    Example 7. Coverage unaffordable at year end. Taxpayer G is 
employed by Employer X. In November 2014 the Exchange in G's rating 
area determines that G is eligible for affordable employer-sponsored 
coverage for 2015. G nonetheless enrolls in a qualified health plan 
for 2015 but does not receive advance credit payments. G's 2015 
household income is less than expected and G's required contribution 
for employer-sponsored coverage for 2015 exceeds 9.5 percent of G's 
actual 2015 household income. Under paragraph (c)(3)(v)(A)(1) of 
this section, G is not eligible for minimum essential coverage for 
2015 and, if otherwise eligible, G may claim a premium tax credit.

    (vi) Minimum value. An eligible employer-sponsored plan provides 
minimum value only if the plan's share of the total allowed costs of 
benefits provided under the plan (as determined under regulations 
issued by the Secretary of Health and Human Services under section 
1302(d)(2) of the Affordable Care Act (42 U.S.C. 18022(d)(2))) is at 
least 60 percent.
    (vii) Enrollment in eligible employer-sponsored plan--(A) In 
general. The requirements of affordability and minimum value do not 
apply if an individual enrolls in an eligible employer-sponsored plan.
    (B) Example. The following example illustrates the provisions of 
this paragraph (c)(3)(vii).

    Example. Taxpayer H is employed by Employer X in 2014. H's 
required contribution for employer coverage exceeds 9.5 percent of 
H's 2014 household income. H enrolls in X's plan for 2014. Under 
paragraph (c)(3)(vii) of this section, H is eligible for minimum 
essential coverage for 2014 because H is enrolled in an eligible 
employer-sponsored plan for 2014.

[[Page 50943]]

Sec.  1.36B-3  Computing the premium assistance credit amount.

    (a) In general. A taxpayer's premium assistance credit amount for a 
taxable year is the sum of the premium assistance amounts determined 
under paragraph (d) of this section for all coverage months for 
individuals in the taxpayer's family.
    (b) Definitions. For purposes of this section--
    (1) The cost of a qualified health plan is the premium the plan 
charges; and
    (2) The term coverage family refers to members of the taxpayer's 
family who are not eligible for minimum essential coverage (other than 
coverage in the individual market), are lawfully present in the United 
States, and are not incarcerated (except pending disposition of 
charges).
    (c) Coverage month--(1) In general. A month is a coverage month for 
an individual if, as of the first day of the month--
    (i) The individual is covered by a qualified health plan enrolled 
in through an Exchange;
    (ii) The individual's premiums for coverage under the plan are paid 
by the taxpayer or by an advance credit payment; and
    (iii) The individual is not eligible for minimum essential coverage 
(within the meaning of Sec.  1.36B-2(c)) other than coverage described 
in section 5000A(f)(1)(C) (relating to coverage in the individual 
market).
    (2) Premiums paid for the taxpayer. Premiums another person pays 
for coverage of the taxpayer, taxpayer's spouse, or dependent are 
treated as paid by the taxpayer.
    (3) Examples. The following examples illustrate the provisions of 
this paragraph (c). In each example, unless stated otherwise, the 
individuals are not eligible for minimum essential coverage other than 
coverage in the individual market and the taxpayer is an applicable 
taxpayer.

    Example 1. (i) Taxpayer M is single with no dependents. In 
December 2013 M enrolls in a qualified health plan for 2014 and the 
Exchange approves advance credit payments. On May 15, 2014, M 
enlists in the U.S. Army and is eligible immediately for government-
sponsored minimum essential coverage.
    (ii) Under paragraph (c)(1) of this section, January through May 
2014 are coverage months for M. June through December 2014 are not 
coverage months because M is eligible for minimum essential coverage 
for those months. Thus, under paragraph (a) of this section, M's 
premium assistance credit amount for 2014 is the sum of the premium 
assistance amounts for the months January through May.
    Example 2. (i) Taxpayer N has one dependent, S. S is eligible 
for government-sponsored minimum essential coverage. N is not 
eligible for minimum essential coverage. N enrolls in a qualified 
health plan for 2014 and the Exchange approves advance credit 
payments. On August 1, 2014, S loses eligibility for minimum 
essential coverage. N cancels the qualified health plan that covers 
only N and enrolls in a qualified health plan that covers N and S 
for August through December 2014.
    (ii) Under paragraph (c)(1) of this section, January through 
December of 2014 are coverage months for N and August through 
December are coverage months for N and S. N's premium assistance 
credit amount for 2014 is the sum of the premium assistance amounts 
for these coverage months.
    Example 3. (i) O and P are the divorced parents of T. Under the 
divorce agreement between O and P, T resides with P and P claims T 
as a dependent. However, O must pay premiums for health insurance 
for T. P enrolls T in a qualified health plan for 2014. O pays the 
premiums to the insurance company.
    (ii) Because P claims T as a dependent, P (and not O) may claim 
a premium tax credit for coverage for T. See Sec.  1.36B-2(a). Under 
paragraph (c)(2) of this section, the premiums that O pays for 
coverage for T are treated as paid by P. Thus, the months when T is 
covered by a qualified health plan are coverage months under 
paragraph (c)(1) of this section in computing P's premium tax credit 
under paragraph (a) of this section.

    (d) Premium assistance amount. The premium assistance amount for a 
coverage month is the lesser of--
    (1) The premiums for the month for one or more qualified health 
plans in which a taxpayer or a member of the taxpayer's family enrolls; 
or
    (2) The excess of the adjusted monthly premium for the applicable 
benchmark plan over \1/12\ of the product of a taxpayer's household 
income and the applicable percentage for the taxable year.
    (e) Adjusted monthly premium. The adjusted monthly premium is the 
premium an insurer would charge for the applicable benchmark plan to 
cover all members of the taxpayer's coverage family, adjusted only for 
the age of each member of the coverage family as allowed under section 
2701 of the Public Health Service Act (42 U.S.C. 300gg).
    (f) Applicable benchmark plan--(1) In general. Except as otherwise 
provided in this paragraph (f), the applicable benchmark plan for a 
coverage month is the second lowest cost silver plan (as described in 
section 1302(d)(1)(B) of the Affordable Care Act (42 U.S.C. 
18022(d)(1)(B))) offered at the time a taxpayer or family member 
enrolls in a qualified health plan through the Exchange in the rating 
area where the taxpayer resides for--
    (i) Self-only coverage for a taxpayer--
    (A) Who computes tax under section 1(c) (unmarried individuals 
other than surviving spouses and heads of household) and is not allowed 
a deduction under section 151 for a dependent for the taxable year;
    (B) Who purchases only self-only coverage for one individual; or
    (C) Whose coverage family includes only one individual; and
    (ii) Family coverage for all other taxpayers.
    (2) Family coverage. If an Exchange offers categories of family 
coverage (for example, two adults, one adult with children, two or more 
adults with children, or children only), the applicable benchmark plan 
for family coverage is the coverage category that applies to the 
members of the taxpayer's coverage family who enroll in a qualified 
health plan (such as a plan covering two adults if the members of 
taxpayer's coverage family are two adults).
    (3) Second lowest cost silver plan not covering the taxpayer's 
family. If the applicable benchmark plan determined under paragraphs 
(f)(1) and (f)(2) of this section does not cover all members of a 
taxpayer's coverage family (for example, because family members reside 
in different rating areas), the premium for the applicable benchmark 
plan is the sum of the premiums for the applicable benchmark plans 
determined under paragraphs (f)(1) and (f)(2) of this section that 
cover the components of the taxpayer's coverage family.
    (4) Benchmark plan terminates or closes to enrollment. A qualified 
health plan that is the applicable benchmark plan under this paragraph 
(f) for a taxpayer does not cease to be the applicable benchmark plan 
solely because the plan or a lower cost plan terminates or closes to 
enrollment during the taxable year.
    (5) Examples. The following examples illustrate the rules of this 
paragraph (f). In each example, unless otherwise stated, the taxpayer 
is eligible to receive a premium tax credit.

    Example 1. Single taxpayer with no dependents. Taxpayer V is 
single and resides with his 24-year-old daughter but may not claim 
her as a dependent. Taxpayer V purchases family coverage for himself 
and his daughter. The exchange in V's rating area offers only self-
only and family coverage categories. Under paragraph (f)(1)(i)(A) of 
this section, V's applicable benchmark plan is the second lowest 
cost silver self-only plan. But see paragraph (h) of this section 
for computing the credit when multiple taxpayers are covered by one 
qualified health plan.
    Example 2. Single taxpayer with one dependent, two coverage 
categories. The facts are the same as in Example 1, except that V

[[Page 50944]]

also resides with his teenage son and claims him as a dependent. V 
purchases family coverage for himself, his son, and his daughter. 
Under paragraph (f)(1)(ii) of this section, V's applicable benchmark 
plan is the second lowest cost silver family plan.
    Example 3. Single taxpayer with one dependent, multiple coverage 
categories. The facts are the same as in Example 2, except that the 
Exchange where V resides offers a category of coverage for one adult 
and children. Under paragraphs (f)(1)(ii) and (f)(2) of this 
section, V's applicable benchmark plan is the second lowest cost 
silver plan for one adult plus children.
    Example 4. Single taxpayer with one dependent, multiple coverage 
categories. The facts are the same as in Example 2, except that the 
Exchange where V resides offers a category of coverage for one adult 
and one child in addition to coverage for one adult and children. 
Under paragraphs (f)(1)(ii) and (f)(2) of this section, V's 
applicable benchmark plan is the second lowest cost silver plan for 
one adult and one child.
    Example 5. Applicable benchmark plan unrelated to coverage 
purchased. Taxpayers W and X, who are married, reside with X's two 
teenage daughters, whom they claim as dependents. The Exchange where 
W and X reside offers a category of coverage for one adult plus 
children. W and X purchase self-only coverage for W and one adult 
plus children coverage for X and X's daughters. Under paragraph 
(f)(1)(ii) of this section, W's and X's applicable benchmark plan is 
the second lowest cost silver family plan.
    Example 6. Minimum essential coverage for some coverage months. 
Taxpayer Y claims his daughter as a dependent. Y and his daughter 
enroll in a qualified health plan for 2014. The exchange in Y's 
rating area offers only self-only and family coverage categories. Y, 
but not his daughter, is eligible for government-sponsored minimum 
essential coverage for September to December 2014. Thus, under 
paragraph (c)(1)(iii) of this section, January through December are 
coverage months for Y's daughter and January through August are 
coverage months for Y. Because, under paragraphs (d) and (f)(1) of 
this section, the premium assistance amount for a coverage month is 
computed based on the applicable benchmark plan for that coverage 
month, Y's applicable benchmark plan for January through August is 
the second lowest cost silver family plan under paragraph (f)(1)(ii) 
of this section. Under paragraph (f)(1)(i)(C) of this section, Y's 
applicable benchmark plan for September through December is the 
second lowest cost silver self-only plan.
    Example 7. Family member eligible for minimum essential coverage 
for the taxable year. The facts are the same as in Example 6, except 
that Y is not eligible for government-sponsored minimum essential 
coverage for any months and Y's daughter is eligible for government-
sponsored minimum essential coverage for the entire year. Under 
paragraph (f)(1)(i)(C) of this section, Y's applicable benchmark 
plan is the second lowest cost silver self-only plan.
    Example 8. Family required to buy multiple plans to obtain 
coverage. (i) Taxpayers X and Z are married and live in different 
Exchange rating areas. X and Z have one child, M, whom they claim as 
a dependent and who resides with X. X and M enroll in a qualified 
health plan covering one adult plus children through the Exchange in 
X's rating area, and Z enrolls in a qualified health plan providing 
self-only coverage through the Exchange in Z's rating area.
    (ii) Under paragraph (f)(3) of this section, the premium for the 
applicable benchmark plan for computing X's and Z's premium 
assistance credit amount is the sum of the premium for the second 
lowest cost silver one adult plus children plan offered through the 
Exchange in X's rating area and the premium for the second lowest 
cost silver self-only plan offered through the Exchange in Z's 
rating area.
    Example 9. Benchmark plan closes to new enrollees during the 
year. Taxpayers X, Y, and Z each have coverage families consisting 
of two adults. In the rating area where X, Y, and Z reside, Plan 2 
is the second lowest cost silver plan and Plan 3 is the third lowest 
cost silver plan covering two adults offered through the Exchange. 
The X and Y families each enroll in a qualified health plan that is 
not the applicable benchmark plan in November during the regular 
open enrollment period. Plan 2 closes to new enrollees the following 
June. Thus, on July 1, Plan 3 is the second lowest cost silver plan 
available to new enrollees through the Exchange. The Z family 
enrolls in a qualified health plan in July. Under paragraphs (f)(1), 
(f)(2), and (f)(4) of this section, the applicable benchmark plan is 
Plan 2 for X and Y for all coverage months during the year. The 
applicable benchmark plan for Z is Plan 3, because Plan 2 is not 
offered through the Exchange when the Z family enrolls.
    Example 10. Benchmark plan terminates for all enrollees during 
the year. The facts are the same as in Example 9, except that Plan 2 
terminates for all enrollees on June 30. Under paragraphs (f)(1), 
(f)(2), and (f)(4) of this section, Plan 2 is the applicable 
benchmark plan for X and Y for all coverage months during the year 
and Plan 3 is the applicable benchmark plan for Z.

    (g) Applicable percentage--(1) In general. The applicable 
percentage multiplied by a taxpayer's household income determines the 
taxpayer's required share of premiums for the benchmark plan. This 
amount is subtracted from the adjusted monthly premium for the 
applicable benchmark plan when computing the premium assistance amount. 
The applicable percentage is computed by first determining the 
percentage that the taxpayer's household income bears to the federal 
poverty line for the taxpayer's family size. The resulting federal 
poverty line percentage is then compared to the income categories 
described in the table in paragraph (g)(2) of this section (or 
successor tables). An applicable percentage within an income category 
increases on a sliding scale in a linear manner and is rounded to the 
nearest one-hundredth of one percent. The applicable percentages in the 
table may be adjusted in published guidance of general applicability, 
see Sec.  601.601(d)(2) of this chapter, for taxable years beginning 
after December 31, 2014, to reflect rates of premium growth relative to 
growth in income and, for taxable years beginning after December 31, 
2018, to reflect rates of premium growth relative to growth in the 
consumer price index.
    (2) Applicable percentage table.

------------------------------------------------------------------------
 Household income percentage of
      federal poverty line        Initial percentage   Final percentage
------------------------------------------------------------------------
Less than 133%..................                2.0                 2.0
At least 133% but less than 150%                3.0                 4.0
At least 150% but less than 200%                4.0                 6.3
At least 200% but less than 250%                6.3                 8.05
At least 250% but less than 300%                8.05                9.5
At least 300% but less than 400%                9.5                 9.5
------------------------------------------------------------------------

    (3) Examples. The following examples illustrate the rules of this 
paragraph (g).

    Example 1. A's household income is 275 percent of the federal 
poverty line for A's family size for that taxable year. In the table 
in paragraph (g)(2) of this section, the initial percentage for a 
taxpayer with household income of 250 to 300 percent of the federal 
poverty line is 8.05 and the final percentage is 9.5. A's federal 
poverty line percentage of 275 percent is halfway between 250 
percent and 300 percent. Thus, rounded to the nearest one-hundredth 
of one percent, A's applicable percentage is 8.78, which is halfway 
between the initial percentage of 8.05 and the final percentage of 
9.5.
    Example 2. (i) B's household income is 210 percent of the 
federal poverty line for B's family size. In the table in paragraph 
(g)(2) of this section, the initial percentage for a taxpayer with 
household income of 200 to 250 percent of the federal poverty line 
is 6.3 and the final percentage is 8.05. B's applicable percentage 
is 6.65, computed as follows:

[[Page 50945]]

    (ii) Determine the excess of B's FPL percentage (210) over the 
initial household income percentage in B's range (200), which is 10. 
Determine the difference between the initial household income 
percentage in the taxpayer's range (200) and the ending household 
income percentage in the taxpayer's range (250), which is 50. Divide 
the first amount by the second amount:

210 - 200 = 10
250 - 200 = 50
10/50 = .20.
    (iii) Compute the difference between the initial premium percentage 
(6.3) and the second premium percentage (8.05) in the taxpayer's range; 
8.05 - 6.3 = 1.75.
    (iv) Multiply the amount in the first calculation (.20) by the 
amount in the second calculation (1.75) and add the product (.35) to 
the initial premium percentage in B's range (6.3), resulting in B's 
applicable percentage of 6.65:

.20 x 1.75 = .35
6.3 + .35 = 6.65.

    (h) Plan covering more than one family--(1) In general. If a single 
qualified health plan covers more than one family, each applicable 
taxpayer covered by the plan may claim a premium tax credit, if 
otherwise allowable. Each taxpayer computes the credit using that 
taxpayer's applicable percentage, household income, and the benchmark 
plan that applies to the taxpayer under paragraph (f) of this section. 
In determining whether the amount computed under paragraph (d)(1) of 
this section (the premiums for the qualified health plan in which the 
taxpayer enrolls) is less than the amount computed under paragraph 
(d)(2) of this section (the benchmark plan premium minus the product of 
household income and the applicable percentage), the premiums paid are 
allocated to each taxpayer in proportion to the premiums for each 
taxpayer's benchmark plan.
    (2) Example. The following example illustrates the rules of this 
paragraph (h).

    Example.  (i) Taxpayers A and B enroll in a single qualified 
health plan. B is A's 25-year-old child who is not A's dependent. B 
has no dependents. The plan covers A, B, and A's two children who 
are A's dependents. The premium for the plan in which A and B enroll 
is $15,000. The premium for the second lowest cost silver family 
plan is $12,000 and the premium for the second lowest cost silver 
self-only plan is $6,000. A and B are applicable taxpayers and 
otherwise eligible to claim the premium tax credit.
    (ii) Under paragraph (h)(1) of this section, both A and B may 
claim premium tax credits. A computes her credit using her household 
income, a family size of three, and a benchmark plan premium of 
$12,000. B computes his credit using his household income, a family 
size of one, and a benchmark plan premium of $6,000.
    (iii) In determining whether the amount in paragraph (d)(1) of 
this section (the premiums for the qualified health plan A and B 
purchase) is less than the amount in paragraph (d)(2) of this 
section (the benchmark plan premium minus the product of household 
income and the applicable percentage), the $15,000 premiums paid are 
allocated to A and B in proportion to the premiums for their 
applicable benchmark plans. Thus, the portion of the premium 
allocated to A is $10,000 ($15,000 x $12,000/$18,000) and the 
portion allocated to B is $5,000 ($15,000 x $6,000/$18,000).

    (i) [Reserved]
    (j) Additional benefits--(1) In general. If a qualified health plan 
offers benefits in addition to the essential health benefits a 
qualified health plan must provide under section 1302 of the Affordable 
Care Act (42 U.S.C. 18022), or a State requires a qualified health plan 
to cover benefits in addition to these essential health benefits, the 
portion of the premium for the plan properly allocable to the 
additional benefits is excluded from the monthly premiums under 
paragraph (d)(1) or (d)(2) of this section.
    (2) Method of allocation. The portion of the premium properly 
allocable to additional benefits is determined under regulations issued 
by the Secretary of Health and Human Services. See section 
36B(b)(3)(D).
    (k) Pediatric dental coverage--(1) In general. For purposes of 
determining the amount of the monthly premium a taxpayer pays for 
coverage under paragraph (d)(1) of this section, if an individual 
enrolls in both a qualified health plan and a plan described in section 
1311(d)(2)(B)(ii) of the Affordable Care Act (42 U.S.C. 
13031(d)(2)(B)(ii)) (Affordable Care Act dental plan), the portion of 
the premium for the Affordable Care Act dental plan that is properly 
allocable to pediatric dental benefits that are essential benefits 
required to be provided by a qualified health plan is treated as a 
premium payable for the individual's qualified health plan.
    (2) Method of allocation. [Reserved]
    (l) Families including individuals not lawfully present--(1) In 
general. If one or more individuals for whom a taxpayer is allowed a 
deduction under section 151 are not lawfully present (within the 
meaning of Sec.  1.36B-1(g)), the percentage a taxpayer's household 
income bears to the federal poverty line for the taxpayer's family size 
for purposes of determining the applicable percentage under paragraph 
(g) of this section is determined by excluding individuals who are not 
lawfully present from family size and by determining household income 
in accordance with paragraph (l)(2) of this section.
    (2) Revised household income computation--(i) Statutory method. For 
purposes of paragraph (l)(1) of this section, household income is equal 
to the product of the taxpayer's household income (determined without 
regard to this paragraph (l)(2)) and a fraction--
    (A) The numerator of which is the federal poverty line for the 
taxpayer's family size determined by excluding individuals who are not 
lawfully present; and
    (B) The denominator of which is the federal poverty line for the 
taxpayer's family size determined by including individuals who are not 
lawfully present.
    (ii) Comparable method. [Reserved]


Sec.  1.36B-4  Reconciling the premium tax credit with advance credit 
payments.

    (a) Reconciliation--(1) In general. The amount of credit allowed 
under section 36B and this section is reconciled with advance credit 
payments on a taxpayer's income tax return for a taxable year. A 
taxpayer whose premium tax credit for the taxable year exceeds the 
taxpayer's advance credit payments may receive the excess as an income 
tax refund. A taxpayer whose advance credit payments for the taxable 
year exceed the taxpayer's premium tax credit owes the excess as an 
additional income tax liability.
    (2) Credit computation. The premium assistance credit amount is 
computed on the taxpayer's return using the taxpayer's household income 
and family size for the taxable year. Thus, the taxpayer's contribution 
amount (household income for the taxable year times the applicable 
percentage) is determined using the taxpayer's household income and 
family size at the end of the taxable year. If the applicable benchmark 
plan changes during the taxable year, the taxpayer may be required to 
use a different applicable benchmark plan to determine the premium 
assistance amounts for the coverage months.
    (3) Limitation on additional tax--(i) In general. The additional 
tax imposed under paragraph (a)(1) of this section on a taxpayer whose 
household income is less than 400 percent of the federal poverty line 
is limited to the amounts provided in the table in paragraph (a)(3)(ii) 
of this section (or successor tables). For taxable years beginning 
after December 31, 2014, the limitation amounts may be adjusted in 
published guidance of general applicability, see

[[Page 50946]]

Sec.  601.601(d)(2) of this chapter, to reflect changes in the consumer 
price index.
    (ii) Additional tax limitation table.

------------------------------------------------------------------------
                                   Limitation amount
                                     for taxpayers     Limitation amount
 Household income percentage of      whose tax is        for all other
      federal poverty line         determined under        taxpayers
                                     section 1(c)
------------------------------------------------------------------------
Less than 200%..................                $300                $600
At least 200% but less than 300%                 750               1,500
At least 300% but less than 400%               1,250               2,500
------------------------------------------------------------------------


    (4) Examples. The rules of this paragraph (a) are illustrated by 
the following examples. Unless otherwise stated, in each example the 
taxpayer is allowed a premium tax credit, has a calendar taxable year, 
and files an income tax return for the taxable year.
    Example 1. Household income increases. (i) Taxpayer A is single 
and has no dependents. The Exchange in A's rating area projects A's 
2014 household income to be $27,225 (250 percent of the federal 
poverty line for a family of one, applicable percentage 8.05). A 
enrolls in a qualified health plan. The annual premium for the 
applicable benchmark plan is $5,200. A's advance credit payments are 
$3,008 (benchmark plan premium of $5,200 less contribution amount of 
$2,192 (projected household income of $27,225 x .0805) = $3,008).
    (ii) A's household income for 2014 is $32,800, which is 301 
percent of the federal poverty line for a family of one (applicable 
percentage 9.5). Consequently, A's premium tax credit for 2014 is 
$2,084 (benchmark plan premium of $5,200 less contribution amount of 
$3,116 (household income of $32,800 x .095). Because A's advance 
credit payments for 2014 are $3,008 and A's 2014 credit is $2,084, A 
has excess advance payments of $924. Under paragraph (a)(1) of this 
section, A's tax liability for 2014 is increased by $924.
    Example 2. Household income decreases. The facts are the same as 
in Example 1, except that A's actual household income for 2014 is 
$21,780 (200 percent of the federal poverty line for a family of 
one, applicable percentage 6.3). Consequently, A's premium tax 
credit for 2014 is $3,828 ($5,200 benchmark plan premium less 
contribution amount of $1,372 (household income of $21,780 x .063)). 
Because A's advance credit payments for 2014 are $3,008, A is 
allowed an additional credit of $820 ($3,828 less $3,008).
    Example 3. Family size decreases.
    (i) Taxpayers B and C are married and have two children (ages 17 
and 20) whom they claim as their dependents in 2013. The Exchange in 
their rating area projects their 2014 household income to be $61,460 
(275 percent of the federal poverty line for a family of four, 
applicable percentage 8.78). B and C enroll in a qualified health 
plan for 2014 that covers the four family members. The annual 
premium for the applicable benchmark plan is $14,100. B and C's 
advance credit payments for 2014 are $8,704 (benchmark plan premium 
of $14,100 less contribution amount of $5,396 (projected household 
income of $61,460 x .0878)).
    (ii) In 2014 B and C do not claim their 20-year old child as 
their dependent. Consequently, B and C's family size for 2014 is 
three and their household income is 332 percent of the federal 
poverty line for a family of three (applicable percentage 9.5). 
Their premium tax credit for 2014 is $8,261 ($14,100 benchmark plan 
premium less $5,839 contribution amount (household income of $61,460 
x .095)). Because B and C's advance credit payments for 2014 are 
$8,704 and their 2014 credit is $8,261, B and C have excess advance 
payments of $443. Under paragraph (a)(1) of this section, B and C's 
tax liability for 2014 is increased by $443. Because B and C's 
household income is below 400 percent of the federal poverty line, 
if B and C's excess advance payments exceeded $2,500, under the 
limitation of paragraph (a)(3) of this section, B and C's additional 
tax liability would be limited to that amount.
    Example 4. Repayment limitation does not apply. (i) Taxpayer D 
is single and has no dependents. The Exchange in D's rating area 
approves advance credit payments for D based on 2014 household 
income of $38,115 (350 percent of the federal poverty line for a 
family of one, applicable percentage 9.5). D enrolls in a qualified 
health plan. The annual premium for the applicable benchmark plan is 
$5,200. D's advance credit payments are $1,579 (benchmark plan 
premium of $5,200 less contribution amount of $3,621 (projected 
household income of $38,115 x .095) = $3,621).
    (ii) D's actual household income for 2014 is $43,778, which is 
402 percent of the federal poverty line for a family of one. D is 
not an applicable taxpayer and may not claim a premium tax credit. 
Additionally, the repayment limitation of paragraph (a)(3) of this 
section does not apply. Consequently, D has excess advance payments 
of $1,579 (the total amount of the advance credit payments in 2014). 
Under paragraph (a)(1) of this section, D's tax liability for 2014 
is increased by $1,579.
    Example 5. Coverage for less than a full taxable year. (i) 
Taxpayer F is single and has no dependents. In November 2013 the 
Exchange in F's rating area projects F's 2014 household income to be 
$27,225 (250 percent of the federal poverty line for a family of 
one, applicable percentage 8.05). F enrolls in a qualified health 
plan. The annual premium for the applicable benchmark plan is 
$5,200. F's monthly advance credit payment is $251 (benchmark plan 
premium of $5,200 less contribution amount of $2,192 (projected 
household income of $27,225 x .0805) = $3,008; $3,008/12 = $251).
    (ii) F begins a new job in August 2014 and is eligible for 
employer-sponsored minimum essential coverage for the period 
September through December 2014. F discontinues her Exchange 
coverage effective November 1, 2014. F's household income for 2014 
is $28,000 (257 percent of the federal poverty line for a family 
size of one, applicable percentage 8.25).
    (iii) Under Sec.  1.36B-3(a), F's premium assistance credit 
amount is the sum of the premium assistance amounts for the coverage 
months. Under Sec.  1.36B-3(c)(1)(iii), a month in which an 
individual is eligible for minimum essential coverage other than 
coverage in the individual market is not a coverage month. Because F 
is eligible for employer-sponsored minimum essential coverage as of 
September 1, only the months January through August of 2014 are 
coverage months.
    (iv) If F had 12 coverage months in 2014, F's premium tax credit 
would be $2,890 (benchmark plan premium of $5,200 less contribution 
amount of $2,310 (household income of $28,000 x .0825)). Because F 
has only eight coverage months in 2014, F's credit is $1,927 
($2,890/12 x 8). Because F does not discontinue her Exchange 
coverage until November 1, 2014, F's advance credit payments for 
2014 are $2,510 ($251 x 10). Consequently, F has excess advance 
payments of $583 ($2,510 less $1,927) and F's tax liability for 2014 
is increased by $583 under paragraph (a)(1) of this section.
    Example 6. Changes in coverage months and applicable benchmark 
plan. (i) Taxpayer E claims one dependent, F. E is eligible for 
government-sponsored minimum essential coverage. E enrolls F in a 
qualified health plan for 2014. The Exchange in E's rating area 
projects E's 2014 household income to be $29,420 (200 percent of the 
federal poverty line for a family of two, applicable percentage 
6.3). The annual premium for E's applicable benchmark plan is 
$5,200. E's monthly advance credit payment is $279 (benchmark plan 
premium of $5,200 less contribution amount of $1,853 (projected 
household income of $29,420 x .063) = $3,347; $3,347/12 = $279).
    (ii) On August 1, 2014, E loses her eligibility for government-
sponsored minimum essential coverage. E cancels the qualified health 
plan that covers F and enrolls in a qualified health plan that 
covers E and F for August through December 2014. The annual premium 
for the applicable benchmark plan is $10,000. The Exchange computes 
E's monthly advance credit payments for the period September through 
December as $679 (benchmark plan premium

[[Page 50947]]

of $10,000 less contribution amount of $1,853 (projected household 
income of $29,420 x .063) = $8,147; $8,147/12 = $679). E's household 
income for 2014 is $28,000 (190 percent of the federal poverty line, 
applicable percentage 5.84).
    (iii) Under Sec.  1.36B-3(c)(1), January through July of 2014 
are coverage months for F and August through December are coverage 
months for E and F. Under paragraph (a)(2) of this section, E must 
compute her premium tax credit using the premium for the applicable 
benchmark plan for each coverage month. E's premium assistance 
credit amount for 2014 is the sum of the premium assistance amounts 
for all coverage months. E reconciles her premium tax credit with 
advance credit payments as follows:

Advance credit payments (Jan. to July)......................      $1,953
Advance credit payments (Aug. to Dec.)......................       3,395
                                                             -----------
    Total advance credit payments...........................       5,348
                                                             ===========
Benchmark plan premium (Jan. to July).......................       3,033
Benchmark plan premium (Aug. to Dec.).......................       4,167
                                                             -----------
    Total benchmark plan premium............................       7,200
                                                             ===========
Contribution amount (taxable year household income x               1,635
 applicable percentage).....................................
Credit (total benchmark plan premium less required                 5,565
 contribution, assuming not more than premium paid).........
 

    (iv) E's advance credit payments for 2014 are $5,348. E's 
premium tax credit is $5,565. Thus, E is allowed an additional 
credit of $217.
    Example 7. Part-year coverage and changes in coverage months and 
applicable benchmark plan. (i) The facts are the same as in Example 
7, except that both E and F are eligible for government-sponsored 
minimum essential coverage for January and February 2014, and E 
enrolls F in a qualified health plan beginning in March 2014.
    (ii) E reconciles her premium tax credit with advance credit 
payments as follows:

Advance credit payments (March to July).....................      $1,395
Advance credit payments (Aug. to Dec.)......................       3,395
                                                             -----------
    Total advance credit payments...........................       4,790
                                                             ===========
Benchmark plan premium (March to July)......................       2,167
Benchmark plan premium (Aug. to Dec.).......................       4,166
                                                             -----------
    Total benchmark plan premium............................       6,333
                                                             ===========
Contribution amount for 10 coverage months (taxable year           1,363
 household income x applicable percentage x 10/12)..........
Credit (total benchmark plan premium less required                 4,970
 contribution, assuming not more than premium paid).........
 

    (iii) E's advance credit payments for 2014 are $4,790. E's 
premium tax credit is $4,970. Thus, E is allowed an additional 
credit of $180.
    (b) Changes in filing status--(1) In general. A taxpayer whose 
marital status changes during the taxable year computes the premium tax 
credit by using the applicable benchmark plan or plans for the 
taxpayer's marital status as of the first day of each coverage month. 
The taxpayer's contribution amount (household income for the taxable 
year times the applicable percentage) is determined using the 
taxpayer's household income and family size at the end of the taxable 
year.
    (2) Taxpayers not married to each other at the end of the taxable 
year. Taxpayers who are married (within the meaning of section 7703) to 
each other during a taxable year but are not married to each other on 
the last day of the taxable year, and who are enrolled in the same 
qualified health plan at any time during the taxable year, must 
allocate the premium for the applicable benchmark plan, the premium for 
the plan in which the taxpayers enroll, and the advance credit payments 
for the period the taxpayers are married during the taxable year. The 
taxpayers may allocate these items to each former spouse in any 
proportion but must allocate all items in the same proportion. If the 
taxpayers cannot agree on an allocation, 50 percent of the premium for 
the applicable benchmark plan, the premiums for the plan in which the 
taxpayers enroll, and the advance credit payments for the period are 
allocated to each taxpayer. If a plan covers only one of these 
taxpayers for any period during a taxable year, the amounts for that 
period are allocated entirely to that taxpayer.
    (3) Married taxpayers filing separate tax returns. The premium tax 
credit is allowed to married taxpayers only if they file joint returns. 
See Sec.  1.36B-2(b)(2). Married taxpayers who receive advance credit 
payments and file their income tax returns as married filing separately 
have received excess advance payments. The taxpayers must allocate the 
advance credit payments to each taxpayer equally for purposes of 
determining their excess advance payment amounts under paragraph (a)(1) 
of this section. The repayment limitation described in paragraph (a)(3) 
of this section applies to each taxpayer based on the household income 
and family size reported on that taxpayer's return.
    (4) Examples. The following examples illustrate the provisions of 
this paragraph (b). In each example, unless otherwise indicated, each 
taxpayer uses a calendar taxable year and no individuals are eligible 
for minimum essential coverage other than coverage in the individual 
market.

    Example 1. Taxpayers marry during the taxable year. (i) P is a 
single taxpayer with no dependents. In 2013 the Exchange in the 
rating area where P resides determines that P's 2014 household 
income will be $40,000 (367 percent of the federal poverty line, 
applicable percentage 9.5). P enrolls in a qualified health plan. 
The premium for the applicable benchmark plan is $5,200. The 
Exchange approves advance credit payments of $117 per month, 
computed as follows: $5,200 benchmark plan premium minus 
contribution amount of $3,800 ($40,000 x .095) equals $1,400 (total 
advance credit); $1,400/12 = $117.
    (ii) Q is a single taxpayer with two dependents. In 2013 the 
Exchange in the rating area where Q resides determines that Q's 2014 
household income will be $35,000 (189 percent of the federal poverty 
line, applicable percentage 5.79). Q enrolls in a qualified health 
plan. The premium for the applicable benchmark plan is $14,100. The 
Exchange approves advance credit payments of $1,006 per month, 
computed as follows: $14,100 benchmark plan premium minus 
contribution amount of $2,027 ($35,000 x .0579) equals $12,073 
(total advance credit); $12,073/12 = $1,006.
    (iii) P and Q marry on June 17, 2014, and enroll in one 
qualified health plan covering four family members, beginning July 
1, 2014. The premium for the applicable benchmark plan is $14,100. 
Based on household income of $75,000 and a family size of four (336 
percent of the federal poverty line, applicable percentage 9.5), the 
Exchange approves advance credit payments of $581 per month, 
computed as follows: $14,100 benchmark plan premium minus 
contribution amount of $7,125 ($75,000 x .095) equals $6,975 (total 
advance credit); $6,975/12 = $581.
    (iv) P and Q file a joint return for 2014 and report $75,000 in 
household income and a family size of four. Under paragraph (b)(1) 
of this section, P and Q compute their credit at reconciliation 
using the premiums for the applicable benchmark plans that apply for 
the months married and the months not married, and their 
contribution amount based on their federal poverty line percentage 
at the end of the taxable year. P and Q reconcile their premium tax 
credit with advance credit payments as follows:

Advance payments for P (Jan. to June).......................        $700
Advance payments for Q (Jan. to June).......................       6,036
Advance payments for P and Q (July to Dec.).................       3,486
                                                             -----------
    Total advance payments..................................      10,222
                                                             ===========
Benchmark plan premium for P (Jan. to June).................       2,600
Benchmark plan premium for Q (Jan. to June).................       7,050

[[Page 50948]]

 
Benchmark plan premium for P and Q (July to Dec.)...........       7,050
                                                             -----------
    Total benchmark plan premium............................      16,700
                                                             ===========
Contribution amount (taxable year household income x               7,125
 applicable percentage).....................................
Credit (total benchmark plan premium less required                 9,575
 contribution, assuming not more than premium paid).........
Additional tax..............................................         647
 

    (v) P's and Q's tax liability for 2014 is increased by $647 
under paragraph (a)(1) of this section.
    Example 2. Taxpayers divorce during the taxable year, 50 percent 
allocation. (i) Taxpayers R and S are married and have two 
dependents. In 2013 the Exchange in the rating area where the family 
resides determines that their 2014 household income will be $76,000 
(340 percent of the federal poverty line for a family of 4, 
applicable percentage 9.5). R and S enroll in a qualified health 
plan for 2014. The premium for the applicable benchmark plan is 
$14,100. The Exchange approves advance credit payments of $573 per 
month, computed as follows: $14,100 benchmark plan premium minus R 
and S's contribution amount of $7,220 ($76,000 x .095) equals $6,880 
(total advance credit); $6,880/12 = $573.
    (ii) R and S divorce on June 17, 2014, and obtain separate 
qualified health plans beginning July 1, 2014. R enrolls based on 
household income of $60,000 and a family size of three (324 percent 
of the federal poverty line, applicable percentage 9.5). The premium 
for the applicable benchmark plan is $14,100. The Exchange approves 
advance credit payments of $700 per month, computed as follows: 
$14,100 benchmark plan premium minus R's contribution amount of 
$5,700 ($60,000 x .095) equals $8,400 (total advance credit); 
$8,400/12 = $700.
    (iii) S enrolls based on household income of $16,000 and a 
family size of one (147 percent of the federal poverty line, 
applicable percentage 3.82). The premium for the applicable 
benchmark plan is $5,200. The Exchange approves advance credit 
payments of $382 per month, computed as follows: $5,200 benchmark 
plan premium minus S's contribution amount of $611 ($16,000 x .0382) 
equals $4,589 (total advance credit); $4,589/12 = $382. R and S do 
not agree on an allocation of the premium for the applicable 
benchmark plan, the premiums for the plan in which they enroll, and 
the advance credit payments for the period they were married in the 
taxable year.
    (iv) Under paragraph (b)(1) of this section, R and S each 
compute their credit at reconciliation using the premiums for the 
applicable benchmark plans that apply to them for the months married 
and the months not married, and contribution amount based on their 
federal poverty line percentages at the end of the taxable year. 
Under paragraph (b)(2) of this section, because R and S do not agree 
on an allocation, R and S must equally allocate the benchmark plan 
premium ($7,050) and the advance credit payments ($3,440) for the 
six-month period January through June 2014 when they are married and 
enrolled in the same qualified health plan. Thus, R and S each are 
allocated $3,525 of the benchmark plan premium ($7,050/2) and $1,720 
of the advance credit payments ($3,440/2) for January through June.
    (v) R reports on his 2014 tax return $60,000 in household income 
and family size of three. S reports on her 2014 tax return $16,000 
in household income and family size of one. R and S reconcile their 
premium tax credit with advance credit payments as follows:

                                                 R               S
                                         -------------------------------
Allocated advance payments (Jan. to               $1,720          $1,720
 June)..................................
Actual advance payments (July to Dec.)..           4,200           2,292
                                         -------------------------------
    Total advance payments..............           5,920           4,012
                                         ===============================
Allocated benchmark plan premium (Jan.             3,525           3,525
 to June)...............................
Actual benchmark plan premium (July to             7,050           2,600
 Dec.)..................................
                                         -------------------------------
    Total benchmark plan premium........          10,575           6,125
                                         ===============================
Contribution amount (taxable year                  5,700             611
 household income x applicable
 percentage)............................
Credit (total benchmark plan premium               4,875           5,514
 less required contribution, assuming
 not more than premium paid)............
Additional credit.......................  ..............           1,502
Additional tax..........................           1,045  ..............
 

    (vi) Under paragraph (a)(1) of this section, on their tax 
returns R's tax liability is increased by $1,045 and S is allowed 
$1,502 as additional credit.
    Example 3. Taxpayers divorce during the taxable year, allocation 
in proportion to household income. (i) The facts are the same as in 
Example 2, except that R and S decide to allocate the benchmark plan 
premium ($7,050) and the advance credit payments ($3,440) for 
January through June 2014 in proportion to their household incomes 
(79 percent and 21 percent). Thus, R is allocated $5,570 of the 
benchmark plan premiums ($7,050 x .79) and $2,718 of the advance 
credit payments ($3,440 x .79), and S is allocated $1,480 of the 
benchmark plan premiums ($7,050 x .21) and $722 of the advance 
credit payments ($3,440 x .21). R and S reconcile their premium tax 
credit with advance credit payments as follows:

                                                 R               S
                                         -------------------------------
Allocated advance payments (Jan. to               $2,718            $722
 June)..................................
Actual advance payments (July to Dec.)..           4,200           2,292
                                         -------------------------------
    Total advance payments..............           6,918           3,014
                                         ===============================
Allocated benchmark plan premium (Jan.             5,570           1,480
 to June)...............................
Actual benchmark plan premium (July to             7,050           2,600
 Dec.)..................................
                                         -------------------------------
    Total benchmark plan premium........          12,620           4,080
                                         ===============================
Contribution amount (taxable year                  5,700             611
 household income x applicable
 percentage)............................
Credit (total benchmark plan premium               6,920           3,469
 less required contribution, assuming
 not more than premium paid)............
Additional credit.......................               2             455
 


[[Page 50949]]

    (ii) Under paragraph (a)(1) of this section, on their tax 
returns R is allowed an additional credit of $2 and S is allowed an 
additional credit of $455.
    Example 4. Married taxpayers filing separate tax returns. (i) 
Taxpayers T and U are married and have two dependents. In 2013, the 
Exchange in the rating area where the family resides determines that 
their 2014 household income will be $76,000 (340 percent of the 
federal poverty line for a family of 4, applicable percentage 9.5). 
T and U enroll in a qualified health plan for 2014. The premium for 
the applicable benchmark plan is $14,100. The Exchange approves 
advance credit payments of $573 per month, computed as follows: 
$14,100 benchmark plan premium minus T and U's contribution amount 
of $7,220 ($76,000 x .095) equals $6,880 (total advance credit); 
$6,880/12 = $573.
    (ii) T and U file income tax returns for 2014 using a married 
filing separately filing status. T reports household income of 
$60,000 and a family size of three (324 percent of the federal 
poverty line). U reports household income of $16,000 and a family 
size of one (147 percent of the federal poverty line).
    (iii) Because T and U are married but do not file a joint return 
for 2014, T and U are not applicable taxpayers and are not allowed a 
premium tax credit for 2014. See Sec.  1.36B-2(b)(2). Under 
paragraph (b)(3) of this section, half of the advance credit 
payments ($6,880/2 = $3,440) is allocated to T and half is allocated 
to U for purposes of determining their excess advance payments. The 
repayment limitation described in paragraph (a)(3) of this section 
applies to T and U based on the household income and family size 
reported on each return. Consequently, T's tax liability for 2014 is 
increased by $2,500 and U's tax liability for 2014 is increased by 
$600.

Sec.  1.36B-5  Information reporting by Exchanges.

    (a) Information required to be reported. An Exchange must report to 
the IRS and a taxpayer the following information for a qualified health 
plan the taxpayer enrolls in through the Exchange--
    (1) The premium and category of coverage (such as self-only) for 
the applicable benchmark plans used to compute advance credit payments 
and the period coverage was in effect;
    (2) The total premium for the coverage without reduction for 
advance credit payments or cost sharing;
    (3) The aggregate amounts of any advance credit payments or cost 
sharing reductions;
    (4) The name, address and taxpayer identification number (TIN) of 
the primary insured and the name and TIN of each other individual 
covered under the policy;
    (5) All information provided to the Exchange at enrollment or 
during the taxable year, including any change in circumstances, 
necessary to determine eligibility for and the amount of the premium 
tax credit;
    (6) All information necessary to determine whether a taxpayer has 
received excess advance payments; and
    (7) Any other information required in published guidance of general 
applicability, see Sec.  601.601(d)(2) of this chapter.
    (b) Time and manner of reporting. The Commissioner may provide 
rules in published guidance of general applicability, see Sec.  
601.601(d)(2) of this chapter, for the time and manner of reporting 
under this section.
    Par. 3. Section 1.6011-8 is added to read as follows:


Sec.  1.6011-8  Requirement of income tax return for taxpayers who 
claim the premium tax credit under section 36B.

    (a) Requirement of return. A taxpayer who receives advance payments 
of the premium tax credit under section 36B must file an income tax 
return for that taxable year on or before the fifteenth day of the 
fourth month following the close of the taxable year.
    (b) Effective/applicability date. This section applies for taxable 
years ending after December 31, 2013.
    Par. 4. In Sec.  1.6012-1, paragraph (a)(2)(viii) is added to read 
as follows:


Sec.  1.6012-1  Individuals required to make returns of income.

    (a) * * *
    (2) * * *
    (viii) For rules relating to returns required of taxpayers who 
receive advance payments of the premium tax credit under section 36B, 
see Sec.  1.6011-8(a).
* * * * *

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-20728 Filed 8-12-11; 8:45 am]
BILLING CODE 4830-01-P