[Federal Register Volume 82, Number 142 (Wednesday, July 26, 2017)]
[Rules and Regulations]
[Pages 34601-34611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15642]



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 Rules and Regulations
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 This section of the FEDERAL REGISTER contains regulatory documents 
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  Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / 
Rules and Regulations  

[[Page 34601]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9822]
RIN 1545-BM09


Health Insurance Premium Tax Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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

SUMMARY: This document contains final regulations relating to the 
health insurance premium tax credit. These regulations affect 
individuals who enroll in qualified health plans through Affordable 
Insurance Exchanges (Exchanges, also called Marketplaces) and claim the 
premium tax credit and Exchanges that make qualified health plans 
available to individuals.

DATES: 
    Effective Date: These regulations are effective on July 24, 2017.
    Applicability Date: For applicability dates, see Sec. Sec.  1.36B-
2(d), 1.36B-3(m), 1.36B-4(c), and 1.162(l)-1(c).

FOR FURTHER INFORMATION CONTACT: Suzanne R. Sinno and Stephen J. Toomey 
at (202) 317-4718 and Shareen S. Pflanz at (202) 317-7006 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations that amend the Income Tax 
Regulations (26 CFR part 1) under section 36B of the Internal Revenue 
Code (Code) relating to the health insurance premium tax credit and 
under section 162(l) of the Code relating to the deduction for health 
insurance costs for self-employed individuals. The Treasury Department 
and the IRS published final regulations under section 36B (TD 9590) on 
May 23, 2012 (77 FR 30385). These regulations were amended in 2014 by 
TD 9663, published on May 7, 2014 (79 FR 26117); in 2015 by TD 9745, 
published on December 18, 2015 (80 FR 78974); and in 2016 by TD 9804, 
published on December 19, 2016 (81 FR 91755).
    On July 24, 2014, the Treasury Department and the IRS published 
final and temporary regulations under section 36B and section 162(l) 
(TD 9683) in the Federal Register (79 FR 43622), providing relief from 
the joint filing requirement for married victims of domestic abuse or 
spousal abandonment, the methodology for indexing certain percentages 
used in determining the amount of and eligibility for the premium tax 
credit, certain allocation rules for reconciliation of advance credit 
payments and the premium tax credit, and guidance on the deduction for 
health insurance costs of self-employed individuals. On the same date, 
a notice of proposed rulemaking (REG-104579-13) cross-referencing the 
temporary regulations was published in the Federal Register (79 FR 
43693). Written comments responding to the proposed regulations were 
received. The comments have been considered in connection with these 
final regulations and are available for public inspection at 
www.regulations.gov or on request. No public hearing was requested or 
held. After consideration of all the comments, the proposed regulations 
are adopted by this Treasury decision, with one technical correction 
that was not identified in the comments.

Summary of Comments and Explanation of Provisions

1. Relief for Married Victims of Domestic Abuse or Spousal Abandonment

    Section 36B provides a refundable premium tax credit to help 
individuals and families afford health insurance purchased through an 
Exchange. To be eligible for a premium tax credit under section 36B, 
section 36B(a) provides that an individual must be an applicable 
taxpayer. Section 36B(c)(1) defines an applicable taxpayer to mean a 
taxpayer (1) with household income for the taxable year that equals or 
exceeds 100 percent but does not exceed 400 percent of the federal 
poverty line 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 (within the meaning of section 7703).
    Section 1.36B-2T(b)(2)(i) provides that except as provided in Sec.  
1.36B-2T(b)(2)(ii), a married taxpayer is an applicable taxpayer 
allowed a premium tax credit only if the taxpayer files a joint return 
with his or her spouse. Under Sec.  1.36B-2T(b)(2)(ii), a married 
taxpayer satisfies the joint filing requirement if the taxpayer files a 
tax return using a filing status of married filing separately and the 
taxpayer (i) is living apart from his or her spouse at the time the 
taxpayer files his or her tax return, (ii) is unable to file a joint 
return because the taxpayer is a victim of domestic abuse or spousal 
abandonment, and (iii) certifies on his or her income tax return in 
accordance with the relevant forms and instructions that the taxpayer 
meets these criteria for claiming a premium tax credit using a filing 
status of married filing separately. Taxpayers may not qualify for 
relief from the joint filing requirement for a period that exceeds 
three consecutive years. See Sec.  1.36B-2T(b)(2)(v). The preamble to 
the temporary regulations included a specific request for comments on 
these rules.
A. Eligibility Criteria
    Comments were generally favorable with respect to the criteria for 
eligibility for relief from the married filing jointly requirement 
under the temporary regulations. For example, commenters agreed with 
the rule in the temporary regulations that victims of domestic violence 
are not required to contact their spouse as a condition for qualifying 
for relief from the married filing jointly requirement. Commenters also 
agreed that relief from the married filing jointly requirement should 
be available even if the abuse or abandonment occurs in a taxable year 
other than the taxable year for which a taxpayer seeks relief. A number 
of commenters requested clarification regarding when a taxpayer is 
considered a victim of spousal abandonment. The rule in Sec.  1.36B-
2T(b)(2)(iv) of the temporary regulations provides that a taxpayer is a 
victim of spousal abandonment for a taxable year if, taking into 
account all of the facts and circumstances, the taxpayer is unable to 
locate his or her spouse after reasonable diligence. A number of 
commenters requested that the final regulations

[[Page 34602]]

include a definition for the term ``reasonable diligence'' for spousal 
abandonment. Other commenters suggested that the regulations broaden 
the ``unable to locate'' requirement for spousal abandonment to 
situations in which the spouse can be located but is uncooperative, 
poses a threat to the filing taxpayer, or refuses to grant a divorce to 
the filing taxpayer.
    The final regulations do not provide a definition of reasonable 
diligence. The IRS will take into account all the facts and 
circumstances in determining whether a taxpayer exercised reasonable 
diligence in trying to locate his or spouse. A ``one size fits all'' 
definition is not appropriate for situations involving spousal 
abandonment because the facts of each situation are unique. Providing a 
definition for reasonable diligence could have the unintended 
consequence of preventing a taxpayer who merits relief from the married 
filing jointly requirement from meeting the reasonable diligence 
standard solely because the definition did not contemplate the 
taxpayer's particular circumstances.
    In addition, the final regulations do not broaden the ``unable to 
locate'' rule to include situations in which a spouse poses a threat to 
the taxpayer claiming relief because the definition of domestic abuse 
in Sec.  1.36B-2T(a)(2)(iii), which includes psychological or emotional 
abuse and efforts to intimidate the victim, already addresses these 
circumstances. Finally, relief from the married filing jointly 
requirement is not suitable for all situations in which the spouse can 
be located but is uncooperative.
B. Additional Exceptions
    Several commenters requested that the IRS expand circumstances 
warranting relief from the married filing jointly requirement beyond 
domestic abuse and spousal abandonment. For instance, some commenters 
suggested that same-sex spouses who live in states that do not permit 
divorce for same-sex marriages, spouses living abroad, incarcerated 
spouses, and individuals who face challenges in filing a joint return 
because of their spouse's immigration status should also be eligible 
for relief from the married filing jointly requirement. Other 
commenters suggested that those eligible for relief because they are 
victims of domestic abuse or spousal abandonment should be able to file 
as single or head of household, rather than be limited to filing as 
married filing separately, citing the rules under section 6015 for 
innocent spouses as support for this position. Commenters also 
requested a one-year exception from the married filing jointly 
requirement for individuals who are separated but have not initiated a 
legal separation or divorce or who are in a long-term separation even 
if they are not victims of domestic abuse or spousal abandonment.
    The final regulations do not expand relief from the married filing 
jointly requirement beyond domestic abuse and spousal abandonment. The 
relief finalized in these regulations is specifically tailored to 
address the limited and unique situations when the taxpayer is unable 
to file a joint return either because the taxpayer fears for his or her 
safety or, through no fault of the victim, can neither file a joint 
return because the non-filing spouse cannot be located nor obtain a 
divorce or legal separation because sufficient time has not lapsed 
under state law. In contrast, the circumstances described by the 
commenters do not warrant relief because the taxpayer is able to file a 
joint return.
    Moreover, because the purposes of the innocent spouse rules and the 
rule in Sec.  1.36B-2T(a)(2) for victims of domestic abuse and spousal 
abandonment are different, using the innocent spouse rules for domestic 
abuse or spousal abandonment victims is not appropriate. The innocent 
spouse rules provide relief from joint and several liability when a 
joint return is filed. In contrast, the relief provided in Sec.  1.36B-
2T(a)(2) allows a married victim of domestic abuse or spousal 
abandonment to claim a premium tax credit without filing a joint 
return. Therefore, because relief under Sec.  1.36B-2T(a)(2) is 
available only for taxpayers who do not file a joint return, there is 
no need for the relief from joint and several liability provided by the 
innocent spouse rules.
    Commenters also asked that the final regulations include a rule 
that would allow individuals who are (1) informally separated and (2) 
unable to locate their spouses, unwilling to contact them, or unaware 
of how filing separately could impact their eligibility for advance 
credit payments and the premium tax credit, to take advantage of the 
relief from the joint filing requirement for one year. The final 
regulations do not adopt this comment. First, the regulations already 
include a rule for taxpayers who cannot file jointly because the 
taxpayer is unable to locate his or her spouse. Further, regarding the 
comment about taxpayers being unaware of how filing separately could 
impact their eligibility for advance credit payments and the premium 
tax credit, the IRS has included information on www.irs.gov and in 
instructions and publications to alert taxpayers of the requirement to 
file jointly to claim the premium tax credit and of the available 
relief for victims of domestic abuse and spousal abandonment.
    One commenter asked that the final regulations allow temporary 
relief from the joint filing requirement for victims of domestic 
violence who, when enrolling for coverage, plan to leave their spouse 
but want to have insurance coverage in place before they leave. Another 
commenter requested that relief from the joint filing requirement apply 
to a victim of domestic abuse who lives with his or her spouse and 
whose spouse could, but refuses to, enroll the victim in the spouse's 
employer's health coverage.
    The relief in the temporary regulations applies to victims of 
spousal abuse who live with their spouse when enrolling in Marketplace 
health insurance, but who live apart from the spouse at the time of 
filing their tax return and cannot file a joint return because of the 
abuse. Thus, no additional relief rules are necessary for victims of 
domestic violence who are planning to leave their spouse but want to 
enroll in Marketplace coverage.
    In addition, the final regulations do not adopt the suggestion that 
the relief from the joint filing requirement be extended to victims of 
domestic abuse who are planning to leave their spouses but have not yet 
done so at the time of filing their tax return. Only taxpayers who live 
apart from their spouse at the time the taxpayer files his or her tax 
return should be eligible to claim relief from the joint return filing 
requirement. The underlying basis of this relief is that while the 
taxpayer is technically married, the taxpayer is not able to file a 
joint return because they either fear contact with the spouse or the 
spouse cannot be located. In the case of a victim who lives with the 
spouse, filing a joint return is less challenging than if he or she 
lives apart from the spouse.
    Finally, if a domestic abuse victim qualifies to use the married 
filing jointly exception, the victim is not precluded from getting a 
premium tax credit just because the victim's spouse could have, but 
refused to, enroll the victim in the spouse's employer's health 
coverage. See Sec.  1.36B-2(c)(4)(i), under which a taxpayer, including 
a domestic abuse victim, who uses the married filing separately filing 
status is treated as eligible for his or her spouse's employer's health 
coverage only for months that the taxpayer is enrolled in the coverage.

[[Page 34603]]

C. Advance Credit Payment Reconciliation
    Under section 1412 of the Affordable Care Act, Public Law 111-148, 
124 Stat. 119 (2010), eligible taxpayers may receive the benefit of 
advance credit payments. Section 36B(f)(1) requires taxpayers who 
receive the benefit of advance credit payments for a taxable year to 
file a tax return and reconcile the advance credit payments with the 
premium tax credit the taxpayer is allowed for the taxable year. Under 
section 36B(f)(2)(A), the taxpayer's income tax liability is increased 
by the amount that the advance credit payments for the taxable year 
exceed the premium tax credit allowed for the taxable year, subject to 
the repayment limitations in section 36B(f)(2)(B). Section 1.36B-4(b) 
provides an alternative rule for reconciling the advance credit 
payments with the premium tax credit for taxpayers who marry during the 
taxable year (the year of marriage rule). Specifically, under Sec.  
1.36B-4(b)(2), taxpayers who marry during a taxable year may compute 
their excess advance credit payments (the excess of their advance 
credit payments over the premium tax credit they are allowed) in a 
manner that is different from the computation used by other taxpayers 
if, in the taxable year of the marriage, at least one of the spouses 
received the benefit of advance credit payments for one or more months 
in the taxable year. This alternative computation may reduce the amount 
of excess advance credit payments the taxpayers have to repay for the 
year of marriage.
    Several commenters asked that the final regulations allow victims 
of domestic abuse or spousal abandonment who receive advance credit 
payments under the assumption that they will file a separate return, 
but who reconcile with their spouses and file a joint return for the 
taxable year, to use the year of marriage rule (or a rule similar to 
the year of marriage rule) to compute their excess advance credit 
payments. In particular, the commenters noted that these victims of 
domestic abuse or spousal abandonment risk having excess advance credit 
payments similar to taxpayers who get married during the taxable year.
    The final regulations do not expand the year of marriage rule to 
cover these taxpayers, nor do they create a similar rule for victims of 
domestic abuse or spousal abandonment who reconcile, because of the 
risk of abuse in adding such a rule. Unlike the date of a marriage, 
which can be substantiated, the date on which a marital reconciliation 
occurs is often unclear and difficult to establish both for taxpayers 
and the IRS. This situation could lead to taxpayers not within the 
parameters of the rule nevertheless using it either because they do not 
understand when it applies or because they want to lower their excess 
advance credit repayment and do not believe the IRS will challenge 
their use of the rule. Moreover, these taxpayers may attempt to use the 
rule for multiple years. Finally, in many cases, section 36B(f)(2)(B) 
limits the tax liability that a taxpayer incurs from excess advance 
credit payments. Thus, the Treasury Department and the IRS think it is 
appropriate to limit the year of marriage rule to taxpayers who marry 
during the taxable year.
D. Limiting Relief to Three Consecutive Years
    Section 1.36B-2T(a)(2)(v) provides that relief from the married 
filing jointly requirement is not available if the taxpayer satisfied 
the eligibility requirements of Sec.  1.36B-2T(b)(2)(ii) for each of 
the three preceding taxable years. Commenters recommended that this 
limitation be removed from the final regulations. Alternatively, 
commenters recommended that the final regulations provide a ``good 
cause'' exception to the three-year limitation.
    Based on IRS data, most taxpayers who claim relief from the joint 
filing requirement need that relief for only one year. Since 2014, the 
first tax year that relief from the joint return filing requirement was 
available to victims of domestic abuse or spousal abandonment, only 0.2 
to 0.3 percent of all taxpayers claiming the premium tax credit 
requested relief. Further, fewer than 3 percent of the individuals who 
claimed relief in 2014 also claimed relief in 2015. Given that current 
data indicates that so few taxpayers are claiming relief, and that few 
of these taxpayers are requesting relief for more than one year, the 
additional two years provided by the rule in the temporary regulations 
appears to be sufficient to provide relief for the small number of 
taxpayers who would benefit from relief for more than one year.
    Accordingly, at this time, there does not appear to be a need to 
extend the availability of this relief beyond three consecutive years. 
However, the Treasury Department and the IRS will continue to monitor 
the data. In the meantime, comments are requested regarding how the IRS 
would administer a process for taxpayers to request relief beyond the 
three consecutive years permitted under the regulations. Specifically, 
comments are requested regarding when and how a taxpayer would request 
a good cause exception and what standards should apply to determine 
whether a taxpayer has demonstrated good cause.
E. Enforcement Issues
    Commenters raised concerns related to IRS examinations of taxpayers 
who obtain relief. Several commenters said the IRS should ensure that 
taxpayers who use the relief for domestic abuse or spousal abandonment 
are not subject to audits or penalties solely due to a conflict between 
their marital status on their Marketplace health insurance application 
(unmarried) and their filing status on their tax return (married filing 
separately). Pursuant to the forms and instructions, taxpayers indicate 
to the IRS that they are filing their tax return married filing 
separately because they are a victim of domestic abuse or spousal 
abandonment by checking the appropriate box on the Form 8962, Premium 
Tax Credit. As noted by the commenters, some Marketplaces, including 
the Federally-facilitated Marketplace, instruct victims of domestic 
violence or spousal abandonment who intend to use the married filing 
separately filing status on their tax return, to indicate on their 
Marketplace application that they are unmarried if they want to receive 
the benefit of advance credit payments or cost-sharing reductions. 
Under HHS guidance dated July 27, 2015, these individuals are not 
subject to a penalty for reporting their marital status in this manner. 
See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-Guidance-on-Victims-of-Domestic-Abuse-and-Spousal-Abandonment_7.pdf. Similarly, if these individuals then use the married 
filing separately status on their tax return, they have used a 
permitted filing status and are not subject to Internal Revenue Code 
penalties as a result of their filing status. Thus, these taxpayers 
will not be subject to a penalty merely because the marital status on 
their Marketplace application is not consistent with the marital status 
on their tax return.
    Commenters also recommended that the final regulations describe the 
supporting documentation of domestic abuse that a taxpayer will need to 
establish that he or she was a victim of domestic abuse in case of an 
IRS examination of the taxpayer's return. Publication 974, Premium Tax 
Credit, provides examples of documentation that victims of domestic 
abuse may use to substantiate that they qualify for the relief. 
Publication 974 also includes substantiation information for victims of

[[Page 34604]]

spousal abandonment. However, these examples are merely illustrative. 
As stated in the regulations, the IRS will consider all the facts and 
circumstances in the case of an examination. As a result, a description 
of specific documentation is not included in the final regulations.
F. Enrollment Period
    Several commenters urged HHS to provide an open enrollment period 
if expanded rules for relief are adopted so taxpayers that are eligible 
for relief due to domestic abuse or spousal abandonment may enroll in a 
qualified health plan and get advance credit payments. Commenters also 
recommended that taxpayers be allowed a special enrollment period if 
the abuse or abandonment occurs during a taxable year for which the 
victim had not enrolled in a qualified health plan prior to the abuse 
or abandonment. Other commenters suggested that Marketplaces alert 
taxpayers on the health insurance application of the availability of 
relief from the joint filing requirement for victims of domestic abuse 
or spousal abandonment.
    The rules regarding enrollment and Marketplace health insurance 
applications are administered by HHS, and thus these comments are 
outside the scope of these final regulations. However, the Treasury 
Department and the IRS will share these comments with HHS. In addition, 
taxpayers should refer to HHS guidance that provides victims of 
domestic abuse and spousal abandonment a special enrollment period to 
apply for Marketplace coverage. See 45 CFR 155.420. See also https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-Guidance-on-Victims-of-Domestic-Abuse-and-Spousal-Abandonment_7.pdf.; 
https://marketplace.cms.gov/technical-assistance-resources/assisting-victims-of-domestic-violence.PDF.
    Commenters requested that the IRS alert taxpayers regarding the 
operational limitations in the Federally-Facilitated Marketplace that 
require victims of domestic abuse or spousal abandonment who intend to 
file a return separate from their spouse and claim a premium tax credit 
to indicate that they are unmarried on their health insurance 
application. HHS, and not the IRS, regulates the Federally-Facilitated 
Marketplace. Therefore, HHS, and not the IRS, is in the best position 
to provide taxpayers with information regarding operation of the 
Marketplace. Moreover, HHS has made available instructions for 
taxpayers who, because they are victims of domestic abuse or spousal 
abandonment, intend to use the married filing separately status on 
their tax returns, but still want to have advance credit payments made 
for their Marketplace coverage. Thus, no changes to IRS instructions or 
other items available to taxpayers on www.irs.gov are necessary to 
address this comment.
G. Forms and Instructions
    Numerous commenters suggested changes to IRS forms and instructions 
and the manner in which the forms and instructions should address the 
married filing jointly exception for victims of domestic abuse and 
spousal abandonment. Most of these suggestions were incorporated in the 
forms and instructions after the temporary regulations were published 
and, consequently, are not specifically discussed in this preamble.
    One commenter suggested that taxpayers who are providing a copy of 
Form 8962 to parties other than the IRS, such as states when filing 
state tax returns, be allowed to omit or redact the married filing 
separately exception checkbox when sending the form to these non-IRS 
parties. IRS rules do not affect whether and in what format taxpayers 
share their own taxpayer information with third parties. Therefore, no 
change to the form, instructions, or proposed and temporary regulations 
is needed to address this comment.

2. Allocations for Reconciliation of Advance Credit Payments and the 
Premium Tax Credit

    Section 36B(f)(1) requires taxpayers who receive the benefit of 
advance credit payments for a taxable year to file a tax return and 
reconcile the advance credit payments with the premium tax credit the 
taxpayer is allowed for the taxable year. Section 1.36B-4T(a)(1)(ii) 
provides that a taxpayer must reconcile the advance credit payments of 
all members of the taxpayer's family for the taxable year with the 
premium tax credit the taxpayer is allowed for the taxable year. A 
taxpayer's family includes the taxpayer, the taxpayer's spouse, and the 
taxpayer's dependents. See section 1.36B-1(d). Under section 
36B(f)(2)(A), the taxpayer's income tax liability is increased by the 
amount that the advance credit payments for the taxable year exceed the 
premium tax credit allowed for the taxable year, subject to the 
repayment limitations in section 36B(f)(2)(B).
    In some cases, a qualified health plan covers members of more than 
one family. To compute the premium tax credit and reconcile the advance 
credit payments with the premium tax credit allowed in these cases, 
each family needs to know the enrollment premiums, the premiums for the 
applicable benchmark plan, and the advance credit payments allocable to 
each family enrolled in the plan.
    Section 1.36B-4T provides allocation rules for situations in which 
enrollment premiums, the premiums for the applicable benchmark plan, 
and advance credit payments (policy amounts) for a qualified health 
plan must be allocated between two or more families. The temporary 
regulations provide specific allocation rules depending on whether the 
situation involves married individuals who file separately, formerly 
married individuals who divorced or separated during the taxable year, 
or individuals such as children who are enrolled in a qualified health 
plan with one parent but are claimed as a dependent by the other parent 
who is not enrolled in the plan (a shifting enrollee). The allocation 
rules for divorced or separated taxpayers and for shifting enrollee 
situations allow the affected taxpayers to agree on an allocation 
percentage. However, if there is no agreement, divorced or separated 
taxpayers must allocate 50 percent of the enrollment premiums, 
applicable benchmark plan premiums, and advance credit payments to each 
of the former spouses. A taxpayer's default allocation percentage for 
shifting enrollee situations is equal to the number of shifting 
enrollees claimed as a personal exemption by the taxpayer divided by 
the total number of individuals enrolled by the enrolling taxpayer in 
the same qualified health plan as the shifting enrollee (per capita 
allocation). Married taxpayers who do not file a joint return must 
allocate 50 percent of the enrollment premiums and advance credit 
payments to each of the spouses, unless the payments cover a period 
during which a qualified health plan covered only one of the spouses, 
only one of the spouses and his or her dependents, or only dependents 
of one of the spouses. Finally, the temporary regulations provide that 
the premiums for the applicable benchmark plan must be allocated in 
situations involving divorced and separated taxpayers and shifting 
enrollees, but not in situations involving married filing separately 
taxpayers.
    A commenter recommended that the allocation rules should be 
simplified, and, in particular, not provide different allocation rules 
for the various allocation situations. In addition, the commenter 
stated that the applicable benchmark plan premium should never be 
allocated. Instead, the commenter recommended that taxpayers should

[[Page 34605]]

determine their monthly applicable benchmark plan premium based on who 
in their family was, for that month, enrolled in Marketplace coverage 
and not eligible for other minimum essential coverage. Finally, the 
commenter recommended that the allocation rules should, in all cases, 
allow taxpayers with family members enrolled in the same qualified 
health plan to agree to the allocation percentages for the policy 
amounts. If there is no agreement, the commenter stated that a per 
capita allocation should be required in all allocation situations, not 
just those involving shifting enrollees.
    Because the allocation rules have been in effect since 2014, the 
Treasury Department and the IRS have determined that, in the interest 
of sound tax administration, it is not appropriate to change the rules 
in these final regulations. Thus, the final regulations do not change 
the allocation rules provided in the temporary regulations. However, 
future guidance is being considered to address allocations of policy 
amounts, including requiring a per capita allocation in all allocation 
situations as suggested by the commenter.
    Another commenter recommended that because allocating policy 
amounts is complex, taxpayers should be alerted to the importance of 
notifying Marketplaces of changes in circumstances, which may reduce 
the number of months for which allocations are required. Currently, the 
Form 8962 instructions and Publication 974 include language 
highlighting the importance of reporting changes in circumstances, as 
does www.irs.gov. In addition, in various forms of communication, 
Marketplaces emphasize the importance of reporting changes in 
circumstances. The Treasury Department and the IRS will continue to 
look for opportunities to remind taxpayers about the importance of 
notifying Marketplaces of changes in circumstances and to simplify the 
allocation rules.

3. Correction of Computation of the Limitation Amount for Self-Employed 
Individuals

    Under section 162(l), a taxpayer who is an employee within the 
meaning of section 401(c)(1) (generally, a self-employed individual) is 
allowed a deduction for all or a portion of the premiums paid by the 
taxpayer during the taxable year for health insurance for the taxpayer, 
the taxpayer's spouse, the taxpayer's dependents, and any child of the 
taxpayer under the age of 27. Under section 162(l)(2)(A), the section 
162(l) deduction is limited to the taxpayer's earned income from the 
trade or business, within the meaning of section 401(c), with respect 
to which the health insurance plan is established. In addition, section 
280C(g) provides that no deduction is allowed under section 162(l) for 
the portion of premiums for a qualified health plan equal to the amount 
of the premium tax credit determined under section 36B(a) with respect 
to those premiums.
    Section 1.36B-4T(a)(3)(iii) provides rules for the limitation on 
the additional tax under section 36B(f)(2)(B) (the limitation amount) 
for taxpayers who claim a section 162(l) deduction for premiums paid 
under a qualified health plan. Under Sec.  1.36B-4T(a)(3)(iii)(B), the 
limitation amount determined under the rules for taxpayers claiming a 
section 162(l) deduction replaces the limitation amount that would 
otherwise be determined under the general rules of Sec.  1.36B-
4(a)(3)(ii). Under Sec.  1.36B-4T(a)(3)(iii)(C), for purposes of 
determining the limitation amount in the case of a taxpayer who claims 
a section 162(l) deduction, a taxpayer's household income is determined 
by using a section 162(l) deduction equal to the sum of (1) specified 
premiums not paid through advance credit payments, (2) the limitation 
amount, and (3) any deduction allowable under section 162(l) for 
premiums other than specified premiums. Specified premiums are premiums 
for which the taxpayer may otherwise claim a deduction under section 
162(l) for a qualified health plan covering the taxpayer or another 
member of the taxpayer's family (enrolled family member) for a month 
that a premium tax credit is allowed for the enrolled family member's 
coverage.
    The limitation amount computation in Sec.  1.36B-4T(a)(3)(iii)(C), 
however, inadvertently omitted a rule for situations in which a 
taxpayer's section 162(l) deduction must, under section 162(l)(2)(A), 
be limited to his or her earned income from the trade or business with 
respect to which the health insurance plan is established. The final 
regulations correct this oversight and clarify that household income 
for purposes of computing the limitation amount is determined by using 
a section 162(l) deduction equal to the lesser of (1) the sum of the 
specified premiums for the plan not paid through advance credit 
payments, the limitation amount, and any deduction allowable under 
section 162(l) for premiums other than specified premiums, or (2) the 
earned income from the trade or business with respect to which the 
health insurance plan is established.
Effective/Applicability Date
    For applicability dates, see Sec. Sec.  1.36B-2(d), 1.36B-3(m), 
1.36B-4(c), and 1.162(l)-1(c).
Special Analyses
    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. Because the final 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 Internal Revenue Code, the notice of proposed 
rulemaking that preceded the final regulations was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business. No comments were received.
Drafting Information
    The principal authors of these final regulations are Suzanne R. 
Sinno, Stephen J. Toomey, and Shareen S. Pflanz of the Office of the 
Associate Chief Counsel (Income Tax & Accounting).

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.36B-0 is amended by:
0
1. Adding entries for Sec.  1.36B-2(b)(2)(i), (ii), (iii), (iv), and 
(v).
0
2. Adding an entry for Sec.  1.36B-2(d).
0
3. Adding an entry for Sec.  1.36B-3(m).
0
4. Revising the entry for Sec.  1.36B-4(a)(1)(ii) and adding entries 
for Sec.  1.36B-4(a)(1)(ii)(A) and (B), (a)(1)(ii)(B)(1), (2), (3), 
(4), and (5), and (a)(1)(ii)(C).
0
5. Adding entries for Sec.  1.36B-4(a)(3)(iii) and Sec.  1.36B-
4(a)(3)(iii)(A), (B), (C), (D), and (E).
0
6. Removing the entry for Sec.  1.36B-4(b)(4).
0
7. Redesignating the entry for Sec.  1.36B-4(b)(5) as Sec.  1.36B-
4(b)(4), revising the newly redesignated entry for Sec.  1.36B-

[[Page 34606]]

4(b)(4), and adding entries for Sec.  1.36B-4(b)(4)(i) and (ii).
0
8. Redesignating the entry for Sec.  1.36B-4(b)(6) as Sec.  1.36B-
4(b)(5).
0
9. Adding an entry for Sec.  1.36B-4(c).
    The revisions and additions read as follows:


Sec.  1.36B-0  Table of contents.

* * * * *


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

* * * * *
    (b) * * *
    (2) * * *
    (i) In general.
    (ii) Victims of domestic abuse and abandonment.
    (iii) Domestic abuse.
    (iv) Abandonment.
    (v) Three-year rule.
* * * * *
    (d) Applicability date.
* * * * *


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

* * * * *
    (m) Applicability date.
* * * * *


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

    (a) * * *
    (1) * * *
    (ii) Allocation rules and responsibility for advance credit 
payments.
    (A) In general.
    (B) Individuals enrolled by a taxpayer and claimed as a personal 
exemption deduction by another taxpayer.
    (1) In general.
    (2) Allocation percentage.
    (3) Allocating premiums.
    (4) Allocating advance credit payments.
    (5) Premiums for the applicable benchmark plan.
    (C) Responsibility for advance credit payments for an individual 
for whom no personal exemption deduction is claimed.
* * * * *
    (3) * * *
    (iii) Limitation on additional tax for taxpayers who claim a 
section 162(l) deduction for a qualified health plan.
    (A) In general.
    (B) Determining the limitation amount.
    (C) Requirements.
    (D) Specified premiums not paid through advance credit payments.
    (E) Examples.
    (4) * * *
    (b) * * *
    (4) Taxpayers filing returns as married filing separately or head 
of household.
    (i) Allocation of advance credit payments.
    (ii) Allocation of premiums.
* * * * *
    (c) Applicability date.
* * * * *

0
Par. 3. Section 1.36B-2 is amended by:
0
1. Revising paragraphs (b)(2) and (c)(3)(v)(C).
0
2. Adding paragraph (d).
    The revisions and additions read as follows:


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

* * * * *
    (b) * * *
    (2) Married taxpayers must file joint return--(i) In general. 
Except as provided in paragraph (b)(2)(ii) of this section, 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.
    (ii) Victims of domestic abuse and abandonment. Except as provided 
in paragraph (b)(2)(v) of this section, a married taxpayer satisfies 
the joint filing requirement of paragraph (b)(2)(i) of this section if 
the taxpayer files a tax return using a filing status of married filing 
separately and the taxpayer--
    (A) Is living apart from the taxpayer's spouse at the time the 
taxpayer files the tax return;
    (B) Is unable to file a joint return because the taxpayer is a 
victim of domestic abuse, as described in paragraph (b)(2)(iii) of this 
section, or spousal abandonment, as described in paragraph (b)(2)(iv) 
of this section; and
    (C) Certifies on the return, in accordance with the relevant 
instructions, that the taxpayer meets the criteria of this paragraph 
(b)(2)(ii).
    (iii) Domestic abuse. For purposes of paragraph (b)(2)(ii) of this 
section, domestic abuse includes physical, psychological, sexual, or 
emotional abuse, including efforts to control, isolate, humiliate, and 
intimidate, or to undermine the victim's ability to reason 
independently. All the facts and circumstances are considered in 
determining whether an individual is abused, including the effects of 
alcohol or drug abuse by the victim's spouse. Depending on the facts 
and circumstances, abuse of the victim's child or another family member 
living in the household may constitute abuse of the victim.
    (iv) Abandonment. For purposes of paragraph (b)(2)(ii) of this 
section, a taxpayer is a victim of spousal abandonment for a taxable 
year if, taking into account all facts and circumstances, the taxpayer 
is unable to locate his or her spouse after reasonable diligence.
    (v) Three-year rule. Paragraph (b)(2)(ii) of this section does not 
apply if the taxpayer met the requirements of paragraph (b)(2)(ii) of 
this section for each of the three preceding taxable years.
* * * * *
    (c) * * *
    (3) * * *
    (v) * * *
    (C) Required contribution percentage. The required contribution 
percentage is 9.5 percent. For plan years beginning in a calendar year 
after 2014, the percentage will be adjusted by the ratio of premium 
growth to income growth for the preceding calendar year and may be 
further adjusted to reflect changes to the data used to compute the 
ratio of premium growth to income growth for the 2014 calendar year or 
the data sources used to compute the ratio of premium growth to income 
growth. Premium growth and income growth will be determined under 
published guidance, see Sec.  601.601(d)(2) of this chapter. In 
addition, the percentage may be adjusted for plan years beginning in a 
calendar year after 2018 to reflect rates of premium growth relative to 
growth in the consumer price index.
* * * * *
    (d) Applicability date. Paragraphs (b)(2) and (c)(3)(v)(C) of this 
section apply to taxable years beginning after December 31, 2013.


Sec.  1.36B-2T  [Removed]

0
Par. 4. Section 1.36B-2T is removed.

0
Par. 5. Section 1.36B-3 is amended by revising paragraphs (g)(1) and 
(m) to read as follows:


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

* * * * *
    (g) * * * (1) In general. The applicable percentage multiplied by a 
taxpayer's household income determines the taxpayer's annual required 
share of premiums for the benchmark plan. The required share is divided 
by 12 and this monthly 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

[[Page 34607]]

compared to the income categories described in the table in paragraph 
(g)(2) of this section. 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. For taxable years 
beginning after December 31, 2014, the applicable percentages in the 
table will be adjusted by the ratio of premium growth to income growth 
for the preceding calendar year and may be further adjusted to reflect 
changes to the data used to compute the ratio of premium growth to 
income growth for the 2014 calendar year or the data sources used to 
compute the ratio of premium growth to income growth. Premium growth 
and income growth will be determined in accordance with published 
guidance, see Sec.  601.601(d)(2) of this chapter. In addition, the 
applicable percentages in the table may be adjusted for taxable years 
beginning after December 31, 2018, to reflect rates of premium growth 
relative to growth in the consumer price index.
* * * * *
    (m) Applicability date. Paragraph (g)(1) of this section applies to 
taxable years beginning after December 31, 2013.


Sec.  1.36B-3T  [Removed]

0
Par. 6. Section 1.36B-3T is removed.

0
Par. 7. Section 1.36B-4 is amended by:
0
1. Revising paragraphs (a)(1)(ii) and (a)(3)(iii).
0
2. In paragraph (a)(4), revising Examples 4, 10, 11, 12, 13, 14, and 
15.
0
3. Revising paragraphs (b)(3) and (4).
0
4. In paragraph (b)(5), revising Examples 9 and 10.
0
5. Revising paragraph (c).
    The revisions read as follows:


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

    (a) * * *
    (1) * * *
    (ii) Allocation rules and responsibility for advance credit 
payments--(A) In general. A taxpayer must reconcile all advance credit 
payments for coverage of any member of the taxpayer's family.
    (B) Individuals enrolled by a taxpayer and claimed as a personal 
exemption deduction by another taxpayer--(1) In general. If a taxpayer 
(the enrolling taxpayer) enrolls an individual in a qualified health 
plan and another taxpayer (the claiming taxpayer) claims a personal 
exemption deduction for the individual (the shifting enrollee), then 
for purposes of computing each taxpayer's premium tax credit and 
reconciling any advance credit payments, the enrollment premiums and 
advance credit payments for the plan in which the shifting enrollee was 
enrolled are allocated under this paragraph (a)(1)(ii)(B) according to 
the allocation percentage described in paragraph (a)(1)(ii)(B)(2) of 
this section. If advance credit payments are allocated under paragraph 
(a)(1)(ii)(B)(4) of this section, the claiming taxpayer and enrolling 
taxpayer must use this same allocation percentage to calculate their 
Sec.  1.36B-3(d)(1)(ii) adjusted monthly premiums for the applicable 
benchmark plan (benchmark plan premiums). This paragraph (a)(1)(ii)(B) 
does not apply to amounts allocated under Sec.  1.36B-3(h) (qualified 
health plan covering more than one family) or if the shifting enrollee 
or enrollees are the only individuals enrolled in the qualified health 
plan. For purposes of this paragraph (a)(1)(ii)(B)(1), a taxpayer who 
is expected at enrollment in a qualified health plan to be the taxpayer 
filing an income tax return for the year of coverage with respect to an 
individual enrolling in the plan has enrolled that individual.
    (2) Allocation percentage. The enrolling taxpayer and claiming 
taxpayer may agree on any allocation percentage between zero and one 
hundred percent. If the enrolling taxpayer and claiming taxpayer do not 
agree on an allocation percentage, the percentage is equal to the 
number of shifting enrollees claimed as a personal exemption deduction 
by the claiming taxpayer divided by the number of individuals enrolled 
by the enrolling taxpayer in the same qualified health plan as the 
shifting enrollee.
    (3) Allocating premiums. In computing the premium tax credit, the 
claiming taxpayer is allocated a portion of the enrollment premiums for 
the plan in which the shifting enrollee was enrolled equal to the 
enrollment premiums times the allocation percentage. The enrolling 
taxpayer is allocated the remainder of the enrollment premiums not 
allocated to one or more claiming taxpayers.
    (4) Allocating advance credit payments. In reconciling any advance 
credit payments, the claiming taxpayer is allocated a portion of the 
advance credit payments for the plan in which the shifting enrollee was 
enrolled equal to the enrolling taxpayer's advance credit payments for 
the plan times the allocation percentage. The enrolling taxpayer is 
allocated the remainder of the advance credit payments not allocated to 
one or more claiming taxpayers. This paragraph (a)(1)(ii)(B)(4) only 
applies in situations in which advance credit payments are made for 
coverage of a shifting enrollee.
    (5) Premiums for the applicable benchmark plan. If paragraph 
(a)(1)(ii)(B)(4) of this section applies, the claiming taxpayer's 
benchmark plan premium is the sum of the benchmark plan premium for the 
claiming taxpayer's coverage family, excluding the shifting enrollee or 
enrollees, and the allocable portion. The allocable portion for 
purposes of this paragraph (a)(1)(ii)(B)(5) is the product of the 
benchmark plan premium for the enrolling taxpayer's coverage family if 
the shifting enrollee was a member of the enrolling taxpayer's coverage 
family and the allocation percentage. If the enrolling taxpayer's 
coverage family is enrolled in more than one qualified health plan, the 
allocable portion is determined as if the enrolling taxpayer's coverage 
family includes only the coverage family members who enrolled in the 
same plan as the shifting enrollee or enrollees. The enrolling 
taxpayer's benchmark plan premium is the benchmark plan premium for the 
enrolling taxpayer's coverage family had the shifting enrollee or 
enrollees remained a part of the enrolling taxpayer's coverage family, 
minus the allocable portion.
    (C) Responsibility for advance credit payments for an individual 
for whom no personal exemption deduction is claimed. If advance credit 
payments are made for coverage of an individual for whom no taxpayer 
claims a personal exemption deduction, the taxpayer who attested to the 
Exchange to the intention to claim a personal exemption deduction for 
the individual as part of the advance credit payment eligibility 
determination for coverage of the individual must reconcile the advance 
credit payments.
* * * * *
    (3) * * *
    (iii) Limitation on additional tax for taxpayers who claim a 
section 162(l) deduction for a qualified health plan--(A) In general. A 
taxpayer who receives advance credit payments and deducts premiums for 
a qualified health plan under section 162(l) must use paragraph 
(a)(3)(iii)(B), and paragraph (a)(3)(iii)(C) or (D), of this section to 
determine the limitation on additional tax in this paragraph (a)(3) 
(limitation amount). Taxpayers must make this determination before 
calculating their section 162(l) deduction and premium tax credit. For 
additional rules for taxpayers who may claim a deduction under section 
162(l) for a qualified health plan for which advance credit payments 
are made, see Sec.  1.162(l)-1.
    (B) Determining the limitation amount. A taxpayer described in

[[Page 34608]]

paragraph (a)(3)(iii)(A) of this section must use the limitation amount 
for which the taxpayer qualifies under paragraph (a)(3)(iii)(C) or (D) 
of this section. The limitation amount determined under this paragraph 
(a)(3)(iii) replaces the limitation amount that would otherwise be 
determined under the additional tax limitation table in paragraph 
(a)(3)(ii) of this section. In applying paragraph (a)(3)(iii)(C) of 
this section, a taxpayer must first determine whether he or she 
qualifies for the limitation amount applicable to taxpayers with 
household income of less than 200 percent of the Federal poverty line 
for the taxpayer's family size. If the taxpayer does not qualify to use 
the limitation amount applicable to taxpayers with household income of 
less than 200 percent of the Federal poverty line for the taxpayer's 
family size, the taxpayer must next determine whether he or she 
qualifies for the limitation applicable to taxpayers with household 
income of less than 300 percent of the Federal poverty line for the 
taxpayer's family size. If the taxpayer does not qualify to use the 
limitation amount applicable to taxpayers with household income of less 
than 300 percent of the Federal poverty line for the taxpayer's family 
size, the taxpayer must next determine whether he or she qualifies for 
the limitation applicable to taxpayers with household income of less 
than 400 percent of the Federal poverty line for the taxpayer's family 
size. If the taxpayer does not qualify to use the limitation amount 
applicable to taxpayers with household income of less than 200 percent, 
300 percent, or 400 percent of the Federal poverty line for the 
taxpayer's family size, the limitation on additional tax under section 
36B(f)(2)(B) does not apply to the taxpayer.
    (C) Requirements. A taxpayer meets the requirements of this 
paragraph (a)(3)(iii)(C) for a limitation amount if the taxpayer's 
household income as a percentage of the Federal poverty line is less 
than or equal to the maximum household income as a percentage of the 
Federal poverty line for which that limitation is available. Household 
income for this purpose is determined by using a section 162(l) 
deduction equal to the lesser of--
    (1) The sum of the specified premiums for the plan not paid through 
advance credit payments, the limitation amount (determined without 
regard to paragraph (a)(1)(iii)(C)(2) of this section), and any 
deduction allowable under section 162(l) for premiums other than 
specified premiums, and
    (2) The earned income from the trade or business with respect to 
which the health insurance plan is established.
    (D) Specified premiums not paid through advance credit payments. 
For purposes of paragraph (a)(3)(iii)(C) of this section, specified 
premiums not paid through advance credit payments means specified 
premiums, as defined in Sec.  1.162(l)-1(a)(2), minus advance credit 
payments made with respect to the specified premiums.
    (E) Examples. For examples illustrating the rules of this paragraph 
(a)(3)(iii), see Examples 13, 14, and 15 of paragraph (a)(4) of this 
section.
    (4) * * *
    Example 4. Family size decreases. (i) Taxpayers B and C are 
married and have two children, K and L (ages 17 and 20), whom they 
claim as dependents in 2013. The Exchange for their rating area 
projects their 2014 household income to be $63,388 (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's and C's advance credit 
payments for 2014 are $8,535, computed as follows: Benchmark plan 
premium of $14,100 less contribution amount of $5,565 (projected 
household income of $63,388 x .0878) = $8,535.
    (ii) In 2014, B and C do not claim L as their dependent (and no 
taxpayer claims a personal exemption deduction for L). Consequently, 
B's and C's family size for 2014 is three, their household income of 
$63,388 is 332 percent of the Federal poverty line for a family of 
three (applicable percentage 9.5), and the annual premium for their 
applicable benchmark plan is $12,000. Their premium tax credit for 
2014 is $5,978 ($12,000 benchmark plan premium less $6,022 
contribution amount (household income of $63,388 x .095)). Because 
B's and C's advance credit payments for 2014 are $8,535 and their 
2014 credit is $5,978, B and C have excess advance payments of 
$2,557. B's and C's additional tax liability for 2014 under 
paragraph (a)(1) of this section, however, is limited to $2,500 
under paragraph (a)(3) of this section.
* * * * *
    Example 10. Allocation percentage, agreement on allocation. (i) 
Taxpayers G and H are divorced and have two children, J and K. G 
enrolls herself and J and K in a qualified health plan for 2014. The 
premium for the plan in which G enrolls is $13,000. The Exchange in 
G's rating area approves advance credit payments for G based on a 
family size of three, an annual benchmark plan premium of $12,000, 
and projected 2014 household income of $58,590 (300 percent of the 
Federal poverty line for a family of three, applicable percentage 
9.5). G's advance credit payments for 2014 are $6,434 ($12,000 
benchmark plan premium less $5,566 contribution amount (household 
income of $58,590 x .095)). G's actual household income for 2014 is 
$58,900.
    (ii) K lives with H for more than half of 2014 and H claims K as 
a dependent for 2014. G and H agree to an allocation percentage, as 
described in paragraph (a)(1)(ii)(B)(2) of this section, of 20 
percent. Under the agreement, H is allocated 20 percent of the items 
to be allocated, and G is allocated the remainder of those items.
    (iii) If H is eligible for a premium tax credit, H takes into 
account $2,600 of the premiums for the plan in which K was enrolled 
($13,000 x .20) and $2,400 of G's benchmark plan premium ($12,000 x 
.20). In addition, H is responsible for reconciling $1,287 ($6,434 x 
.20) of the advance credit payments for K's coverage.
    (iv) G's family size for 2014 includes only G and J and G's 
household income of $58,900 is 380 percent of the Federal poverty 
line for a family of two (applicable percentage 9.5). G's benchmark 
plan premium for 2014 is $9,600 (the benchmark premium for the plan 
covering G, J, and K ($12,000), minus the amount allocated to H 
($2,400). Consequently, G's premium tax credit is $4,004 (G's 
benchmark plan premium of $9,600 minus G's contribution amount of 
$5,596 ($58,900 x .095)). G has an excess advance payment of $1,143 
(the excess of the advance credit payments of $5,147 ($6,434 - 
$1,287 allocated to H) over the premium tax credit of $4,004).
    Example 11. Allocation percentage, no agreement on allocation. 
(i) The facts are the same as in Example 10 of paragraph (a)(4) of 
this section, except that G and H do not agree on an allocation 
percentage. Under paragraph (a)(1)(ii)(B)(2) of this section, the 
allocation percentage is 33 percent, computed as follows: The number 
of shifting enrollees, 1 (K), divided by the number of individuals 
enrolled by the enrolling taxpayer on the same qualified health plan 
as the shifting enrollee, 3 (G, J, and K). Thus, H is allocated 33 
percent of the items to be allocated, and G is allocated the 
remainder of those items.
    (ii) If H is eligible for a premium tax credit, H takes into 
account $4,290 of the premiums for the plan in which K was enrolled 
($13,000 x .33). H, in computing H's benchmark plan premium, must 
include $3,960 of G's benchmark plan premium ($12,000 x .33). In 
addition, H is responsible for reconciling $2,123 ($6,434 x .33) of 
the advance credit payments for K's coverage.
    (iii) G's benchmark plan premium for 2014 is $8,040 (the 
benchmark premium for the plan covering G, J, and K ($12,000), minus 
the amount allocated to H ($3,960). Consequently, G's premium tax 
credit is $2,444 (G's benchmark plan premium of $8,040 minus G's 
contribution amount of $5,596 ($58,900 x .095)). G has an excess 
advance credit payment of $1,867 (the excess of the advance credit 
payments of $4,311 ($6,434 - $2,123 allocated to H) over the premium 
tax credit of $2,444).
    Example 12. Allocations for an emancipated child. Spouses L and 
M enroll in a qualified health plan with their child, N. L and M 
attest that they will claim N as a dependent and advance credit 
payments are made for the coverage of all three family members. 
However, N files his own return and claims a personal exemption 
deduction for himself for the taxable year. Under paragraph 
(a)(1)(ii)(B)(1) of this section, L and M are enrolling taxpayers, N 
is a

[[Page 34609]]

claiming taxpayer, and all are subject to the allocation rules in 
paragraph (a)(1)(ii)(B) of this section.
    Example 13. Taxpayer with advance credit payments allowed a 
section 162(l) deduction but not a limitation on additional tax. (i) 
In 2014, B, B's spouse, and their two dependents enroll in the 
applicable second lowest cost silver plan with an annual premium of 
$14,000. B's advance credit payments attributable to the premiums 
are $8,000. B is self-employed for all of 2014 and derives $75,000 
of earnings from B's trade or business. B's household income without 
including a deduction under section 162(l) for specified premiums is 
$103,700. The Federal poverty line for a family the size of B's 
family is $23,550.
    (ii) Because B received the benefit of advance credit payments 
and deducts premiums for a qualified health plan under section 
162(l), B must determine whether B is allowed a limitation on 
additional tax under paragraph (a)(3)(iii) of this section. B begins 
by testing eligibility for the $600 limitation amount for taxpayers 
with household income at less than 200 percent of the Federal 
poverty line for the taxpayer's family size. B determines household 
income as a percentage of the Federal poverty line by taking a 
section 162(l) deduction equal to the lesser of $6,600 (the sum of 
the amount of premiums not paid through advance credit payments, 
$6,000 ($14,000 - $8,000), and the limitation amount, $600) and 
$75,000 (the earned income from the trade or business with respect 
to which the health insurance plan is established). The result is 
$97,100 ($103,700 - $6,600) or 412 percent of the Federal poverty 
line for B's family size. Since 412 percent is not less than 200 
percent, B may not use a $600 limitation amount.
    (iii) B performs the same calculation for the $1,500 ($103,700 - 
$7,500 = $96,200 or 408 percent of the Federal poverty line) and 
$2,500 limitation amounts ($103,700 - $8,500 = $95,200 or 404 
percent of the Federal poverty line), the amounts for taxpayers with 
household income of less than 300 percent or 400 percent, 
respectively, of the Federal poverty line for the taxpayer's family 
size, and determines that B may not use either of those limitation 
amounts. Because B does not meet the requirements of paragraph 
(a)(3)(iii) of this section for any of the limitation amounts in 
section 36B(f)(2)(B), B is not eligible for the limitation on 
additional tax for excess advance credit payments.
    (iv) Although B may not claim a limitation on additional tax for 
excess advance credit payments, B may still be eligible for a 
premium tax credit. B would determine eligibility for the premium 
tax credit, the amount of the premium tax credit, and the section 
162(l) deduction using the rules under section 36B and section 
162(l), applying no limitation on additional tax.
    Example 14. Taxpayer with advance credit payments allowed a 
section 162(l) deduction and a limitation on additional tax. (i) The 
facts are the same as in Example 13 of paragraph (a)(4) of this 
section, except that B's household income without including a 
deduction under section 162(l) for specified premiums is $78,802.
    (ii) Because B received the benefit of advance credit payments 
and deducts premiums for a qualified health plan under section 
162(l), B must determine whether B is allowed a limitation on 
additional tax under paragraph (a)(3)(iii) of this section. B first 
determines that B does not meet the requirements of paragraph 
(a)(3)(iii)(C) of this section for using the $600 or $1,500 
limitation amounts, the amounts for taxpayers with household income 
of less than 200 percent or 300 percent, respectively, of the 
Federal poverty line for the taxpayer's family size. That is because 
B's household income as a percentage of the Federal poverty line, 
determined by using a section 162(l) deduction for premiums for the 
qualified health plan equal to the lesser of the sum of the premiums 
for the plan not paid through advance credit payments and the 
limitation amount, and the earned income from the trade or business 
with respect to which the health insurance plan is established, is 
more than the maximum household income as a percentage of the 
Federal poverty line for which that limitation is available (using 
the $600 limitation, B's household income would be $72,202 ($78,802-
($6,000 + $600)), which is 307 percent of the Federal poverty line 
for B's family size; and using the $1,500 limitation, B's household 
income would be $71,302 ($78,802-($6,000 + $1,500)), which is 303 
percent of the Federal poverty line for B's family size).
    (iii) However, B meets the requirements of paragraph 
(a)(3)(iii)(C) of this section using the $2,500 limitation amount 
for taxpayers with household income of less than 400 percent of the 
Federal poverty line for the taxpayer's family size. That is because 
B's household income as a percentage of the Federal poverty line by 
taking a section 162(l) deduction equal to the lesser of $8,500 (the 
sum of the amount of premiums not paid through advance credit 
payments, $6,000, and the limitation amount, $2,500) and $75,000 
(the earned income from the trade or business with respect to which 
the health insurance plan is established), is $70,302 (299 percent 
of the Federal poverty line), which is below 400 percent of the 
Federal poverty line for B's family size, and is less than the 
maximum amount for which that limitation is available. Thus, B uses 
a limitation amount of $2,500 in computing B's additional tax on 
excess advance credit payments.
    (iv) B may determine the amount of the premium tax credit and 
the section 162(l) deduction using the rules under section 36B and 
section 162(l), applying the $2,500 limitation amount determined 
above.
    Example 15. Taxpayer with advance credit payments allowed a 
section 162(l) deduction and a limitation on additional tax limited 
to earned income from trade or business. (i) In 2017, C, C's spouse, 
and their two dependents enroll in the applicable second lowest cost 
silver plan with an annual premium of $14,000. C's advance credit 
payments attributable to the premiums are $8,000. C is self-employed 
for all of 2017 and derives $3,000 of earnings from C's trade or 
business. C's household income, without including a deduction under 
section 162(l) for specified premiums, is $39,100. The Federal 
poverty line for a family the size of C's family is $24,600.
    (ii) Because C received the benefit of advance credit payments 
and deducts premiums for a qualified health plan under section 
162(l), C must determine whether C is allowed a limitation on 
additional tax under paragraph (a)(3)(iii) of this section. C begins 
by testing eligibility for the $600 limitation amount for taxpayers 
with household income at less than 200 percent of the Federal 
poverty line for the taxpayer's family size. C determines household 
income as a percentage of the Federal poverty line by taking a 
section 162(l) deduction equal to the lesser of $6,600 (the sum of 
the amount of premiums not paid through advance credit payments, 
$6,000 ($14,000-$8,000), and the limitation amount, $600), and 
$3,000 (C's earned income from the trade or business with respect to 
which the health insurance plan is established). The result is 
$36,100 ($39,100-$3,000) or 147 percent of the Federal poverty line 
for C's family size. Because 147 percent is less than 200 percent, 
the limitation amount under paragraph (a)(3)(iii) of this section 
that C uses in computing C's additional tax on excess advance credit 
payments is $600.
    (iii) C may determine the amount of the premium tax credit and 
the section 162(l) deduction using the rules under section 36B and 
section 162(l), applying the $600 limitation amount determined 
above.

    (b) * * *
    (3) 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 legally separate under a decree of 
divorce or of separate maintenance during the taxable year, and who are 
enrolled in the same qualified health plan at any time during the 
taxable year must allocate the benchmark plan premiums, the enrollment 
premiums, and the advance credit payments for the period the taxpayers 
are married during the taxable year. Taxpayers must also allocate these 
items if one of the taxpayers has a dependent enrolled in the same plan 
as the taxpayer's former spouse or enrolled in the same plan as a 
dependent of the taxpayer's former spouse. 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 do not agree on an 
allocation that is reported to the IRS in accordance with the relevant 
forms and instructions, 50 percent of: The benchmark plan premiums; the 
enrollment premiums; and the advance credit payments for the married 
period, is allocated to each taxpayer. If for a period a plan covers 
only one of the taxpayers and no dependents, only one of the taxpayers 
and one or more dependents of that same taxpayer, or only one or more 
dependents of one of the taxpayers, then the benchmark plan

[[Page 34610]]

premiums, the enrollment premiums, and the advance credit payments for 
that period are allocated entirely to that taxpayer.
    (4) Taxpayers filing returns as married filing separately or head 
of household--(i) Allocation of advance credit payments. Except as 
provided in Sec.  1.36B-2(b)(2)(ii), the premium tax credit is allowed 
to married (within the meaning of section 7703) taxpayers only if they 
file joint returns. See Sec.  1.36B-2(b)(2)(i). Taxpayers who receive 
advance credit payments as married taxpayers and who do not file a 
joint return must allocate the advance credit payments for coverage 
under a qualified health plan equally to each taxpayer for any period 
the plan covers and in which advance credit payments are made for both 
taxpayers, only one of the taxpayers and one or more dependents of the 
other taxpayer, or one or more dependents of both taxpayers. If, for a 
period a plan covers, advance credit payments are made for only one of 
the taxpayers and no dependents, only one of the taxpayers and one or 
more dependents of that same taxpayer, or only one or more dependents 
of one of the taxpayers, the advance credit payments for that period 
are allocated entirely to that taxpayer. If one or both of the 
taxpayers is an applicable taxpayer eligible for a premium tax credit 
for the taxable year, the premium tax credit is computed by allocating 
the enrollment premiums under paragraph (b)(4)(ii) 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. This paragraph (b)(4) also applies 
to taxpayers who receive advance credit payments as married taxpayers 
and file a tax return using the head of household filing status.
    (ii) Allocation of premiums. If taxpayers who are married within 
the meaning of section 7703, without regard to section 7703(b), do not 
file a joint return, 50 percent of the enrollment premiums are 
allocated to each taxpayer. However, all of the enrollment premiums are 
allocated to only one of the taxpayers for a period in which a 
qualified health plan covers only that taxpayer and no dependents, only 
that taxpayer and one or more dependents of that taxpayer, or only one 
or more dependents of that taxpayer.
    (5) * * *

    Example 9. (i) The facts are the same as in Example 8 of 
paragraph (b)(5) of this section, except that X and Y live apart for 
over 6 months of the year and X properly files an income tax return 
as head of household. Under section 7703(b), X is treated as 
unmarried and therefore is not required to file a joint return. If X 
otherwise qualifies as an applicable taxpayer, X may claim the 
premium tax credit based on the household income and family size X 
reports on the return. Y is not an applicable taxpayer and is not 
eligible to claim the premium tax credit.
    (ii) X must reconcile the amount of credit with advance credit 
payments under paragraph (a) of this section. The premium for the 
applicable benchmark plan covering X and his two dependents is 
$9,800. X's premium tax credit is computed as follows: $9,800 
benchmark plan premium minus X's contribution amount of $5,700 
($60,000 x .095) equals $4,100.
    (iii) Under paragraph (b)(4) of this section, half of the 
advance payments ($6,880/2 = $3,440) is allocated to X and half is 
allocated to Y. Thus, X is entitled to $660 additional premium tax 
credit ($4,100 - $3,440). Y has $3,440 excess advance payments, 
which is limited to $600 under paragraph (a)(3) of this section.
    Example 10. (i) A is married to B at the close of 2014 and they 
have no dependents. A and B are enrolled in a qualified health plan 
for 2014 with an annual premium of $10,000 and advance credit 
payments of $6,500. A is not eligible for minimum essential coverage 
(other than coverage described in section 5000A(f)(1)(C)) for any 
month in 2014. A is a victim of domestic abuse as described in Sec.  
1.36B-2(b)(2)(iii). At the time A files her tax return for 2014, A 
is unable to file a joint return with B for 2014 because of the 
domestic abuse. A certifies on her 2014 return, in accordance with 
relevant instructions, that she is living apart from B and is unable 
to file a joint return because of domestic abuse. Thus, under Sec.  
1.36B-2(b)(2)(ii), A satisfies the joint return filing requirement 
in section 36B(c)(1)(C) for 2014.
    (ii) A's family size for 2014 for purposes of computing the 
premium tax credit is one, and A is the only member of her coverage 
family. Thus, A's benchmark plan for all months of 2014 is the 
second lowest cost silver plan offered by the Exchange for A's 
rating area that covers A. A's household income includes only A's 
modified adjusted gross income. Under paragraph (b)(4)(ii) of this 
section, A takes into account $5,000 ($10,000 x .50) of the premiums 
for the plan in which she was enrolled in determining her premium 
tax credit. Further, A must reconcile $3,250 ($6,500 x .50) of the 
advance credit payments for her coverage under paragraph (b)(4)(i) 
of this section.

    (c) Applicability date. Paragraphs (a)(1)(ii), (a)(3)(iii), (a)(4), 
Examples 4, 10, 11, 12, 13, 14, and 15, (b)(3), (b)(4), and (b)(5), 
Examples 9 and 10 apply to taxable years beginning after December 31, 
2013.


Sec.  1.36B-4T   [Removed]

0
Par. 8. Section 1.36B-4T is removed.

0
Par. 9. Sec.  1.162(l)-0 is added to read as follows:


Sec.  1.162(l)-0  Table of Contents.

    This section lists the table of contents for Sec.  1.162(l)-1.


Sec.  1.162(l)-1  Deduction for health insurance costs of self-employed 
individuals.

    (a) Coordination of section 162(l) deduction for taxpayers subject 
to section 36B.
    (1) In general.
    (2) Specified premiums.
    (3) Specified premiums not paid through advance credit payments.
    (b) Additional guidance.
    (c) Applicability date.

0
Par. 10. Section 1.162(l)-1 is added to read as follows:


Sec.  1.162(l)-1  Deduction for health insurance costs of self-employed 
individuals.

    (a) Coordination of section 162(l) deduction for taxpayers subject 
to section 36B--(1) In general. A taxpayer is allowed a deduction under 
section 162(l) for specified premiums, as defined in paragraph (a)(2) 
of this section, not to exceed an amount equal to the lesser of--
    (i) The specified premiums less the premium tax credit attributable 
to the specified premiums; and
    (ii) The sum of the specified premiums not paid through advance 
credit payments, as described in paragraph (a)(3) of this section, and 
the additional tax (if any) imposed under section 36B(f)(2)(A) and 
Sec.  1.36B-4(a)(1) with respect to the specified premiums after 
application of the limitation on additional tax in section 36B(f)(2)(B) 
and Sec.  1.36B-4(a)(3).
    (2) Specified premiums. For purposes of paragraph (a)(1) of this 
section, specified premiums means premiums for a specified qualified 
health plan or plans for which the taxpayer may otherwise claim a 
deduction under section 162(l). For purposes of this paragraph (a)(2), 
a specified qualified health plan is a qualified health plan, as 
defined in Sec.  1.36B-1(c), covering the taxpayer, the taxpayer's 
spouse, or a dependent of the taxpayer (enrolled family member) for a 
month that is a coverage month within the meaning of Sec.  1.36B-3(c) 
for the enrolled family member. If a specified qualified health plan 
covers individuals other than enrolled family members, the specified 
premiums include only the portion of the premiums for the specified 
qualified health plan that is allocable to the enrolled family members 
under rules similar to Sec.  1.36B-3(h), which provides rules for 
determining the amount under Sec.  1.36B-3(d)(1) when two families are 
enrolled in the same qualified health plan.
    (3) Specified premiums not paid through advance credit payments. 
For purposes of paragraph (a)(1)(ii) of this section, specified 
premiums not paid through advance credit payments equal

[[Page 34611]]

the amount of the specified premiums minus the advance credit payments 
attributable to the specified premiums.
    (b) Additional guidance. The Secretary may provide by publication 
in the Federal Register or in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2) of this chapter) additional guidance on coordinating the 
deduction allowed under section 162(l) and the credit provided under 
section 36B.
    (c) Applicability date. This section applies for taxable years 
beginning after December 31, 2013.


Sec.  1.162(l)-1T   [Removed]

0
Par. 11. Section 1.162(l)-1T is removed.

Kirsten B. Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: July 14, 2017.
Thomas West,
Tax Legislative Counsel.
[FR Doc. 2017-15642 Filed 7-24-17; 4:15 pm]
BILLING CODE 4830-01-P