IRS Issues Guidance on Health Insurance Premium Tax Credit – Clarification

By Larry Grudzien
Attorney-At-Law

February 2013 – The IRS issued a final regulations on when an employer-sponsored plan is considered “affordable” for an individual related to the employee for purposes of eligibility for a premium tax credit. Under Health Care Reform, employees may be eligible for a premium tax credit to purchase health insurance through the future health insurance exchanges if, among other reasons, the employer plan is deemed unaffordable.

 
The final regulations clarify that for taxable years beginning before January 1, 2015, an eligible employer-sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for self-only coverage does not exceed 9.5% of the taxpayer’s household income.

 
An employer plan will be affordable for family members if the cost of self-only coverage does not exceed 9.5% of the employee’s household income. In other words, for purposes of whether family members are eligible for tax credits, the affordability of family coverage is not taken into account; all that matters is that the cost of self-only coverage is affordable to the employee.

 
For purposes of applying the affordability exemption from the individual mandate in the case of related individuals, the required contribution is based on the premium the employee would pay for employer-sponsored family coverage.

 
For an employee eligible under an employer plan, affordability (for individual mandate exemption purposes) will be based on whether the cost of self-only coverage exceeds 8% of the employee’s household income. For a related individual (such as a spouse or child), however, affordability for this purpose will be based on whether the cost of family coverage exceeds 8% of household income. Under these rules, members of an employee’s family may qualify for an individual mandate exemption, even though the offer of affordable employer coverage to the employee would require the employee to enroll or risk paying a penalty.

 
These final regulations apply to taxable years ending after December 31, 2013.

 
For a copy of the final regulations, please click here.

If you have any comments or questions regarding any of above information, please do not hesitate to call me at (708)717-9638 or e-mail at  larry@larrygrudzien.com.