IRS Proposed Premium Tax Credit Regulations Signal Direction of Future Guidance on Employer Pay-or-Play Penalties


The Internal Revenue Service has issued proposed regulations implementing health insurance premium tax credits. The proposed regulations clarify the eligibility criteria for health insurance premium tax credits. In addition the proposed regulations provide guidance regarding determining the affordability of employer-sponsored coverage and calculating the premium tax credit. The preamble to the proposed regulations offers previews of anticipated future guidance relating to the employer affordable coverage mandates and pay-or-play penalties. Health insurance premium tax credits will go into effect concurrent with the establishment of the state insurance exchanges and employer pay-or-play mandate in 2014.

On August 12, 2011, the Internal Revenue Service issued proposed regulations implementing health insurance premium tax credits under Code Section 36B of the federal Patient Protection and Affordable Care Act. The tax credits are designed to enable low income individuals to purchase insurance on state-based Affordable Insurance Exchanges (Exchanges), which are scheduled to be up and running by January 2014, assuming they are not struck down by the Supreme Court of the United States as unconstitutional. As set forth in the proposed regulations, the Exchange determines whether an individual meets the income and other requirements for the tax credit based in part on the availability of affordable employer-sponsored group health plan coverage. Each month, the credits will be paid directly to the insurer that provides coverage to the eligible individual through the Exchange. This credit will reduce the premium amount owed by the individual.

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