Health Law Blog: Court Strikes Down Tax Credit Provision for Low Income Americans Participating Through Federal and Federal/State Partnership Exchanges


Yesterday, the United States Court of Appeals for the District of Columbia ruled the IRS’ interpretation of a key ACA provision is invalid. Specifically, the court found that the IRS did not have the authority to interpret the ACA as providing tax credits for low income Americans who purchase health insurance through a Federal or Federal/State Partnership Exchange.

According to the Court, the plain language of the statute limits such tax credits to individuals who purchase insurance on an Exchange established by the State. The Court’s ruling vacates the IRS’ regulation and will likely be appealed by the Obama Administration to the U.S. Supreme Court. While Iowa is working toward establishing a State Exchange by 2016, Iowa’s current exchange would likely be considered a Federal Exchange subject to this ruling. The ruling has broad ramifications, including for employers subject to the employer shared responsibility provisions in 2015. These large employers only face potential penalties if one of their full time employees receives a tax credit for purchasing insurance on the Exchange. To the extent none of the employers’ employees are eligible for a tax credit because the Iowa Exchange is not a State Exchange, the employer should not be penalized. It is unclear at this time how the IRS will proceed with enforcement of this and other ACA provisions impacted by this ruling.  

A copy of the ruling is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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