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The Bloomberg BNA Federal Tax Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues about federal tax topics. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.

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Wednesday, May 23, 2012

Health Insurance Premium Tax Credit Rules Leave Employees and Their Employers Waiting

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 Many questions remain unanswered for low-income employees who wonder whether they may enroll in a qualified health plan and claim the health insurance premium tax credit beginning in 2014 or whether coverage under their employer’s health plan will be considered affordable for them. The answers to those questions also will impact employers who are trying to predict their exposure to the employer responsibility excise tax imposed if they offer health care that is unaffordable or does not provide minimum value, and to decide whether or not to continue their health plans.

In T.D. 9590, the IRS and Treasury Department finalized the rules to be used to determine eligibility for and calculation of the tax Code section 36B refundable health insurance premium tax credit added by the Patient Protection and Affordable Care Act, as amended. While the final rules address many matters, including the treatment of required waiting periods and relief from erroneous automatic enrollment in an employer-sponsored plan, they leave many issues for future guidance.

For example, the rules address when employer plan coverage is affordable for the employee (i.e., the employee’s contribution is no more than 9.5% of household income) but leave to future regulations the determination of whether coverage is affordable for related individuals who can enroll in the employer plan. The guidance authorizes the IRS to set out the effect on affordability of wellness incentives that alter an employee’s share of premiums. Also, whether an employer plan provides minimum value (i.e., the plan bears at least 60% of the total allowed costs of benefits provided) will depend on the approach that will be taken by the Department of Health and Human Services in calculating minimum value and how the IRS will apply that approach in determining minimum value for employer plans.

In calculating the premium tax credit, additional guidance will expand on the rules for determining the applicable benchmark plan to be used in the calculation, including how the rating area will be defined and what the applicable benchmark plan is for families with members residing in different locations.

While it may seem that the guidance leaves more questions unanswered than it answers, Treasury and the IRS invite comment on those matters left for future guidance. Will you take the opportunity to weigh in?

-Nadia Masri, Compensation Planning Group
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