Proposed Regulation on PPACA Premium Tax Credit – Part III

October 11, 2011 ( - On August 17, 2011, the Department of Treasury and IRS published a proposed regulation on the implementation of the PPACA premium tax credit provisions (the "Proposed Regulation"). 


In general, the Proposed Regulation clarifies which individuals are eligible for federal premium assistance to enroll in a qualified health plan through an Exchange and how that assistance will be calculated.  Importantly, it also provides guidance as to the circumstances under which employers will be subject to the “shared responsibility” penalty (which some have referred to as the “play or pay” or “employer mandate” penalty). 

We discussed these new rules in the last two columns (see Proposed Regulation on PPACA Premium Tax Credit  and Proposed Regulation on PPACA Premium Tax Credit – Part II), and continue with more frequently asked questions this week.

Can an individual receive a federal premium tax credit under PPACA with respect to coverage through a private exchange?

Individuals must be “applicable taxpayers” to be eligible for a premium tax credit and must be enrolled in one or more qualified health plans through an Exchange.  The Proposed Regulation generally defines “Exchange” as one that is established under PPACA, so an individual would not be eligible for a premium tax credit or cost-sharing subsidies if he or she enrolls in a health plan outside of an Exchange or through a private, non-PPACA Exchange. 

Which individuals are eligible for a premium tax credit? 

“Applicable taxpayers” include individuals who are lawfully present in the United States and have an income of at least 100 but not more than 400 percent of the federal poverty level (FPL).  Individuals with incomes of less than 100 percent of the FPL are generally not eligible for a premium tax credit because they are eligible for Medicaid.  Special rules are provided in the Proposed Regulation for (1) lawfully present aliens with household incomes of 100 percent or less of the FPL who are not eligible for Medicaid; (2) individuals for whom the Exchange projects household income between 100 and 400 percent of the FPL but whose actual income is less than 100 percent of the federal poverty level; and (3) individuals who are incarcerated or not lawfully present (and thus not eligible for Exchange coverage) but have family members who are eligible for Exchange coverage. 

How is the premium tax credit computed? 

The Proposed Regulation provides very complicated rules regarding how the premium tax credit is calculated.  In general, the premium tax credit equals the sum of the "premium assistance amounts" for each "coverage month" in a taxable year, and the premium assistance amounts are computed based on several factors, including the monthly premium of a benchmark plan.  In general, the benchmark plan is the second lowest cost silver plan in the Exchange that would cover the taxpayer's family members enrolled in Exchange coverage.  The premium tax credit amount generally is based on the difference between the premium for the benchmark plan and the applicable percentage of the individual's household income, regardless the qualified health plan in which the taxpayer is actually enrolled. 

A month is a "coverage month" eligible for a credit if the taxpayer pays the premium for coverage, or receives the benefit of an advance payment tax credit.  A month in which no member of the taxpayer's family is enrolled in Exchange coverage is not a coverage month.  Premiums paid on behalf of the taxpayer or other family members are treated as paid by the taxpayer for these purposes.


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Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.