Health Insurance Premium Tax Credit

SUMMARY: This document contains final regulations relating to the health insurance premium tax credit. These regulations affect individuals who enroll in qualified health plans through Affordable Insurance Exchanges (Exchanges, also called Marketplaces) and claim the premium tax credit and Exchanges that make qualified health plans available to individuals.

DATES:

Effective Date: These regulations are effective on July 24, 2017.

Applicability Date: For applicability dates, see SUBSEC 1.36B-2(d), 1.36B-3(m), 1.36B-4(c), and 1.162(l)-1(c).

FOR FURTHER INFORMATION CONTACT: Suzanne R. Sinno and Stephen J. Toomey at (202) 317-4718 and Shareen S. Pflanz at (202) 317-7006 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) under section 36B of the Internal Revenue Code (Code) relating to the health insurance premium tax credit and under section 162(l) of the Code relating to the deduction for health insurance costs for self-employed individuals. The Treasury Department and the IRS published final regulations under section 36B (TD 9590) on May 23, 2012 (77 FR 30385). These regulations were amended in 2014 by TD 9663, published on May 7, 2014 (79 FR 26117); in 2015 by TD 9745, published on December 18, 2015 (80 FR 78974); and in 2016 by TD 9804, published on December 19, 2016 (81 FR 91755).

On July 24, 2014, the Treasury Department and the IRS published final and temporary regulations under section 36B and section 162(l) (TD 9683) in the Federal Register (79 FR 43622), providing relief from the joint filing requirement for married victims of domestic abuse or spousal abandonment, the methodology for indexing certain percentages used in determining the amount of and eligibility for the premium tax credit, certain allocation rules for reconciliation of advance credit payments and the premium tax credit, and guidance on the deduction for health insurance costs of self-employed individuals. On the same date, a notice of proposed rulemaking (REG-104579-13) cross-referencing the temporary regulations was published in the Federal Register (79 FR 43693). Written comments responding to the proposed regulations were received. The comments have been considered in connection with these final regulations and are available for public inspection at www.regulations.gov or on request. No public hearing was requested or held. After consideration of all the comments, the proposed regulations are adopted by this Treasury decision, with one technical correction that was not identified in the comments.

Summary of Comments and Explanation of Provisions

1. Relief for Married Victims of Domestic Abuse or Spousal Abandonment

Section 36B provides a refundable premium tax credit to help individuals and families afford health insurance purchased through an Exchange. To be eligible for a premium tax credit under section 36B, section 36B(a) provides that an individual must be an applicable taxpayer. Section 36B(c)(1) defines an applicable taxpayer to mean a taxpayer (1) with household income for the taxable year that equals or exceeds 100 percent but does not exceed 400 percent of the federal poverty line for the taxpayer's family size, (2) who may not be claimed as a dependent by another taxpayer, and (3) who files a joint return if married (within the meaning of section 7703).

Section 1.36B-2T(b)(2)(i) provides that except as provided in SEC 1.36B-2T(b)(2)(ii), a married taxpayer is an applicable taxpayer allowed a premium tax credit only if the taxpayer files a joint return with his or her spouse. Under SEC 1.36B-2T(b)(2)(ii), a married taxpayer satisfies the joint filing requirement if the taxpayer files a tax return using a filing status of married filing separately and the taxpayer (i) is living apart from his or her spouse at the time the taxpayer files his or her tax return, (ii) is unable to file a joint return because the taxpayer is a victim of domestic abuse or spousal abandonment, and (iii) certifies on his or her income tax return in accordance with the relevant forms and instructions that the taxpayer meets these criteria for claiming a premium tax credit using a filing status of married filing separately. Taxpayers may not qualify for relief from the joint filing requirement for a period that exceeds three consecutive years. See SEC 1.36B-2T(b)(2)(v). The preamble to the temporary regulations included a specific request for comments on these rules.

A. Eligibility Criteria

Comments were generally favorable with respect to the criteria for eligibility for relief from the married filing jointly requirement under the temporary regulations. For example, commenters agreed with the rule in the temporary regulations that victims of domestic violence are not required to contact their spouse as a condition for qualifying for relief from the married filing jointly requirement. Commenters also agreed that relief from the married filing jointly requirement should be available even if the abuse or abandonment occurs in a taxable year other than the taxable year for which a taxpayer seeks relief. A number of commenters requested clarification regarding when a taxpayer is considered a victim of spousal abandonment. The rule in SEC 1.36B-2T(b)(2)(iv) of the temporary regulations provides that a taxpayer is a victim of spousal abandonment for a taxable year if, taking into account all of the facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence. A number of commenters requested that the final regulations include a definition for the term "reasonable diligence" for spousal abandonment. Other commenters suggested that the regulations broaden the "unable to locate" requirement for spousal abandonment to situations in which the spouse can be located but is uncooperative, poses a threat to the filing taxpayer, or refuses to grant a divorce to the filing taxpayer.

The final regulations do not provide a definition of reasonable diligence. The IRS will take into account all the facts and circumstances in determining whether a taxpayer exercised reasonable diligence in trying to locate his or spouse. A "one size fits all" definition is not appropriate for situations involving spousal abandonment because the facts of each situation are unique. Providing a definition for reasonable diligence could have the unintended consequence of preventing a taxpayer who merits relief from the married filing jointly requirement from meeting the reasonable diligence standard solely because the definition did not contemplate the taxpayer's particular circumstances.

In addition, the final regulations do not broaden the "unable to locate" rule to include situations in which a spouse poses a threat to the taxpayer claiming relief because the definition of domestic abuse in SEC 1.36B-2T(a)(2)(iii), which includes psychological or emotional abuse and efforts to intimidate the victim, already addresses these circumstances. Finally, relief from the married filing jointly requirement is not suitable for all situations in which the spouse can be located but is uncooperative.

B. Additional Exceptions

Several commenters requested that the IRS expand circumstances warranting relief from the married filing jointly requirement beyond domestic abuse and spousal abandonment. For instance, some commenters suggested that same-sex spouses who live in states that do not permit divorce for same-sex marriages, spouses living abroad, incarcerated spouses, and individuals who face challenges in filing a joint return because of their spouse's immigration status should also be eligible for relief from the married filing jointly requirement. Other commenters suggested that those eligible for relief because they are victims of domestic abuse or spousal abandonment should be able to file as single or head of household, rather than be limited to filing as married filing separately, citing the rules under section 6015 for innocent spouses as support for this position. Commenters also requested a one-year exception from the married filing jointly requirement for individuals who are separated but have not initiated a legal separation or divorce or who are in a long-term separation even if they are not victims of domestic abuse or spousal abandonment.

The final regulations do not expand relief from the married filing jointly requirement beyond domestic abuse and spousal abandonment. The relief finalized in these regulations is specifically tailored to address the limited and unique situations when the taxpayer is unable to file a joint return either because the taxpayer fears for his or her safety or, through no fault of the victim, can neither file a joint return because the non-filing spouse cannot be located nor obtain a divorce or legal separation because sufficient time has not lapsed under state law. In contrast, the circumstances described by the commenters do not warrant relief because the taxpayer is able to file a joint return.

Moreover, because the purposes of the innocent spouse rules and the rule in SEC 1.36B-2T(a)(2) for victims of domestic abuse and spousal abandonment are different, using the innocent spouse rules for domestic abuse or spousal abandonment victims is not appropriate. The innocent spouse rules provide relief from joint and several liability when a joint return is filed. In contrast, the relief provided in SEC 1.36B-2T(a)(2) allows a married victim of domestic abuse or spousal abandonment to claim a premium tax credit without filing a joint return. Therefore, because relief under SEC 1.36B-2T(a)(2) is available only for taxpayers who do not file a joint return, there is no need for the relief from joint and several liability provided by the innocent spouse rules.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final regulations and removal of temporary regulations.

CFR Part: "26 CFR Part 1"

RIN Number: "RIN 1545-BM09"

Citation: "82 FR 34601"

Document Number: "TD 9822"

Federal Register Page Number: "34601"

"Rules and Regulations"