Premium Tax Credits for Low-Income Individuals

The Individual Mandate


Eligibility for Minimum Essential Coverage for Purposes of the Premium Tax Credit

In general, an individual is not eligible for a premium tax credit if he or she is eligible for MEC (such as coverage under a government-sponsored program or an eligible employer-sponsored plan). However, eligibility for employer-sponsored coverage that is unaffordable will not disqualify a taxpayer from receiving a premium tax credit. Employer-sponsored coverage is unaffordable if the employee’s cost for self-only coverage exceeds 9.5 percent of the employee’s household income for the tax year (adjusted to 9.56 percent for plan years beginning in 2015 under Rev. Proc. 2014-37).

On Feb. 1, 2013, the IRS published additional final regulations to confirm that an employer-sponsored plan is affordable for related individuals (that is, family members) if the portion of the annual premium the employee must pay for self-only coverage does not exceed 9.5 percent of the taxpayer’s household income (adjusted to 9.56 percent for plan years beginning in 2015). Thus, the affordability determination for families is based on the cost of self-only coverage, not family coverage.

On June 26, 2013, the IRS released Notice 2013-41, which provides guidance for when an individual is treated as eligible for certain types of MEC where special circumstances exist.

     • CHIP Waiting Period— An individual subject to a waiting period before he
     or she can enroll in CHIP is not treated as eligible for CHIP and therefore
     may receive a premium tax credit during that waiting period.

     • Coverage Tied to a Certain Condition— An individual eligible for either:

             o Medicaid coverage as a result of disability or blindness

             o Medicare coverage as a result of disability or illness, is
             considered eligible for MEC under Medicaid or Medicare
             only upon a favorable determination of eligibility by the
             responsible agency. As a result, an individual with a condition
             that may make him or her eligible for Medicaid or Medicare
             may still be eligible for a premium tax credit unless and
             until the individual is determined to be eligible for
             Medicaid or Medicare.

     • Other Coverage, Including Coverage that may have a Substantial
     Premium—Individuals are considered eligible for certain types of
     MEC only if they are actually enrolled. These include:

             o Medicare part A coverage requiring payment of premiums

             o State high risk pools

             o Student health plans

             o Certain TRICARE programs, such as Young Adult and Reserve Select.

The ACA created a premium tax credit to help eligible individuals and families purchase health insurance through an Exchange. By reducing a taxpayer’s out-of-pocket premium costs, the credit is designed to make coverage through an Exchange more affordable. To be eligible for the premium tax credit, a taxpayer:

     • Must have household income for the year between 100 percent and 400
     percent of the federal poverty line (FPL) for the taxpayer’s family size

     • May not be claimed as a tax dependent of another taxpayer

     • Must file a joint return, if married

In addition, to receive the credit, a taxpayer must enroll in one or more qualified health plans through an Exchange.