Premium Tax Credit Regulation VI, 91755-91768 [2016-30037]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Rules and Regulations]
[Pages 91755-91768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30037]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9804]
RIN 1545-BN50


Premium Tax Credit Regulation VI

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final Regulations.

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SUMMARY: This document contains final regulations relating to the 
health insurance premium tax credit (premium tax credit). These final 
regulations affect individuals who enroll in qualified health plans 
through Health Insurance Exchanges (Exchanges, also called 
Marketplaces) and claim the premium tax credit, and Exchanges that make 
qualified health plans available to individuals and employers. These 
final regulations also affect individuals who are eligible for 
employer-sponsored health coverage.

DATES: Effective Date: These regulations are effective December 19, 
2016.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.36B-1(o), 1.36B-2(e), 1.36B-3(n), 1.36B-5(h), and 1.6011-8(b).

FOR FURTHER INFORMATION CONTACT: Steve Toomey at (202) 317-4735, 
Shareen Pflanz at (202) 317-4727, or Lisa Mojiri-Azad at (202) 317-4649 
(not toll-free calls).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2232.
    The collection of information in these regulations is in Sec.  
1.36B-5. The collection of information is necessary to reconcile 
advance payments of the premium tax credit and determine the allowable 
premium tax credit. The collection of information is required to comply 
with the provisions of section 36B of the Internal Revenue Code (Code). 
The likely respondents are Marketplaces that enroll individuals in 
qualified health plans.
    The burden for the collection of information contained in these 
regulations will be reflected in the burden estimate for Form 1095-A, 
Health Insurance Marketplace Statement, which is the form that the 
Marketplace will use to submit the information described in the final 
regulations.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

Background

    This document contains final regulations amending the Income Tax 
Regulations (26 CFR part 1) under section 36B relating to the health 
insurance premium tax credit. Section 36B was enacted by the Patient 
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 
(2010)), and the Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the 
Affordable Care Act). Final regulations under section 36B (TD 9590) 
were published on May 23, 2012 (77 FR 30,385). These regulations were 
amended in 2014 by TD 9663, published on May 7, 2014 (79 FR 26,117), 
and in 2015 by TD 9745, published December 18, 2015 (80 FR 78,974). On 
July 8, 2016, a notice of proposed rulemaking (REG-109086-15) was 
published in the Federal Register (81 FR 44,557). 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, in part, as amended by 
this Treasury decision. The rules proposed under REG-109086-15 on the 
effect of opt-out arrangements on an employee's required contribution 
for employer-sponsored coverage have been reserved and the Treasury 
Department and the IRS expect to finalize those regulations separately 
(see, section 1.d of this preamble).

Summary of Comments and Explanation of Provisions

1. Eligibility

a. Applicable Taxpayers
    A taxpayer is eligible for a premium tax credit only if the 
taxpayer is an applicable taxpayer. To be an applicable taxpayer, a 
taxpayer's household income generally must be between 100 percent and 
400 percent of the Federal poverty line (FPL) for the taxpayer's family 
size. The existing regulations in Sec.  1.36B-2(b)(6) allow a taxpayer 
whose household income is below 100 percent of the applicable FPL to be 
treated as an applicable taxpayer if (1) the taxpayer or a family 
member enrolls in a qualified health plan, (2) an Exchange estimates at 
the time of enrollment that the taxpayer's household income for the 
taxable year will be between 100 and 400 percent of the applicable FPL, 
(3) advance credit payments are authorized and paid for one or more 
months during the taxable year, and (4) the taxpayer would be an 
applicable taxpayer but for the fact that the taxpayer's household 
income for the taxable year is below 100 percent of the applicable FPL.
    An applicable taxpayer is allowed a premium tax credit for a month 
only if one or more members of the applicable taxpayer's family is 
enrolled in one or more qualified health plans through an Exchange and 
is not eligible for minimum essential coverage in that month. Section 
36B(c)(2), Sec.  1.36B-2(a). In general, government-sponsored programs 
are minimum essential coverage. Section 1.36B-2(c)(1). Under Sec.  
1.36B-2(c)(2)(v), an individual is treated as not eligible for 
Medicaid, the Children's Health Insurance Program (CHIP), or a similar 
program for a period of coverage under a qualified health

[[Page 91756]]

plan if, when the individual enrolls in the qualified health plan, an 
Exchange determines or considers (within the meaning of 45 CFR 
155.302(b)) the individual to be ineligible for such program.
    In addition, coverage under an eligible employer-sponsored plan is 
generally minimum essential coverage.\1\ However, an individual who may 
(but does not) enroll in an employer-sponsored plan is generally 
considered eligible for that plan only if the plan is considered 
affordable and provides minimum value. Section 36B(c)(2)(C), Sec.  
1.36B-2(c)(3). In addition, under the employee safe harbor in Sec.  
1.36B-2(c)(3)(v)(A)(3), an employer-sponsored plan is not considered 
affordable for a plan year if, when the employee or a related 
individual enrolls in a qualified health plan for a period coinciding 
with the plan year, an Exchange determines that the employer-sponsored 
plan is not affordable for that plan year.
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    \1\ In general, an eligible employer-sponsored plan is coverage 
provided by an employer to its employees (and their dependents) 
under a group health plan maintained by the employer. See section 
5000A(f)(2) and Sec.  1.5000A-2(c). Under section 5000A(f)(3) and 
Sec.  1.5000A-2(g), minimum essential coverage does not include any 
coverage that consists solely of excepted benefits described in 
section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the Public Health 
Service Act (PHS Act) (42 U.S.C. 300gg-91(c)), or regulations issued 
under those provisions (45 CFR 148.220). In general, excepted 
benefits are benefits that are limited in scope or are conditional.
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    The existing regulations describing the employee safe harbor 
contain an exception for reckless disregard for the facts. Under the 
exception, the safe harbor does not apply in situations in which an 
Exchange determines that an individual is not eligible for affordable 
employer-sponsored coverage because an individual, with reckless 
disregard of the facts, provides incorrect information to the Exchange 
regarding affordability of the plan.
    The proposed regulations add two additional intentional or reckless 
disregard exceptions to provisions regarding eligibility determinations 
by the Exchanges. First, to reduce the likelihood that individuals who 
recklessly or intentionally provide inaccurate information to an 
Exchange will benefit from the rule in Sec.  1.36B-2(b)(6) (regarding 
an Exchange determination that the taxpayer's household income for the 
taxable year will be between 100 and 400 percent of the applicable 
FPL), the proposed regulations provide that a taxpayer whose household 
income is below 100 percent of the applicable FPL for the taxpayer's 
family size does not receive the benefit of that rule if, with 
intentional or reckless disregard for the facts, the taxpayer provided 
incorrect information to an Exchange for the year of coverage.
    Second, the proposed regulations provide that an individual who was 
determined or considered by an Exchange to be ineligible for Medicaid, 
CHIP, or a similar program (such as a Basic Health Program) does not 
receive the benefit of the rule in Sec.  1.36B-2(c)(2)(v) (regarding an 
Exchange determination that an individual was not eligible for coverage 
under Medicaid, CHIP, or a similar program) if, with intentional or 
reckless disregard for the facts, the individual (or a person claiming 
a personal exemption for the individual) provided incorrect information 
to an Exchange for the year of coverage.
    In each of the three instances in the existing and proposed section 
36B regulations where an intentional or reckless disregard for the 
facts exception is provided, the proposed regulations clarify that a 
reckless disregard of the facts occurs if the taxpayer makes little or 
no effort to determine whether the information provided to the Exchange 
is accurate under circumstances that demonstrate a substantial 
deviation from the standard of conduct a reasonable person would 
observe. The proposed regulations also provide that a disregard of the 
facts is intentional if the taxpayer knows the information provided to 
the Exchange is inaccurate.
    Commenters asked that the final regulations clarify how the IRS 
will determine whether an individual has acted with reckless or 
intentional disregard of the facts, and how these standards will be 
applied and enforced. Some commenters requested that the final 
regulations clarify the definition of ``reckless disregard'' and 
provide examples. Other commenters expressed concern that the proposed 
rule would make taxpayers responsible for information provided by third 
parties who provide assistance with enrollment. Thus, the commenters 
recommended that the final regulations clarify that an individual is 
only responsible for information he or she provides to the Exchange and 
is not responsible for information provided by third parties. The 
commenters also suggested that the final regulations provide that 
individuals who use an expert to assist with enrolling in coverage 
should not be considered to have acted recklessly when relying on the 
expert's professional advice. Other commenters requested that the final 
regulations require that individuals be notified of the consequences of 
potential income-based eligibility fraud.
    A commenter also stated that, under the final regulations, the IRS 
should have the burden of showing that a taxpayer's incorrect 
information was provided to the Exchange with intentional or reckless 
disregard for the facts. One commenter suggested that the final 
regulations clarify that the reckless or intentional disregard for the 
facts exceptions will be applied on an individual basis. In addition, 
the commenter asked that the final regulations address how the 
intentional or reckless disregard for the facts exception, as it 
applies to the employee safe harbor in Sec.  1.36B-2(c)(3)(v)(A)(3), 
will be implemented by the Exchanges.
    Finally, one commenter requested that the final regulations not 
adopt the intentional or reckless disregard for the facts exceptions.
    After careful consideration of the comments received, the final 
regulations adopt the intentional or reckless disregard for the facts 
exception, and the definition of its terms, to the section 36B 
eligibility safe harbors for household income below 100 percent of the 
FPL, government programs such as Medicaid, and employer-sponsored 
coverage. As clarified in the proposed and final regulations, the 
intentional or reckless disregard for the facts exception applies only 
when the taxpayer knowingly provides inaccurate information to the 
Exchange or makes little or no effort to determine whether the 
information provided is accurate under circumstances that demonstrate a 
substantial deviation from the standard of conduct of a reasonable 
person. The commenters' concerns are further addressed in this 
preamble.
    These final regulations, in adopting the intentional or reckless 
disregard for the facts exceptions set forth in the proposed 
regulations without modification, do not create new or heightened 
standards or rules for determining whether a taxpayer acted with 
intentional or reckless disregard for the facts. Rather, the phrase 
``intentional or reckless disregard for the facts'' as used in the 
section 36B regulations has a similar meaning and application currently 
used in other areas of the Code. For example, an intentional or 
reckless disregard standard also is applied in determining eligibility 
for other tax credits such as the earned income tax credit and the 
American opportunity tax credit, see sections 32(k) and 25A(i)(7)(A).
    The IRS is responsible for enforcement of the intentional or 
reckless disregard for the facts exceptions during an examination of a 
taxpayer's tax return. Thus, the IRS must make the initial showing of 
facts

[[Page 91757]]

demonstrating intentional or reckless behavior. Exchanges have no role 
in enforcing or implementing this standard, although other provisions 
of law provide Exchanges the authority to impose penalties on 
individuals who provide incorrect information to an Exchange.
    To provide additional clarity, in general, the intentional or 
reckless disregard for the facts exception only applies to the conduct 
of the individual attesting to the Exchange. Thus, an individual is 
only responsible for the information that he or she provides to the 
Exchange and is not liable for inaccurate information provided by third 
parties, such as an employer.
    An individual's attestations, however, may affect the eligibility 
of all individuals who are listed on a Marketplace Application for 
Health Coverage and who the taxpayer intends at the time of enrollment 
to claim as a dependent. For example, if a taxpayer, with intentional 
or reckless disregard for the facts, provides incorrect information to 
an Exchange concerning his household income and receives advance credit 
payments for coverage of himself and his three dependents, and his 
actual household income is below 100% of the applicable FPL, then the 
taxpayer is not an applicable taxpayer and a premium tax credit is not 
allowed for his coverage or the coverage of his three dependents.
    Similarly, many individuals solicit and receive assistance with 
enrollment and completing the Marketplace Application for Health 
Coverage. To ensure effective and efficient enrollment through the 
Exchange, the Department of Health and Human Services uses Navigators, 
as described at 45 CFR 155.210, to assist potential applicants. In 
addition, the Marketplaces administer a program for individuals and 
entities to apply for and receive recognition as a certified 
application counselor, as defined in 45 CFR 155.225, who may formally 
offer and provide enrollment assistance to individuals and small 
businesses. Finally, 45 CFR 155.220 provides standards under which 
agents and brokers may register and facilitate enrollments through the 
Marketplaces. Navigators, certified application counselors, agents, and 
brokers (collectively, authorized advisors) receive comprehensive 
training on enrollment and completion of a Marketplace Application for 
Health Coverage, and individuals are encouraged to use them when making 
enrollment and advance credit payment decisions. Accordingly, for 
purposes of the final regulations, an individual does not act 
recklessly when following the advice of an authorized advisor, so long 
as the individual provided the authorized advisor with necessary and 
accurate information. Whether reliance on advice provided by a person 
other than an authorized advisor is reckless will depend on all of the 
relevant facts and circumstances, including whether reliance was 
reasonable and whether the taxpayer provided necessary and accurate 
information to the other person.
    To illustrate, assume Individual D is told by a Navigator that the 
child support payments D receives from her former spouse are included 
in her household income in determining whether she is eligible for 
advance credit payments. Relying on that information, D reports on a 
Marketplace Application for Health Coverage that her household income 
for the year of coverage will be over 100 percent of the applicable FPL 
for D's family size, and D receives the benefit of advance credit 
payments for the year. When filing her tax return for the year of 
coverage, D learns that child support payments are not included in her 
household income for the year of coverage and, thus, her household 
income is actually under 100 percent of the applicable FPL. D is not 
considered to have acted with intentional or reckless disregard for the 
facts because she relied on the advice of a Navigator in providing the 
information that the Marketplace used to determine whether she was 
eligible for advance credit payments. Thus, the provision in Sec.  
1.36B-2(b)(6) that allows a taxpayer whose household income is below 
100 percent of the applicable FPL to be treated as an applicable 
taxpayer will apply to D despite the fact that her household income for 
the taxable year is below 100 percent of the applicable FPL.
    In contrast, assume Individual E told the Navigator assisting with 
E's Marketplace Application for Health Coverage that E's lowest-cost 
option for purchasing self-only employer-sponsored coverage that 
provides minimum value would cost E $10,000 for the taxable year, when 
in fact E knew that he could purchase such coverage for $5,000. Based 
on the information E provided, the Navigator advises E that he should 
indicate on his Marketplace Application for Health Coverage that his 
required contribution for employer-sponsored coverage is $10,000. E 
follows this advice and consequently receives the benefit of advance 
credit payments for the year. During a subsequent examination, the IRS 
determines that E could have purchased employer-sponsored coverage that 
provides minimum value for $5,000. For the year of coverage, E is not 
considered to have reasonably relied on the advice of a Navigator in 
providing information to the Marketplace because E knowingly provided 
inaccurate information to the Navigator. Thus, the employee safe harbor 
in Sec.  1.36B-2(c)(3)(v)(A)(3) does not apply to E.
b. Nonappropriated Fund Health Benefits Program of the Department of 
Defense
    The proposed regulations provide that the Nonappropriated Fund 
Health Benefits Program of the Department of Defense (the Program) is 
treated as an eligible employer-sponsored plan for purposes of 
determining if an individual is eligible for minimum essential coverage 
under section 36B. This treatment conforms the regulations under 
section 36B to the regulations under section 5000A, which treat the 
Program as an eligible employer-sponsored plan. Thus, if coverage under 
the Program does not provide minimum value (under Sec.  1.36B-
2(c)(3)(vi)) or is not considered affordable (under Sec.  1.36B-
2(c)(3)(v)) for an individual who does not enroll in the coverage, he 
or she is not treated as eligible for minimum essential coverage under 
the Program for purposes of premium tax credit eligibility.
    One commenter requested that the final regulations clarify how 
Marketplaces will determine and verify whether an offer of coverage 
under the Program provides minimum value and is affordable. In general, 
employers are required to provide certain information to employees 
about the coverage that they offer, including information that is 
relevant to affordability and minimum value. These regulations do not 
make any changes to those requirements.
c. Eligibility for Employer-Sponsored Coverage for Months During a Plan 
Year
    The existing section 36B regulations provide that an individual is 
eligible for minimum essential coverage through an eligible employer-
sponsored plan if the individual had the opportunity to enroll in the 
plan and the plan is affordable and provides minimum value. Because in 
some instances individuals may not be allowed an annual opportunity to 
decide whether to enroll in eligible employer-sponsored coverage, the 
proposed regulations provide that if an individual declines to enroll 
in employer-sponsored coverage for a plan year and does not have the 
opportunity to enroll in that coverage for one or more succeeding plan 
years, for purposes of section 36B, the individual

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is treated as ineligible for that coverage for the succeeding plan year 
or years for which there is no enrollment opportunity. This rule 
relating to eligibility for employer-sponsored coverage is proposed to 
apply for taxable years beginning after December 31, 2016.\2\
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    \2\ Note that for purposes of section 4980H, in general, an 
applicable large employer will not be treated as having made an 
offer of coverage to a full-time employee for a plan year if the 
employee does not have an effective opportunity to elect to enroll 
in the coverage at least once with respect to the plan year. For 
this purpose, a plan year must be twelve consecutive months, unless 
a short plan year of less than twelve consecutive months is 
permitted for a valid business purpose. For additional rules on the 
definition of ``offer'' and ``plan year'' under section 4980H, see 
Sec. Sec.  54.4980H-1(a)(35), 54.4980H-4(b), and 54.4980H-5(b).
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    One commenter sought clarification on how this rule relating to 
eligibility for employer-sponsored coverage applies to employers with 
fiscal-year employer plans. The commenter also requests a delay in the 
effective date to allow additional time for implementation.
    The rule in the proposed regulations relating to eligibility for 
employer-sponsored coverage applies to fiscal year plans in the same 
manner that it applies to calendar year plans. For example, assume an 
employer offers an employee affordable, minimum value coverage for a 
plan year of April 1, 2017 through March 30, 2018. In addition, under 
the terms of the employer's plan, if the employee declines the coverage 
beginning on April 1, 2017, the employee is precluded from enrolling 
for the plan year of April 1, 2018 through March 30, 2019, absent a 
special enrollment period. Under the proposed regulations, the employee 
is treated as eligible for this employer-sponsored coverage only for 
the period between April 1, 2017 and March 31, 2018. Thus, assuming the 
employee does not enroll in the employer-sponsored coverage through a 
special enrollment period, the employee is not considered eligible for 
this employer coverage during the period April 1, 2018 through March 
31, 2019.
    The final regulations do not adopt the commenter's suggestion to 
delay the applicability date of the provision relating to eligibility 
for employer-sponsored coverage to a year after 2017. The Treasury 
Department and the IRS believe that it would be unfair to employees and 
their family members who do not have an annual opportunity to enroll in 
coverage offered to them by an employer to delay the applicability date 
of this provision. Consequently, the final regulations provide that 
this provision is applicable for taxable years beginning after December 
31, 2016.
d. Opt-Out Arrangements and An Employee's Required Contribution
    The proposed regulations provide rules on the effect of payments 
made available under opt-out arrangements on an employee's required 
contribution for purposes of eligibility for the premium tax credit and 
an exemption from the section 5000A individual shared responsibility 
provision.\3\ An opt-out arrangement is an arrangement under which a 
payment (called an opt-out payment) is made available to an employee by 
an employer only if the employee declines coverage under an eligible 
employer-sponsored plan offered by the employer. Prior to the proposed 
regulations, the Treasury Department and the IRS released Notice 2015-
87, 2015-52 I.R.B. 889, which also addressed the effect of opt-out 
arrangements on an employee's required contribution.
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    \3\ The amount of an employee's required contribution has 
consequences under section 4980H and the related reporting 
requirements under section 6056. For more information, see Notice 
2015-87, Q&A 7-9 and section 2.f of the preamble to the proposed 
rule (see 81 FR 44,561).
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    Several comments on the proposed rule were received. The Treasury 
Department and the IRS continue to examine the issues raised by opt-out 
arrangements and expect to finalize regulations on the effect of opt-
out arrangements on an employee's required contribution at a later 
time.
    As provided in Notice 2015-87, Q&A 9, and reiterated in the 
proposed rule, the regulations on opt-out arrangements generally will 
apply only for periods after the applicability of those final 
regulations. Until those final regulations are applicable, individuals 
and employers can continue to rely on the guidance provided in Notice 
2015-87 and on the proposed rule, including transition relief as 
clarified and expanded in section 2.f of the preamble to the proposed 
rule (for opt-out arrangements contained in collective bargaining 
agreements in effect before December 16, 2015). See 81 FR 44,561.
    Accordingly, until the applicability date of final regulations on 
opt-out arrangements, individuals may treat opt-out payments made 
available under unconditional opt-out arrangements (as defined in the 
Background section of the preamble to the proposed regulations (see 81 
FR 44,560)) as increasing the employee's required contribution for 
purposes of sections 36B and 5000A. In addition, for the same period, 
an individual who can demonstrate that he or she meets the condition(s) 
(in addition to declining the employer's health coverage) that must be 
satisfied to receive an opt-out payment under a conditional opt-out 
arrangement (as defined in the Background section of the preamble to 
the proposed regulations (see 81 FR 44,560)), may treat the amount of 
the conditional opt-out payment as increasing the employee's required 
contribution for purposes of sections 36B and 5000A.
    In contrast, until the applicability date of final regulations on 
opt-out arrangements, employers are not required to increase an 
employee's required contribution by the amount of an opt-out payment 
made available under an opt-out arrangement (other than a payment made 
available under a non-relief-eligible opt-out arrangement \4\) for 
purposes of section 6056 (Form 1095-C, Employer-Provided Health 
Insurance Offer and Coverage), and an opt-out payment made available 
under an opt-out arrangement (other than a payment made available under 
a non-relief-eligible opt-out arrangement) will not be treated as 
increasing an employee's required contribution for purposes of any 
potential consequences under section 4980H.
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    \4\ For a discussion of non-relief-eligible opt-out 
arrangements, see Notice 2015-87, Q&A 9 and section 2.f of the 
preamble of the proposed rule. See 81 FR 44,561.
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e. Effective Date of Eligibility for Minimum Essential Coverage When 
Advance Credit Payments Discontinuance Is Delayed
    The proposed regulations provide that if an individual who is 
enrolled in a qualified health plan for which advance credit payments 
are made informs the Exchange that the individual is or will soon be 
eligible for other minimum essential coverage and that advance credit 
payments should be discontinued, but the Exchange does not discontinue 
advance credit payments for the first calendar month beginning after 
the month the individual notifies the Exchange, the individual is 
treated as eligible for the other minimum essential coverage no earlier 
than the first day of the second calendar month beginning after the 
first month the individual may enroll in the other minimum essential 
coverage. Similarly, if a determination is made that an individual is 
eligible for Medicaid or CHIP but advance credit payments are not 
discontinued for the first calendar month beginning after the 
eligibility determination, the individual is treated as eligible for 
Medicaid or CHIP no earlier than the first day of the second

[[Page 91759]]

calendar month beginning after the determination.
    Commenters noted that the proposed regulations do not address how 
the IRS will identify and verify scenarios in which an individual 
requested prospective discontinuation of advance credit payments but 
there was a delay in the discontinuation. The commenters also pointed 
out that consumers may request an accelerated termination if the 
Exchange and health plan issuer allow it and the proposed regulations 
do not address how these scenarios will be handled. Consequently, the 
commenters requested that the IRS issue clear instructions and guidance 
for taxpayers and tax preparers for situations in which there is a 
delay discontinuing or terminating advance credit payments to ensure 
that taxpayers will not be subject to penalties or repayment of advance 
credit payments for which they are not responsible.
    The Instructions to Form 8962, Premium Tax Credit (PTC), and 
Publication 974, Premium Tax Credit, will include a discussion of this 
rule concerning eligibility for certain non-Marketplace minimum 
essential coverage when the discontinuance of advance credit payments 
is delayed. Furthermore, the IRS intends to, in Questions and Answers 
on www.irs.gov, address situations in which there is a delay in the 
discontinuance of advance credit payments and the taxpayer is allowed a 
premium tax credit for a month for which the taxpayer receives a Form 
1095-B or Form 1095-C showing that the taxpayer was enrolled in non-
Marketplace minimum essential coverage.
    Commenters requested that the final regulations acknowledge that 
this rule concerning eligibility for non-Marketplace minimum essential 
coverage when there has been a delay in the discontinuance of advance 
credit payments does not change the obligations of health plan issuers 
for prior years, notwithstanding that the rule in the proposed 
regulations may be relied on by taxpayers for taxable years beginning 
after December 31, 2013. Although the obligations of health plan 
issuers are generally outside the scope of these regulations, it is the 
understanding of the Treasury Department and the IRS, in consultation 
with the Department of Health and Human Services (HHS), that this rule 
regarding when an individual is eligible for certain non-Marketplace 
coverage does not affect the obligations of health plan issuers or the 
deadlines imposed by or on those issuers.
    One commenter requested that the rule extend to other situations, 
such as when an individual receiving the benefit of advance credit 
payments is incarcerated after disposition of charges. Under section 
1312(f)(1)(B) of the Affordable Care Act (42 U.S.C. 18032(f)(1)(B)), 
incarcerated individuals may not be enrolled through a Marketplace. 
However, unlike an individual enrolled in minimum essential coverage 
outside of the Marketplace, if there is a delay in disenrolling the 
incarcerated individual and discontinuing the advance credit payments, 
neither section 36B nor its regulations prohibit a taxpayer from 
claiming a premium tax credit for an incarcerated individual's 
Marketplace coverage. Thus, the final regulations do not adopt this 
comment.
    The same commenter also requested a change in the rule concerning 
delays in discontinuance of advance credit payments after a Medicaid or 
CHIP determination. Under the proposed regulations, if there is a delay 
in discontinuance of advance credit payments following a Medicaid or 
CHIP eligibility determination, the individual is treated as eligible 
for Medicaid or CHIP no earlier than the first day of the second 
calendar month beginning after the determination. The commenter stated 
that, under the final regulations, an individual should be treated as 
eligible for Medicaid or CHIP no earlier than the first day of the 
second calendar month beginning after the eligibility determination is 
communicated to the Exchange.
    The final regulations do not adopt this comment. The commenter is 
likely concerned about a situation in which the office that made a 
Medicaid or CHIP determination for an individual does not promptly 
notify the Marketplace of that status and the individual remains 
enrolled in Marketplace coverage with advance credit payments for 
multiple months. However, individuals enrolled in Marketplace coverage 
with advance credit payments who are determined eligible for Medicaid 
or CHIP should also promptly notify their Marketplace to discontinue 
the advance credit payments. Amending the rule to delay eligibility 
until the second month after the determination is communicated to the 
Marketplace effectively allows individuals who fail to promptly 
communicate with their Marketplaces to be dual enrolled for multiple 
months with advance credit payments.

2. Premium Assistance Amount

a. Payment of Taxpayer's Share of Premiums for Advance Credit Payments 
Following Appeal Determinations
    Under existing Sec.  1.36B-3(c)(1)(ii), a month is a coverage month 
for an individual only if the share of the premium for the individual's 
coverage for the month not covered by advance credit payments is paid 
by the unextended due date of the income tax return for the year of 
coverage of the taxpayer claiming a personal exemption for the 
individual.
    As discussed in the preamble to the proposed regulations, instances 
arise in which an individual is initially determined ineligible for 
advance credit payments, does not enroll in a qualified health plan 
pending the individual's appeal of the determination, and is later 
determined to be eligible for advance credit payments through the 
appeals process. If the individual then elects to be retroactively 
enrolled in an Exchange health plan, the deadline for paying premiums 
for the retroactive coverage may be after the unextended due date for 
filing an income tax return for the year of coverage. To address this 
issue, the proposed regulations provide that a taxpayer who is eligible 
for advance credit payments pursuant to an eligibility appeal for a 
member of the taxpayer's coverage family who, based on the appeals 
decision, retroactively enrolls in a qualified health plan, is 
considered to have met the requirement in Sec.  1.36B-3(c)(1)(ii) for a 
month if the taxpayer pays the individual's share of the premium for 
coverage under the plan for the month on or before the 120th day 
following the date of the appeals decision (the appeal premium payment 
period).
    A commenter opined that to ensure accurate and consistent 
identification and reporting of payment deadlines, the triggering event 
that begins the appeal premium payment period under the section 36B 
regulations should align with the triggering event provided in 45 CFR 
155.400(e)(1)(iii), which provides as follows: ``For coverage to be 
effectuated under retroactive effective dates, . . . the deadline for 
making the binder payment must be no earlier than 30 calendar days from 
the date the issuer receives the enrollment transaction.'' The 
commenter notes that the date the appeal premium payment period begins 
under the proposed regulations (the date of the appeals decision) is 
different from the date the period begins under 45 CFR 
155.400(e)(1)(iii) (the date the issuer receives the enrollment 
transaction) and suggests that the final regulations

[[Page 91760]]

conform to the language in 45 CFR 155.400(e)(1)(iii) because qualified 
health plan issuers would not know the date of the appeals decision and 
would not know whether the premium payment was made within 120 days of 
the appeals decision. The commenter also opined that the 120-day period 
in the proposed regulations may be too long for some retroactive 
enrollment scenarios, such as a situation in which an individual is 
enrolled in retroactive coverage for only a few months. The commenter 
also suggested that the appeal premium payment rule in the section 36B 
regulations should apply only in situations in which the appeal 
decision is after the individual's unextended due date for filing an 
income tax return for the year of coverage.
    The final regulations do not adopt the suggested changes. The 
purpose of the appeal premium payment period in the section 36B 
regulations is to ensure that taxpayers who pay their premiums within a 
reasonable time following a favorable appeal decision may qualify for a 
premium tax credit. On the other hand, the payment date rule in 45 CFR 
155.400(e)(1)(iii) relates to when the payment must be made to 
effectuate the retroactive coverage. Qualified health plan issuers need 
to know the date they received the enrollment transaction and thus 
whether the premium payments were timely made to effectuate the 
retroactive coverage, but have no need to know whether the payments 
were made within 120 days of the appeal decision. In addition, the 120-
day period is needed to provide equitable treatment, whether the appeal 
decision is before or after the unextended due date for filing an 
income tax return for the year of coverage. It would be inequitable to 
allow a taxpayer who gets a favorable appeal decision five days after 
the unextended due date of his or her tax return the benefit of the 
120-day appeal premium payment period but not extend the same benefit 
to a taxpayer who gets an appeal decision five days before the 
unextended due date.

3. Benchmark Plan Premium

a. Pediatric Dental Benefits
    Under the existing section 36B regulations, if a member of a 
taxpayer's coverage family is enrolled in a stand-alone dental plan, 
the portion of the monthly premium for the stand-alone dental plan 
allocable to pediatric dental benefits is added to the taxpayer's 
monthly enrollment premium in determining the taxpayer's premium 
assistance amount for the month. Under the existing regulations, 
however, the portion of the monthly premium for a stand-alone dental 
plan allocable to pediatric dental benefits does not affect the 
taxpayer's applicable benchmark plan premium.
    Because the existing regulations frustrate the goal of section 36B 
of making coverage for essential health benefits affordable to 
individuals eligible for the premium tax credit, the proposed 
regulations provide that, if an Exchange offers one or more silver-
level qualified health plans that do not include pediatric dental 
benefits, the applicable benchmark plan is determined by ranking (1) 
the premiums for the silver-level qualified health plans that include 
pediatric dental benefits offered by the Exchange and (2) the aggregate 
of the premiums for the silver-level qualified health plans offered by 
the Exchange that do not include pediatric dental benefits plus the 
portion of the premium allocable to pediatric dental benefits for 
stand-alone dental plans offered by the Exchange. In constructing this 
ranking, the premium for the lowest-cost silver plan that does not 
include pediatric dental benefits is added to the premium allocable to 
pediatric dental benefits for the lowest cost stand-alone dental plan, 
and similarly, the premium for the second lowest-cost silver plan that 
does not include pediatric dental benefits is added to the premium 
allocable to pediatric dental benefits for the second lowest-cost 
stand-alone dental plan. The second lowest-cost amount from this 
combined ranking of premiums is the taxpayer's applicable benchmark 
plan premium. Finally, the proposed regulations provide that the rule 
for determining the applicable benchmark plan for situations in which 
an Exchange offers one or more silver-level qualified health plans that 
do not cover pediatric dental benefits (the pediatric dental rule) is 
applicable for taxable years beginning after December 31, 2018.
    One commenter noted that the effect of the rule in the proposed 
regulations relating to pediatric dental benefits is that some 
taxpayers will have a lower monthly premium assistance amount as 
compared to their monthly premium assistance amount under the existing 
section 36B regulations. In particular, the commenter pointed to 
Example 4 of Sec.  1.36B-3(f)(9) of the proposed regulations in which 
the taxpayer's benchmark plan premium is lower under the rules of the 
proposed regulations than under the existing section 36B regulations. 
Under this example, the applicable benchmark plan premium would be 
based on the lowest-cost rather than the second-lowest-cost silver-
level qualified health plan. The commenter suggested that this is 
likely not a result intended by the Treasury Department and the IRS and 
recommended that the final regulations include a revision to the 
language of the proposed regulations to fix this unintended result.
    The final regulations adopt the recommendation in this comment. 
Under the final regulations, if one or more silver-level qualified 
health plans offered through an Exchange do not cover pediatric dental 
benefits, the premium for the applicable benchmark plan is determined 
based on the second lowest-cost option among (i) the silver-level 
qualified health plans that are offered by the Exchange to the members 
of the coverage family and that provide pediatric dental benefits; and 
(ii) the silver-level qualified health plans that are offered by the 
Exchange to the members of the coverage family that do not provide 
pediatric dental benefits in conjunction with the second lowest-cost 
portion of the premium for a stand-alone dental plan (within the 
meaning of section 1311(d)(2)(B)(ii) of the Affordable Care Act (42 
U.S.C. 18031(d)(2)(B)(ii)) offered by the Exchange to the members of 
the coverage family that is properly allocable to pediatric dental 
benefits. Thus, under the final regulations, if a taxpayer's coverage 
family is able to enroll in one or more silver-level qualified health 
plans that do not provide pediatric dental benefits, the second lowest-
cost portion of the premium for a stand-alone dental plan offered by 
the Exchange to the members of the coverage family that is properly 
allocable to pediatric dental benefits is added to the premium for each 
of those silver-level plans in determining the taxpayer's applicable 
benchmark plan.
    One commenter requested clarification on how to determine the 
portion of the premium of a stand-alone dental plan properly allocable 
to the cost of pediatric dental benefits. According to the commenter, 
the portion of a plan's premium that is allocable to each essential 
health benefit (EHB) is determined by using an EHB factor (a multiplier 
that applies to the plan and represents the portion of the total 
benefit package that represents the EHB), and the EHB factor does not 
change based on who is purchasing the plan and what benefits they are 
eligible to use. The commenter asks for clarification on if, and how, 
an EHB factor is to be applied to a stand-alone dental plan and whether 
a stand-alone dental plan should have a different EHB factor apply 
based on whether children, or only adults, are enrolled in the plan.

[[Page 91761]]

    The determination of the portion of the premium of a stand-alone 
dental plan properly allocable to pediatric dental benefits is outside 
the scope of these regulations. However, HHS has confirmed that, under 
its guidance, if no members of a taxpayer's coverage family are 
eligible for pediatric dental benefits, the portion of the premium 
allocable to pediatric dental benefits for all stand-alone dental plans 
the family may enroll in is $0.
    Another commenter stated that the pediatric dental rule in the 
proposed regulations is inconsistent with the provisions of section 
36B. Specifically, the commenter contends that the clear meaning of 
section 36B(b)(3)(E) is that the portion of a stand-alone pediatric 
dental plan premium allocable to pediatric dental benefits is added 
only to the enrollment premium, not the benchmark plan premium, in 
computing the premium tax credit, and is added only for taxpayers who 
have a family member who enrolls in a stand-alone dental plan. In 
addition, the commenter opines that the pediatric dental rule in the 
proposed regulations is overly complex and provides minimal benefit to 
a small group of taxpayers.
    The Treasury Department and the IRS disagree that the pediatric 
dental rule is inconsistent with the provisions of section 36B. 
Although, as noted by the commenter, section 36B(b)(3)(E) relates only 
to the portion of a stand-alone dental plan premium that is added to a 
taxpayer's enrollment premium, the proposed regulations do not rely 
upon an interpretation of section 36B(b)(3)(E). Rather, as discussed in 
the preamble of the proposed regulations, the pediatric dental rule is 
based on statutory references to ``self-only coverage'' and ``family 
coverage'' in section 36B(b)(3)(B)(ii), and is consistent with the 
overall goal of section 36B, which is to make affordable the coverage 
of each of the essential health benefits described in section 1302(b) 
of the Affordable Care Act for individuals eligible for a premium tax 
credit. As discussed, that coverage may be obtained from either a 
qualified health plan covering all of the essential health benefits or 
one covering all benefits except pediatric dental in combination with a 
stand-alone dental plan. Finally, although the pediatric dental rule 
does add some complexity to the determination of a taxpayer's 
applicable benchmark plan, the rule will, in general, not result in 
more complexity to taxpayers because they generally use the benchmark 
plan premium amount reported to them by Exchanges to compute their 
premium tax credit. In addition, the pediatric dental rule in the final 
regulations, which, for stand-alone dental plans, considers just the 
second lowest-cost portion of the premium properly allocable to 
pediatric dental benefits in the determination of a taxpayer's 
applicable benchmark plan, is less complex than the rule in the 
proposed regulations, which requires consideration of both the lowest-
cost and the second lowest-cost portion.
    Other commenters supported the pediatric dental rule and asked that 
taxpayers be allowed to compute their applicable benchmark plan using 
the pediatric dental rule in the proposed regulations for taxable years 
beginning before January 1, 2019. However, taxpayers must know their 
benchmark plan premium amount to properly compute their premium tax 
credit and, consequently, Exchanges must provide this information to 
taxpayers. Because this pediatric dental rule involves a change in the 
manner in which a taxpayer's applicable benchmark plan is determined, 
Exchanges need time to implement the new rule and have indicated that 
they are likely unable to do so for taxable years beginning before 
January 1, 2019. Consequently, the final regulations do not adopt this 
comment.
b. Members of Coverage Family Residing in Different States
    Under existing Sec.  1.36B-3(f)(4), if members of a taxpayer's 
family reside in different states and enroll in separate qualified 
health plans, the premium for the taxpayer's applicable benchmark plan 
is the sum of the premiums for the applicable benchmark plans for each 
group of family members living in the same state. Because this rule may 
not accurately reflect the cost of available coverage for a taxpayer 
whose family members reside in different locations in the same state, 
the proposed regulations provide that if members of a taxpayer's 
coverage family reside in different locations, whether within the same 
state or in different states, the taxpayer's benchmark plan premium is 
the sum of the premiums for the applicable benchmark plans for each 
group of coverage family members residing in different locations, based 
on the plans offered to the group through the Exchange for the rating 
area where the group resides. The proposed regulations provide that the 
rules for calculating the premium tax credit operate the same for 
families residing in multiple locations within a state and families 
residing in multiple states.
    One commenter expressed concern that the rule in the proposed 
regulations concerning the benchmark plan premium for members of the 
coverage family residing in different locations could result in unequal 
treatment of separate families, particularly in Marketplaces in which 
there are many rating areas within a relatively small geographic area 
and numerous plans are available for enrollment in many or all rating 
areas. Thus, the commenter asked that Marketplaces be allowed to use 
their own benchmark plan rating methodology rather than the rule in the 
proposed regulations for members of the coverage family who reside in 
different locations within a state.
    The final regulations do not adopt this comment. The amount of a 
taxpayer's premium tax credit depends on the taxpayer's applicable 
benchmark plan and the premium for that plan. Allowing Exchanges to use 
different methodologies to determine the benchmark plan premium could 
result in inequitable treatment of taxpayers in different locations. 
One Exchange's methodology would undoubtedly provide a more generous 
benchmark plan premium for taxpayers who enroll in a qualified health 
plan through that Exchange as compared to taxpayers who enroll through 
another Exchange using a different methodology.
    Another commenter asked that the final regulations clarify how the 
rule relating to family members residing in different locations works 
for farm workers who frequently migrate to find agricultural work, 
especially those who stay enrolled in the same plan despite the 
relocations. The rule concerning family members residing in different 
locations has no unique effect for individuals who frequently move to 
new locations and thus the final regulations include no new rules 
addressing this situation. HHS regulations at 45 CFR 155.335(e) require 
individuals who move to a new rating area to inform the Exchange in the 
new rating area of their move. The move may require a recomputation of 
the individual's advance credit payments, or perhaps necessitate the 
individual to enroll in a new qualified health plan, both of which are 
determined by the Exchange in the new rating area.
c. Aggregation of Silver-level Policies
    Existing Sec.  1.36B-3(f)(3) provides that if one or more silver-
level plans offered through an Exchange do not cover all members of a 
taxpayer's coverage family under one policy (for example, because an 
issuer will not cover a taxpayer's dependent parent on the same policy 
the taxpayer enrolls in), the premium for the applicable benchmark plan 
may be the premium for a single policy or for more than one policy, 
whichever is the second lowest-cost silver option. Because this rule is 
complex for

[[Page 91762]]

taxpayers and difficult for Exchanges and the IRS to administer, the 
proposed regulations delete the existing rule and provide a new rule in 
its place. Under the proposed regulations, if a silver-level plan 
offers coverage to all members of a taxpayer's coverage family who 
reside in the same location under a single policy, the plan premium 
taken into account for purposes of determining the applicable benchmark 
plan is the premium for that policy. However, if a silver-level plan 
would require multiple policies to cover all members of a taxpayer's 
coverage family who reside in the same location, the plan premium taken 
into account for purposes of determining the applicable benchmark plan 
is the sum of the premiums for self-only policies under the plan for 
each member of the coverage family who resides in the same location. 
The proposed regulations also requested comments on an alternative rule 
under which the sum of the premiums for self-only policies under a plan 
for each member of the taxpayer's coverage family would always be used 
to determine a taxpayer's applicable benchmark plan.
    One commenter asked that the final regulations adopt the 
alternative rule discussed in the preamble to the proposed regulations 
concerning the determination of a taxpayer's applicable benchmark plan, 
not the rules in the proposed regulations, which vary based on whether 
a single policy or multiple policies are needed to cover a taxpayer's 
family. The commenter opined that this alternative rule has the 
potential to streamline the applicable benchmark plan calculation with 
minimal impact to the amount of premium tax credit a taxpayer is 
allowed.
    The final regulations do not adopt this comment. Under HHS 
regulations, the qualified health plan premium for a taxpayer with 
three dependents is not increased by adding one or more additional 
dependents to the taxpayer's family. 45 CFR 147.102(c)(1). That is, the 
portion of the premium due to the taxpayer's dependents is capped at 
three dependents and does not increase as a result of adding more 
dependents to the family. However, if the alternative rule suggested by 
the commenter is adopted, a taxpayer with four or more dependents would 
have a higher benchmark plan premium than a similarly-situated taxpayer 
with three dependents even though the additional dependents do not add 
to the cost of the coverage for the taxpayer with four or more 
dependents. Thus, aggregating the sum of the self-only policies under a 
plan for each member of a taxpayer's coverage family may provide an 
undue benefit to taxpayers with four or more dependents. Accordingly, 
this approach should be limited to situations in which a silver-level 
plan requires multiple policies to cover all members of a taxpayer's 
coverage family who reside in the same location.
d. Effective/Applicability Dates
    Under the proposed regulations, the changes to the rules concerning 
the determination of a taxpayer's applicable benchmark plan are 
proposed to be applicable for tax years beginning after December 31, 
2018. Commenters noted that State-based Marketplaces often have very 
different eligibility and enrollment systems from the Federally-
Facilitated Marketplace and from each other, and the changes to the 
applicable benchmark plan rules will require significant changes to 
their systems and long timelines for implementation. Consequently, the 
commenters asked that the Treasury Department and the IRS provide 
flexibility to State-based Marketplaces and provide ample time between 
the effective date of the final regulations and the date the states 
must implement the benchmark plan changes.
    The final regulations do not alter the applicability date for the 
rule for computing the benchmark plan. Doing so would permit 
inequitable treatment of taxpayers in different locations and 
potentially have an adverse impact on certain taxpayers. Thus, the 
final regulations provide that the changes to the benchmark plan rules 
are applicable for taxable years beginning after December 31, 2018.

4. Information Reporting

    The proposed regulations provide that when multiple families enroll 
in a single qualified health plan and advance credit payments are made 
for the coverage, the enrollment premiums reported by the Exchange for 
each family are the family's allocable share of the enrollment 
premiums, which is based on the proportion of each family's applicable 
benchmark plan premium. One commenter requested clarification that this 
reporting rule applies only in situations in which a taxpayer requests 
financial assistance through advance credit payments or cost-sharing 
reductions, or is seeking to enroll in Medicaid. The final regulations, 
like the proposed regulations, provide that the Exchange must report a 
portion of the plan's enrollment premium to each enrolled family if 
multiple families enroll in a single qualified health plan and advance 
credit payments are made for coverage under the plan. The portion 
reported is based on the proportion of each family's applicable 
benchmark plan premium.
    The proposed regulations also provide that, if an individual's 
coverage in a qualified health plan is terminated before the last day 
of a month, or if an individual is enrolled in coverage after the first 
day of a month and the coverage is effective on the date of the 
individual's birth, adoption, or placement for adoption or in foster 
care, or on the effective date of a court order, an Exchange must 
report the enrollment premiums for the month (excluding the premium 
allocated to benefits in excess of essential health benefits), reduced 
by any amount that was refunded because the enrollment was for less 
than a full month. This reporting requirement was proposed to apply for 
taxable years beginning after December 31, 2016.
    One commenter expressed concern with the rule requiring that 
Exchanges reduce the reported enrollment premium by any amounts of the 
enrollment premiums that are refunded by the issuer of the qualified 
health plan. The commenter stated that this requirement is not 
something that currently is captured by its reporting system, and 
updating the system would require an effort that would be out of scale 
with the small size of the population enrolled for less than a full 
month. The commenter suggests that refund information could be obtained 
when a taxpayer computes his or her premium tax credit on the 
taxpayer's Federal income tax return. Alternatively, the commenter 
requested that this requirement become effective for a taxable year 
later than 2017. To provide enrollment systems additional time to 
implement the updates and system modifications necessary to accurately 
report refunds for partial months of coverage, the final regulations 
delay the applicability date for this rule by two years, so that it 
applies for taxable years beginning after December 31, 2018. Exchanges 
able to comply with the reporting rule before that date are encouraged 
to do so.

Effective/Applicability Date

    Except as otherwise provided, these final regulations apply for 
taxable years beginning after December 31, 2016. The rules relating to 
the benchmark plan premium described in section 3 of this preamble and 
the rules relating to reporting by the Exchanges described in section 4 
of this preamble apply for taxable years beginning after December 31, 
2018. As discussed in the Effective/Applicability Date section of the 
preamble to the proposed regulations, taxpayers may rely on certain 
provisions

[[Page 91763]]

of the proposed regulations for taxable years ending after December 31, 
2013.
    See section 1.d of this preamble for a discussion of the effective 
date/applicability date for proposed regulations regarding opt-out 
arrangements.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required.
    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact that the information collection 
required under these regulations is imposed under section 36B. 
Consistent with the statute, these regulations require Exchanges to 
report certain coverage information to the IRS and to furnish a 
statement to the responsible individual who enrolled an individual or 
family in the coverage. These regulations merely provide the method for 
reporting the information and furnishing the statements required under 
section 36B. Moreover, the regulations attempt to minimize the burden 
associated with this collection of information by limiting reporting to 
the information that the IRS requires to administer the premium tax 
credit.
    Based on these facts, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
    Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking that preceded this regulation was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business. No comments were received.

Drafting Information

    The principal authors of these proposed regulations are Lisa 
Mojiri-Azad, Shareen S. Pflanz, and Stephen J. Toomey of the Office of 
Associate Chief Counsel (Income Tax and Accounting). However, other 
personnel from the IRS and the Treasury Department participated in the 
development of the regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.36B-0 is amended by:
0
1. Adding the entries for Sec.  1.36B-2(b)(6)(i) and (ii).
0
2. Redesignating entry for Sec.  1.36B-2(c)(4) as (c)(5) and adding new 
entries for Sec.  1.36B-2(c)(3)(v)(A)(7), (c)(4), (c)(4)(i), 
(c)(4)(ii), (c)(4)(ii)(A), (c)(4)(ii)(B), (c)(5), (d), and (e).
0
3. Redesignating entry for Sec.  1.36B-3(c)(4) as (c)(5) and adding a 
new entry for Sec.  1.36B-3(c)(4).
0
4. Revising entries for Sec.  1.36B-3(d)(1) and (2).
0
5. Revising entries for Sec.  1.36B-3(f)(3), (4), and (5).
0
6. Adding entries for Sec.  1.36B-3(f)(5)(i) and (ii).
0
7. Revising entries for Sec.  1.36B-3(f)(6) and (7).
0
8. Adding entries for Sec.  1.36B-3(f)(8), (f)(9), (m), and (n).
0
9. Adding entries for Sec.  1.36B-5(c)(3)(iii), (c)(3)(iii)(A), and 
(c)(3)(iii)(B).
    The revisions and additions read as follows:


Sec.  1.36B-0  Table of contents.

* * * * *


Sec.  1.36B-2  Eligibility for premium tax credit.

* * * * *
    (b) * * *
    (6) * * *
    (i) In general.
    (ii) Exceptions.
* * * * *
    (c) * * *
    (3) * * *
    (v) * * *
    (A) * * *
    (7) Opt-out arrangements.
* * * * *
    (4) Special eligibility rules.
    (i) Related individual not claimed as a personal exemption 
deduction.
    (ii) Exchange unable to discontinue advance credit payments.
    (A) In general.
    (B) Medicaid or CHIP.
    (5) Related individuals not claimed as a personal exemption 
deduction.
    (d) [Reserved]
    (e) Effective/applicability dates.
* * * * *


Sec.  1.36B-3  Computing the premium assistance credit amount.

* * * * *
    (c) * * *
    (4) Appeals of coverage eligibility.
    (d) * * *
    (1) Premium assistance amount.
    (2) Examples.
* * * * *
    (f) * * *
    (3) Silver-level plan not covering pediatric dental benefits.
    (4) Family members residing in different locations.
    (5) Single or multiple policies needed to cover the family.
    (i) Policy covering a taxpayer's family.
    (ii) Policy not covering a taxpayer's family.
    (6) Plan not available for enrollment.
    (7) Benchmark plan terminates or closes to enrollment during the 
year.
    (8) Only one silver-level plan offered to the coverage family.
    (9) Examples.
* * * * *
    (m) [Reserved]
    (n) Effective/applicability date.


Sec.  1.36B-5  Information reporting by Exchanges.

* * * * *
    (c) * * *
    (3) * * *
    (iii) Partial month of coverage.
    (A) In general.
    (B) Certain mid-month enrollments.
* * * * *

0
Par. 3. Section 1.36B-1 is amended by revising paragraphs (l), (m), and 
(o) to read as follows:


Sec.  1.36B-1  Premium tax credit definitions.

* * * * *
    (l) Self-only coverage. Self-only coverage means health insurance 
that covers one individual and provides coverage for the essential 
health benefits as defined in section 1302(b)(1) of the Affordable Care 
Act (42 U.S.C. 18022).
    (m) Family coverage. Family coverage means health insurance that 
covers more than one individual and provides coverage for the essential 
health benefits as defined in section 1302(b)(1) of the Affordable Care 
Act (42 U.S.C. 18022).
* * * * *
    (o) Effective/applicability date. Except for paragraphs (l) and 
(m), this section applies to taxable years ending after December 31, 
2013. Paragraphs (l) and (m) of this section apply to taxable years 
beginning after December 31, 2018. Paragraphs (l) and (m) of Sec.  
1.36B-1 as contained in 26 CFR part I edition revised as of April 1, 
2016, apply to taxable years ending after December 31, 2013, and 
beginning before January 1, 2019.

[[Page 91764]]


0
Par. 4. Section 1.36B-2 is amended by:
0
1. Revising paragraph (b)(6) introductory text and paragraphs (b)(6)(i) 
and (ii).
0
2. Adding three sentences to the end of paragraph (c)(2)(v).
0
3. Revising paragraph (c)(3)(i).
0
4. Revising paragraph (c)(3)(iii)(A).
0
5. Removing the sentence at the end of the paragraph (c)(3)(v)(A)(3) 
and adding in its place three new sentences.
0
6. Adding paragraph (c)(3)(v)(A)(7).
0
7. Revising paragraph (c)(4).
0
8. Removing and reserving paragraph (d).
0
9. Adding paragraph (e).
    The revisions and additions read as follows:


Sec.  1.36B-2  Eligibility for premium tax credit.

* * * * *
    (b) * * *
    (6) Special rule for taxpayers with household income below 100 
percent of the Federal poverty line for the taxable year--(i) In 
general. A taxpayer (other than a taxpayer described in paragraph 
(b)(5) of this section) whose household income for a taxable year is 
less than 100 percent of the Federal poverty line for the taxpayer's 
family size is treated as an applicable taxpayer for the taxable year 
if--
    (A) The taxpayer or a family member enrolls in a qualified health 
plan through an Exchange for one or more months during the taxable 
year;
    (B) An Exchange estimates at the time of enrollment that the 
taxpayer's household income will be at least 100 percent but not more 
than 400 percent of the Federal poverty line for the taxable year;
    (C) Advance credit payments are authorized and paid for one or more 
months during the taxable year; and
    (D) The taxpayer would be an applicable taxpayer if the taxpayer's 
household income for the taxable year was at least 100 but not more 
than 400 percent of the Federal poverty line for the taxpayer's family 
size.
    (ii) Exceptions. This paragraph (b)(6) does not apply for an 
individual who, with intentional or reckless disregard for the facts, 
provides incorrect information to an Exchange for the year of coverage. 
A reckless disregard of the facts occurs if the taxpayer makes little 
or no effort to determine whether the information provided to the 
Exchange is accurate under circumstances that demonstrate a substantial 
deviation from the standard of conduct a reasonable person would 
observe. A disregard of the facts is intentional if the taxpayer knows 
the information provided to the Exchange is inaccurate.
* * * * *
    (c) * * *
    (2) * * *
    (v) * * * This paragraph (c)(2)(v) does not apply for an individual 
who, with intentional or reckless disregard for the facts, provides 
incorrect information to an Exchange for the year of coverage. A 
reckless disregard of the facts occurs if the taxpayer makes little or 
no effort to determine whether the information provided to the Exchange 
is accurate under circumstances that demonstrate a substantial 
deviation from the standard of conduct a reasonable person would 
observe. A disregard of the facts is intentional if the taxpayer knows 
that information provided to the Exchange is inaccurate.
* * * * *
    (3) * * *
    (i) In general. For purposes of section 36B, an employee who may 
enroll in an eligible employer-sponsored plan (as defined in section 
5000A(f)(2) and the regulations under that section) that is minimum 
essential coverage, and an individual who may enroll in the plan 
because of a relationship to the employee (a related individual), are 
eligible for minimum essential coverage under the plan for any month 
only if the plan is affordable and provides minimum value. Except for 
the Nonappropriated Fund Health Benefits Program of the Department of 
Defense, established under section 349 of the National Defense 
Authorization Act for Fiscal Year 1995 (Public Law 103-337; 10 U.S.C. 
1587 note), government-sponsored minimum essential coverage is not an 
eligible employer-sponsored plan. The Nonappropriated Fund Health 
Benefits Program of the Department of Defense is considered eligible 
employer-sponsored coverage, but not government-sponsored coverage, for 
purposes of determining if an individual is eligible for minimum 
essential coverage under this section.
* * * * *
    (iii) * * *
    (A) Failure to enroll in plan. An employee or related individual 
may be eligible for minimum essential coverage under an eligible 
employer-sponsored plan for a month during a plan year if the employee 
or related individual could have enrolled in the plan for that month 
during an open or special enrollment period for the plan year. If an 
enrollment period relates to coverage for not only the upcoming plan 
year (or the current plan year in the case of an enrollment period 
other than an open enrollment period), but also coverage in one or more 
succeeding plan years, this paragraph (c)(3)(iii)(A) applies only to 
eligibility for the coverage in the upcoming plan year (or the current 
plan year in the case of an enrollment period other than an open 
enrollment period).
* * * * *
    (v) * * *
    (A) * * *
    (3) * * * This paragraph (c)(3)(v)(A)(3) does not apply for an 
individual who, with intentional or reckless disregard for the facts, 
provides incorrect information to an Exchange concerning the portion of 
the annual premium for coverage for the employee or related individual 
under the plan. A reckless disregard of the facts occurs if the 
taxpayer makes little or no effort to determine whether the information 
provided to the Exchange is accurate under circumstances that 
demonstrate a substantial deviation from the standard of conduct a 
reasonable person would observe. A disregard of the facts is 
intentional if the taxpayer knows that the information provided to the 
Exchange is inaccurate.
* * * * *
    (7) Opt-out arrangements. [Reserved]
* * * * *
    (4) Special eligibility rules--(i) Related individual not claimed 
as a personal exemption deduction. An individual who may enroll in 
minimum essential coverage because of a relationship to another person 
eligible for the coverage, but for whom the other eligible person does 
not claim a personal exemption deduction under section 151, is treated 
as eligible for minimum essential coverage under the coverage only for 
months that the related individual is enrolled in the coverage.
    (ii) Exchange unable to discontinue advance credit payments--(A) In 
general. If an individual who is enrolled in a qualified health plan 
for which advance credit payments are made informs the Exchange that 
the individual is or will soon be eligible for other minimum essential 
coverage and that advance credit payments should be discontinued, but 
the Exchange does not discontinue advance credit payments for the first 
calendar month beginning after the month the individual informs the 
Exchange, the individual is treated as eligible for the other minimum 
essential coverage no earlier than the first day of the second calendar 
month beginning after the first month the individual may enroll in the 
other minimum essential coverage.
    (B) Medicaid or CHIP. If a determination is made that an individual 
who is enrolled in a qualified

[[Page 91765]]

health plan for which advance credit payments are made is eligible for 
Medicaid or CHIP but the advance credit payments are not discontinued 
for the first calendar month beginning after the eligibility 
determination, the individual is treated as eligible for the Medicaid 
or CHIP no earlier than the first day of the second calendar month 
beginning after the eligibility determination.
    (d) [Reserved]
    (e) Effective/applicability date. (1) Except as provided in 
paragraph (e)(2) of this section, this section applies to taxable years 
ending after December 31, 2013.
    (2) Paragraph (b)(6)(ii), the last three sentences of paragraph 
(c)(2)(v), paragraph (c)(3)(i), paragraph (c)(3)(iii)(A), the last 
three sentences of paragraph (c)(3)(v)(A)(3), and paragraph (c)(4) of 
this section apply to taxable years beginning after December 31, 2016. 
Paragraphs (b)(6), (c)(3)(i), (c)(3)(iii)(A), and (c)(4) of Sec.  
1.36B-2 as contained in 26 CFR part I edition revised as of April 1, 
2016, apply to taxable years ending after December 31, 2013, and 
beginning before January 1, 2017.

0
Par. 5. Section 1.36B-3 is amended by:
0
1. Redesignating paragraph (c)(4) as paragraph (c)(5) and adding a new 
paragraph (c)(4).
0
2. Revising paragraph (d)(1).
0
3. Revising paragraph (d)(2).
0
4. Revising paragraph (f).
0
5. Adding paragraph (n).
    The revisions and additions read as follows:


Sec.  1.36B-3  Computing the premium tax credit amount.

* * * * *
    (c) * * *
    (4) Appeals of coverage eligibility. A taxpayer who is eligible for 
advance credit payments pursuant to an eligibility appeal decision 
implemented under 45 CFR 155.545(c)(1)(ii) for coverage of a member of 
the taxpayer's coverage family who, based on the appeal decision, 
retroactively enrolls in a qualified health plan is considered to have 
met the requirement in paragraph (c)(1)(ii) of this section for a month 
if the taxpayer pays the taxpayer's share of the premiums for coverage 
under the plan for the month on or before the 120th day following the 
date of the appeals decision.
* * * * *
    (d) * * *
    (1) Premium assistance amount. The premium assistance amount for a 
coverage month is the lesser of--
    (i) The premiums for the month, reduced by any amounts that were 
refunded, for one or more qualified health plans in which a taxpayer or 
a member of the taxpayer's family enrolls (enrollment premiums); or
    (ii) The excess of the adjusted monthly premium for the applicable 
benchmark plan (benchmark plan premium) over \1/12\ of the product of a 
taxpayer's household income and the applicable percentage for the 
taxable year (the taxpayer's contribution amount).
    (2) Examples. The following examples illustrate the rules of 
paragraph (d)(1) of this section.

    Example 1. Taxpayer Q is single and has no dependents. Q enrolls 
in a qualified health plan with a monthly premium of $400. Q's 
monthly benchmark plan premium is $500, and his monthly contribution 
amount is $80. Q's premium assistance amount for a coverage month is 
$400 (the lesser of $400, Q's monthly enrollment premium, and $420, 
the difference between Q's monthly benchmark plan premium and Q's 
contribution amount).
    Example 2. (i) Taxpayer R is single and has no dependents. R 
enrolls in a qualified health plan with a monthly premium of $450. 
The difference between R's benchmark plan premium and contribution 
amount for the month is $420.
    (ii) The issuer of R's qualified health plan is notified that R 
died on September 20. The issuer terminates coverage as of that date 
and refunds the remaining portion of the September enrollment 
premiums ($150) for R's coverage.
    (iii) R's premium assistance amount for each coverage month from 
January through August is $420 (the lesser of $450 and $420). Under 
paragraph (d)(1) of this section, R's premium assistance amount for 
September is the lesser of the enrollment premiums for the month, 
reduced by any amounts that were refunded ($300 ($450-$150)) or the 
difference between the benchmark plan premium and the contribution 
amount for the month ($420). R's premium assistance amount for 
September is $300, the lesser of $420 and $300.
    Example 3. The facts are the same as in Example 2 of this 
paragraph (d)(2), except that the qualified health plan issuer does 
not refund any enrollment premiums for September. Under paragraph 
(d)(1) of this section, R's premium assistance amount for September 
is $420, the lesser of $450 and $420.
* * * * *
    (f) Applicable benchmark plan--(1) In general. Except as otherwise 
provided in this paragraph (f), the applicable benchmark plan for each 
coverage month is the second-lowest-cost silver plan (as described in 
section 1302(d)(1)(B) of the Affordable Care Act (42 U.S.C. 
18022(d)(1)(B))) offered to the taxpayer's coverage family through the 
Exchange for the rating area where the taxpayer resides for--
    (i) Self-only coverage for a taxpayer--
    (A) Who computes tax under section 1(c) (unmarried individuals 
other than surviving spouses and heads of household) and is not allowed 
a deduction under section 151 for a dependent for the taxable year;
    (B) Who purchases only self-only coverage for one individual; or
    (C) Whose coverage family includes only one individual; and
    (ii) Family coverage for all other taxpayers.
    (2) Family coverage. The applicable benchmark plan for family 
coverage is the second lowest-cost silver plan that would cover the 
members of the taxpayer's coverage family (such as a plan covering two 
adults if the members of a taxpayer's coverage family are two adults).
    (3) Silver-level plan not covering pediatric dental benefits. If 
one or more silver-level qualified health plans offered through an 
Exchange do not cover pediatric dental benefits, the premium for the 
applicable benchmark plan is determined based on the second lowest-cost 
option among--
    (i) The silver-level qualified health plans that are offered by the 
Exchange to the members of the coverage family and that provide 
pediatric dental benefits; and
    (ii) The silver-level qualified health plans that are offered by 
the Exchange to the members of the coverage family that do not provide 
pediatric dental benefits in conjunction with the second lowest-cost 
portion of the premium for a stand-alone dental plan (within the 
meaning of section 1311(d)(2)(B)(ii) of the Affordable Care Act (42 
U.S.C. 18031(d)(2)(B)(ii)) offered by the Exchange to the members of 
the coverage family that is properly allocable to pediatric dental 
benefits determined under guidance issued by the Secretary of Health 
and Human Services.
    (4) Family members residing in different locations. If members of a 
taxpayer's coverage family reside in different locations, the 
taxpayer's benchmark plan premium is the sum of the premiums for the 
applicable benchmark plans for each group of coverage family members 
residing in different locations, based on the plans offered to the 
group through the Exchange where the group resides. If all members of a 
taxpayer's coverage family reside in a single location that is 
different from where the taxpayer resides, the taxpayer's benchmark 
plan premium is the premium for the applicable benchmark plan for the 
coverage family, based on the plans offered through the Exchange to the

[[Page 91766]]

taxpayer's coverage family for the rating area where the coverage 
family resides.
    (5) Single or multiple policies needed to cover the family--(i) 
Policy covering a taxpayer's family. If a silver-level plan or a stand-
alone dental plan offers coverage to all members of a taxpayer's 
coverage family who reside in the same location under a single policy, 
the premium (or allocable portion thereof, in the case of a stand-alone 
dental plan) taken into account for the plan for purposes of 
determining the applicable benchmark plan under paragraphs (f)(1), 
(f)(2), and (f)(3) of this section is the premium for this single 
policy.
    (ii) Policy not covering a taxpayer's family. If a silver-level 
qualified health plan or a stand-alone dental plan would require 
multiple policies to cover all members of a taxpayer's coverage family 
who reside in the same location (for example, because of the 
relationships within the family), the premium (or allocable portion 
thereof, in the case of a standalone dental plan) taken into account 
for the plan for purposes of determining the applicable benchmark plan 
under paragraphs (f)(1), (f)(2), and (f)(3) of this section is the sum 
of the premiums (or allocable portion thereof, in the case of a stand-
alone dental plan) for self-only policies under the plan for each 
member of the coverage family who resides in the same location.
    (6) Plan not available for enrollment. A silver-level qualified 
health plan or a stand-alone dental plan that is not open to enrollment 
by a taxpayer or family member at the time the taxpayer or family 
member enrolls in a qualified health plan is disregarded in determining 
the applicable benchmark plan.
    (7) Benchmark plan terminates or closes to enrollment during the 
year. A silver-level qualified health plan or a stand-alone dental plan 
that is used for purposes of determining the applicable benchmark plan 
under this paragraph (f) for a taxpayer does not cease to be the 
applicable benchmark plan for a taxable year solely because the plan or 
a lower cost plan terminates or closes to enrollment during the taxable 
year.
    (8) Only one silver-level plan offered to the coverage family. If 
there is only one silver-level qualified health plan or one stand-alone 
dental plan offered through an Exchange that would cover all members of 
a taxpayer's coverage family who reside in the same location (whether 
under one policy or multiple policies), that plan is used for purposes 
of determining the taxpayer's applicable benchmark plan.
    (9) Examples. The following examples illustrate the rules of this 
paragraph (f). Unless otherwise stated, in each example the plans are 
open to enrollment to a taxpayer or family member at the time of 
enrollment and are offered through the Exchange for the rating area 
where the taxpayer resides:
    Example 1. Single taxpayer enrolls in Exchange coverage. 
Taxpayer A is single, has no dependents, and enrolls in a qualified 
health plan. The Exchange in the rating area in which A resides 
offers only silver-level qualified health plans that provide 
pediatric dental benefits. Under paragraphs (f)(1) and (f)(2) of 
this section, A's applicable benchmark plan is the second lowest 
cost silver plan providing self-only coverage for A.
    Example 2. Single taxpayer enrolls with dependent child through 
an Exchange where all qualified health plans provide pediatric 
dental benefits. Taxpayer B is single and claims her 12-year old 
daughter, C, as a dependent. B purchases family coverage for herself 
and C. The Exchange in the rating area in which B and C reside 
offers qualified health plans that provide pediatric dental benefits 
but does not offer qualified health plans without pediatric dental 
benefits. Under paragraphs (f)(1) and (f)(2) of this section, B's 
applicable benchmark plan is the second lowest-cost silver plan 
providing family coverage to B and C.
    Example 3. Single taxpayer enrolls with dependent child through 
an Exchange where one or more qualified health plans do not provide 
pediatric dental benefits. (i) Taxpayer D is single and claims his 
10-year old son, E, as a dependent. The Exchange in the rating area 
in which D and E reside offers three silver-level qualified health 
plans, one of which provides pediatric dental benefits (S1) and two 
of which do not (S2 and S3), in which D and E may enroll. The 
Exchange also offers two stand-alone dental plans (DP1 and DP2) 
available to D and E. The monthly premiums allocable to essential 
health benefits for the silver-level plans are as follows:
S1--$650
S2--$620
S3--$590
    (ii) The monthly premiums, and the portion of the premium 
allocable to pediatric dental benefits, for the two dental plans are 
as follows:
DP1--$50 ($20 allocable to pediatric dental benefits)
DP2--$40 ($15 allocable to pediatric dental benefits).
    (iii) Under paragraph (f)(3) of this section, D's applicable 
benchmark plan is the second lowest cost option among the following 
offered by the rating area in which D resides: Silver-level 
qualified health plans providing pediatric dental benefits ($650 for 
S1) and the silver-level qualified health plans not providing 
pediatric dental benefits, in conjunction with the second lowest-
cost portion of the premium for a stand-alone dental plan properly 
allocable to pediatric dental benefits ($590 for S3 in conjunction 
with $20 for DP1 = $610 and $620 for S2 in conjunction with $20 for 
DP1 = $640). Under paragraph (e) of this section, the adjusted 
monthly premium for D's applicable benchmark plan is $640.
    Example 4. Single taxpayer enrolls with dependent adult through 
an Exchange where one or more qualified health plans do not provide 
pediatric dental benefits. (i) The facts are the same as in Example 
3, except Taxpayer D's coverage family consists of D and D's 22-year 
old son, F, who is a dependent of D. The monthly premiums allocable 
to essential health benefits for the silver-level plans are as 
follows:
S1--$630
S2--$590
S3--$580
    (ii) Because no one in D's coverage family is eligible for 
pediatric dental benefits, $0 of the premium for a stand-alone 
dental plan is allocable to pediatric dental benefits in determining 
A's applicable benchmark plan. Consequently, under paragraphs 
(f)(1), (f)(2), and (f)(3) of this section, D's applicable benchmark 
plan is the second lowest-cost option among the following options 
offered by the rating area in which D resides: Silver-level 
qualified health plans providing pediatric dental benefits ($630 for 
S1) and the silver-level qualified health plans not providing 
pediatric dental benefits, in conjunction with the second lowest-
cost portion of the premium for a stand-alone dental plan properly 
allocable to pediatric dental benefits ($580 for S3 in conjunction 
with $0 for DP1 = $580 and $590 for S2 in conjunction with $0 for 
DP1 = $590). Under paragraph (e) of this section, the adjusted 
monthly premium for D's applicable benchmark plan is $590.
    Example 5. Single taxpayer enrolls with dependent and 
nondependent. Taxpayer G is single and resides with his 25-year old 
daughter, H, and with his 14-year old son, I. G may claim I, but not 
H, as a dependent. G, H, and I enroll in coverage through the 
Exchange in the rating area in which they all reside. The Exchange 
offers only silver-level plans providing pediatric dental benefits. 
Under paragraphs (f)(1) and (f)(2) of this section, G's applicable 
benchmark plan is the second lowest-cost silver plan covering G and 
I. However, H may qualify for a premium tax credit if H is otherwise 
eligible. See paragraph (h) of this section.
    Example 6. Change in coverage family. Taxpayer J is single and 
has no dependents when she enrolls in a qualified health plan. The 
Exchange in the rating area in which she resides offers only silver-
level plans that provide pediatric dental benefits. On August 1, J 
has a child, K, whom she claims as a dependent. J enrolls in a 
qualified health plan covering J and K effective August 1. Under 
paragraphs (f)(1) and (f)(2) of this section, J's applicable 
benchmark plan for January through July is the second lowest-cost 
silver plan providing self-only coverage for J, and J's applicable 
benchmark plan for the months August through December is the second 
lowest-cost silver plan covering J and K.
    Example 7. Minimum essential coverage for some coverage months. 
Taxpayer L claims his 6-year old daughter, M, as a dependent. L and 
M are enrolled for the entire year in a qualified health plan that 
offers only silver-level plans that provide pediatric dental 
benefits. L, but not M, is eligible for government-sponsored minimum 
essential

[[Page 91767]]

coverage for September to December. Thus, under paragraph 
(c)(1)(iii) of this section, January through December are coverage 
months for M, and January through August are coverage months for L. 
Because, under paragraphs (d) and (f)(1) of this section, the 
premium assistance amount for a coverage month is computed based on 
the applicable benchmark plan for that coverage month, L's 
applicable benchmark plan for January through August is the second 
lowest-cost option covering L and M. Under paragraph (f)(1)(i)(C) of 
this section, L's applicable benchmark plan for September through 
December is the second lowest-cost silver plan providing self-only 
coverage for M.
    Example 8. Family member eligible for minimum essential coverage 
for the taxable year. The facts are the same as in Example 7, except 
that L is not eligible for government-sponsored minimum essential 
coverage for any months and M is eligible for government sponsored 
minimum essential coverage for the entire year. Under paragraph 
(f)(1)(i)(C) of this section, L's applicable benchmark plan is the 
second lowest-cost silver plan providing self-only coverage for L.
    Example 9. Benchmark plan premium for a coverage family with 
family members who reside in different locations. (i) Taxpayer N's 
coverage family consists of N and her three dependents O, P, and Q. 
N, O, and P reside together but Q resides in a different location. 
The monthly applicable benchmark plan premium for N, O, and P is 
$1,000 and the monthly applicable benchmark plan premium for Q is 
$220.
    (ii) Under paragraph (f)(4) of this section, because the members 
of N's coverage family reside in different locations, the monthly 
premium for N's applicable benchmark plan is the sum of $1,000, the 
monthly premiums for the applicable benchmark plan for N, O, and P, 
who reside together, and $220, the monthly applicable benchmark plan 
premium for Q, who resides in a different location than N, O, and P. 
Consequently, the premium for N's applicable benchmark plan is 
$1,220.
    Example 10. Aggregation of silver-level policies for plans not 
covering a family under a single policy. (i) Taxpayers R and S are 
married and live with S's mother, T, whom they claim as a dependent. 
The Exchange for their rating area offers self-only and family 
coverage at the silver level through Issuers A, B, and C, which each 
offer only one silver-level plan. The silver-level plans offered by 
Issuers A and B do not cover R, S, and T under a single policy. The 
silver-level plan offered by Issuer A costs the following monthly 
amounts for self-only coverage of R, S, and T, respectively: $400, 
$450, and $600. The silver-level plan offered by Issuer B costs the 
following monthly amounts for self-only coverage of R, S, and T, 
respectively: $250, $300, and $450. The silver-level plan offered by 
Issuer C provides coverage for R, S, and T under one policy for a 
$1,200 monthly premium.
    (ii) Under paragraph (f)(5) of this section, Issuer C's silver-
level plan that covers R, S, and T under one policy ($1,200 monthly 
premium) and Issuer A's and Issuer B's silver-level plans that do 
not cover R, S and T under one policy are considered in determining 
R's and S's applicable benchmark plan. In addition, under paragraph 
(f)(5)(ii) of this section, in determining R's and S's applicable 
benchmark plan, the premium taken into account for Issuer A's plan 
is $1,450 (the aggregate premiums for self-only policies covering R 
($400), S ($450), and T ($600) and the premium taken into account 
for Issuer B's plan is $1,000 (the aggregate premiums for self-only 
policies covering R ($250), S ($300), and T ($450). Consequently, 
R's and S's applicable benchmark plan is the Issuer C silver-level 
plan covering R's and S's coverage family and the premium for their 
applicable benchmark plan is $1,200.
    Example 11. Benchmark plan premium for a taxpayer with family 
members who cannot enroll in one policy and who reside in different 
locations. (i) Taxpayer U's coverage family consists of U, U's 
mother, V, and U's two daughters, W and X. U and V reside together 
in Location 1 and W and X reside together in Location 2. The 
Exchange in the rating area in which U and V reside does not offer a 
silver-level plan that covers U and V under a single policy, whereas 
all the silver-level plans offered through the Exchange in the 
rating area in which W and X reside cover W and X under a single 
policy. Both Exchanges offer only silver-level plans that provide 
pediatric dental benefits. The silver plan offered by the Exchange 
for the rating area in which U and V reside that would cover U and V 
under self-only policies with the second-lowest aggregate premium 
costs $400 a month for self-only coverage for U and $600 a month for 
self-only coverage for V. The monthly premium for the second-lowest 
cost silver plan covering W and X that is offered by the Exchange 
for the rating area in which W and X reside is $500.
    (ii) Under paragraph (f)(5)(ii) of this section, because 
multiple policies are required to cover U and V, the members of U's 
coverage family who reside together in Location 1, the premium taken 
into account in determining U's benchmark plan is $1,000, the sum of 
the premiums for the second-lowest aggregate cost of self-only 
policies covering U ($400) and V ($600) offered by the Exchange to U 
and V for the rating area in which U and V reside. Under paragraph 
(f)(5)(i) of this section, because all silver-level plans offered by 
the Exchange in which W and X reside cover W and X under a single 
policy, the premium for W and X's coverage that is taken into 
account in determining U's benchmark plan is $500, the second-lowest 
cost silver policy covering W and X that is offered by the Exchange 
for the rating area in which W and X reside. Under paragraph (f)(4) 
of this section, because the members of U's coverage family reside 
in different locations, U's monthly benchmark plan premium is 
$1,500, the sum of the premiums for the applicable benchmark plans 
for each group of family members residing in different locations 
($1,000 for U and V, who reside in Location 1, plus $500 for W and 
X, who reside in Location 2).
    Example 12. Qualified health plan closed to enrollment. Taxpayer 
Y has two dependents, Z and AA. Y, Z, and AA enroll in a qualified 
health plan through the Exchange for the rating area where the 
family resides. The Exchange, which offers only qualified health 
plans that include pediatric dental benefits, offers silver-level 
plans J, K, L, and M, which are, respectively, the first, second, 
third, and fourth lowest cost silver plans covering Y's family. When 
Y's family enrolls, Plan J is closed to enrollment. Under paragraph 
(f)(6) of this section, Plan J is disregarded in determining Y's 
applicable benchmark plan, and Plan L is used in determining Y's 
applicable benchmark plan.
    Example 13. Benchmark plan closes to new enrollees during the 
year. (i) Taxpayers BB, CC, and DD each have coverage families 
consisting of two adults. In that rating area, Plan 2 is the second 
lowest cost silver plan and Plan 3 is the third lowest cost silver 
plan covering the two adults in each coverage family offered through 
the Exchange. The BB and CC families each enroll in a qualified 
health plan that is not the applicable benchmark plan (Plan 4) in 
November during the annual open enrollment period. Plan 2 closes to 
new enrollees the following June. Thus, on July 1, Plan 3 is the 
second lowest cost silver plan available to new enrollees through 
the Exchange. The DD family enrolls in a qualified health plan in 
July.
    (ii) Under paragraphs (f)(1), (f)(2), (f)(3), and (f)(7) of this 
section, the silver-level plan that BB and CC use to determine their 
applicable benchmark plan for all coverage months during the year is 
Plan 2. The applicable benchmark plan that DD uses to determine DD's 
applicable benchmark plan is Plan 3, because Plan 2 is not open to 
enrollment through the Exchange when the DD family enrolls.
    Example 14. Benchmark plan terminates for all enrollees during 
the year. The facts are the same as in Example 13, except that Plan 
2 terminates for all enrollees on June 30. Under paragraphs (f)(1), 
(f)(2), (f)(3), and (f)(7) of this section, Plan 2 is the silver-
level plan that BB and CC use to determine their applicable 
benchmark plan for all coverage months during the year, and Plan 3 
is the applicable benchmark plan that DD uses.
    Example 15. Exchange offers only one silver-level plan. Taxpayer 
EE's coverage family consists of EE, his spouse FF, and their two 
dependent children GG and HH, who all reside together. The Exchange 
for the rating area in which they reside offers only one silver-
level plan that EE's family may enroll in and the plan does not 
provide pediatric dental benefits. The Exchange also offers one 
stand-alone dental plan in which the family may enroll. Under 
paragraph (f)(8) of this section, the silver-level plan and the 
stand-alone dental plan offered by the Exchange are used for 
purposes of determining EE's applicable benchmark plan under 
paragraph (f)(3) of this section. Moreover, the lone silver-level 
plan and the lone stand-alone dental plan offered by the Exchange 
are used for purposes of determining EE's applicable benchmark plan 
regardless of whether these plans cover EE's family under a single 
policy or multiples policies.
* * * * *
    (n) Effective/applicability date. (1) Except as provided in 
paragraph (n)(2) of this section, this section applies to

[[Page 91768]]

taxable years ending after December 31, 2013.
    (2) Paragraphs (c)(4), (d)(1) and (d)(2) of this section apply to 
taxable years beginning after December 31, 2016. Paragraph (f) of this 
section applies to taxable years beginning after December 31, 2018. 
Paragraphs (d)(1) and (d)(2) of Sec.  1.36B-3, as contained in 26 CFR 
part I edition revised as of April 1, 2016, applies to taxable years 
ending after December 31, 2013, and beginning before January 1, 2017. 
Paragraph (f) of Sec.  1.36B-3, as contained in 26 CFR part I edition 
revised as of April 1, 2016, applies to taxable years ending after 
December 31, 2013, and beginning before January 1, 2019.

0
Par. 6. Section 1.36B-5 is amended by:
0
1. Adding a sentence to the end of paragraph (c)(3)(i).
0
2. Adding paragraphs (c)(3)(iii) and (h).
    The additions read as follows:


Sec.  1.36B-5  Information reporting by Exchanges.

* * * * *
    (c) * * *
    (3) * * *
    (i) * * * If advance credit payments are made for coverage under 
the plan, the enrollment premiums reported to each family under 
paragraph (c)(1)(viii) of this section are the premiums allocated to 
the family under Sec.  1.36B-3(h) (allocating enrollment premiums to 
each taxpayer in proportion to the premiums for each taxpayer's 
applicable benchmark plan).
* * * * *
    (iii) Partial month of coverage.--(A) In general. Except as 
provided in paragraph (c)(3)(iii)(B) of this section, if an individual 
is enrolled in a qualified health plan after the first day of a month, 
the amount reported for that month under paragraphs (c)(1)(iv), 
(c)(1)(v), and (c)(1)(viii) of this section is $0.
    (B) Certain mid-month enrollments. For information reporting that 
is due on or after January 1, 2019, if an individual's qualified health 
plan is terminated before the last day of a month, or if an individual 
is enrolled in coverage after the first day of a month and the coverage 
is effective on the date of the individual's birth, adoption, or 
placement for adoption or in foster care, or on the effective date of a 
court order, the amount reported under paragraphs (c)(1)(iv) and 
(c)(1)(v) of this section is the premium for the applicable benchmark 
plan for a full month of coverage (excluding the premium allocated to 
benefits in excess of essential health benefits), and the amount 
reported under paragraph (c)(1)(viii) of this section is the enrollment 
premium for the month, reduced by any amounts that were refunded.
* * * * *
    (h) Effective/applicability date. Except for the last sentence of 
paragraph (c)(3)(i) of this section and paragraph (c)(3)(iii) of this 
section, this section applies to taxable years ending after December 
31, 2013. The last sentence of paragraph (c)(3)(i) of this section and 
paragraph (c)(3)(iii) of this section apply to taxable years beginning 
after December 31, 2018. Paragraph (c)(3) of Sec.  1.36B-5 as contained 
in 26 CFR part I edition revised as of April 1, 2016, applies to 
information reporting for taxable years ending after December 31, 2013, 
and beginning before January 1, 2019.

0
Par. 7. Section 1.5000A-3 is amended by adding a new paragraph 
(e)(3)(ii)(G) to read as follows:


Sec.  1.5000A-3  Exempt individuals.

* * * * *
    (e) * * *
    (3) * * *
    (ii) * * *
    (G) Opt-out arrangements. [Reserved]
* * * * *

0
Par. 8. Section 1.6011-8 is revised to read as follows:


Sec.  1.6011-8   Requirement of income tax return for taxpayers who 
claim the premium tax credit under section 36B.

    (a) Requirement of return. Except as otherwise provided in this 
paragraph (a), a taxpayer who receives the benefit of advance payments 
of the premium tax credit under section 36B must file an income tax 
return for that taxable year on or before the due date for the return 
(including extensions of time for filing) and reconcile the advance 
credit payments. However, if advance credit payments are made for 
coverage of an individual for whom no taxpayer claims a personal 
exemption deduction, the taxpayer who attests to the Exchange to the 
intention to claim a personal exemption deduction for the individual as 
part of the determination that the taxpayer is eligible for advance 
credit payments must file a tax return and reconcile the advance credit 
payments.
    (b) Effective/applicability date. Except as otherwise provided, 
this section applies for taxable years beginning after December 31, 
2016. Paragraph (a) of Sec.  1.6011-8 as contained in 26 CFR part I 
edition revised as of April 1, 2016, applies to taxable years ending 
after December 31, 2013, and beginning before January 1, 2017.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 9. The authority citation for part 301 continues to read in part 
as follows:

    Authority: 26 U.S.C. 7805. * * *

    Section 301.6011-2 also issued under 26 U.S.C. 6011(e). * * *


Sec.  301.6011-2   [Amended]

0
Par. 10. Section 301.6011-2(b)(1) is amended by adding ``1095-B, 1095-
C'' after ``1094 series'', and removing ``1095 series''.

John Dalrymple,
 Deputy Commissioner for Service and Enforcement.
    Approved: December 8, 2016.
 Mark J. Mazur,
 Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2016-30037 Filed 12-14-16; 4:15 pm]
BILLING CODE 4830-01-P