Guidance Clarifying Premium Tax Credit Unaffected by Suspension of Personal Exemption Deduction
| Published date | 27 May 2020 |
| Citation | 85 FR 31710 |
| Record Number | 2020-10069 |
| Section | Proposed rules |
| Court | Internal Revenue Service |
Federal Register, Volume 85 Issue 102 (Wednesday, May 27, 2020)
[Federal Register Volume 85, Number 102 (Wednesday, May 27, 2020)]
[Proposed Rules]
[Pages 31710-31714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10069]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-124810-19]
RIN 1545-BP76
Guidance Clarifying Premium Tax Credit Unaffected by Suspension
of Personal Exemption Deduction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document includes proposed regulations under sections 36B
and 6011 of the Internal Revenue Code (Code) that clarify that the
reduction of the personal exemption deduction to zero for taxable years
beginning after December 31, 2017, and before January 1, 2026, does not
affect an individual taxpayer's ability to claim the premium tax
credit. These proposed regulations affect individuals who claim the
premium tax credit.
DATES: Written or electronic comments and requests for a public hearing
must be received by July 27, 2020. Requests for a public hearing must
be submitted
[[Page 31711]]
as prescribed in the ``Comments and Requests for a Public Hearing''
section.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at http://www.regulations.gov (indicate IRS and REG-
124810-19) by following the online instructions for submitting
comments. Once submitted to the Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The IRS expects to have limited
personnel available to process public comments that are submitted on
paper through mail. Until further notice, any comments submitted on
paper will be considered to the extent practicable. The Department of
the Treasury (Treasury Department) and the Internal Revenue Service
(IRS) will publish for public availability any comment submitted
electronically, and to the extent practicable on paper, to its public
docket. Send paper submissions to: CC:PA:LPD:PR (REG-124810-19), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
call Suzanne Sinno at (202) 317-4718 (not a toll-free number);
concerning submissions of comments and/or requests for a public
hearing, call Regina Johnson at (202) 317-5177 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under sections 36B and 6011 of the Code.
Section 151 of the Code generally allows a taxpayer to claim a
personal exemption deduction, based on the exemption amount defined in
section 151(d), for the taxpayer, the taxpayer's spouse, and any
dependents, as defined in section 152 of the Code. On December 22,
2017, section 151(d)(5) was added to the Code by section 11041 of
Public Law 115-97, 131 Stat. 2054, 2082, commonly referred to as the
Tax Cuts and Jobs Act (TCJA). Section 151(d)(5)(A) provides that, for
taxable years beginning after December 31, 2017, and before January 1,
2026, the term ``exemption amount'' means zero. However, section
151(d)(5)(B) provides that the reduction of the exemption amount to
zero is not taken into account in determining whether a deduction under
section 151 is allowed or allowable to a taxpayer, or whether a
taxpayer is entitled to a deduction under section 151, for purposes of
any other provision of the Code. The Conference Report states that this
provision clarifies that the reduction of the personal exemption to
zero ``should not alter the operation of those provisions of the Code
which refer to a taxpayer allowed a deduction . . . under section
151.'' See H.R. Rep. No. 115-466 at 203 n.16 (Conf. Rep.) (2017).
Beginning in 2014, under 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, Affordable Care Act), eligible individuals
who purchase coverage under a qualified health plan through a Health
Insurance Exchange (Exchange) established under section 1311 of the
Affordable Care Act may claim a premium tax credit under section 36B.
Several rules relating to the premium tax credit apply based on whether
a taxpayer properly claims or claimed a personal exemption deduction
under section 151 for the taxpayer, the taxpayer's spouse, and any
dependents. These rules affect eligibility for the premium tax credit,
computation of the premium tax credit, reconciliation of advance credit
payments with the premium tax credit a taxpayer is allowed for the
taxable year, and income tax return filing requirements related to the
premium tax credit.
Eligibility for, and Computation of, the Premium Tax Credit
To be eligible for the premium tax credit, an individual must be an
applicable taxpayer. Under section 36B(c)(1), an applicable taxpayer
generally is a taxpayer whose household income for the taxable year is
at least 100 percent but not more than 400 percent of the Federal
poverty line for the taxpayer's family size for the taxable year. A
taxpayer's family size is equal to the number of individuals in the
taxpayer's family. Section 1.36B-1(d) of the Income Tax Regulations
provides that, for purposes of Sec. Sec. 1.36B-1 through 1.36B-5, a
taxpayer's family means the individuals for whom a taxpayer properly
claims a deduction for a personal exemption under section 151 for the
taxable year. Section 1.36B-2(b)(3) provides that an individual is not
an applicable taxpayer if another taxpayer may claim a deduction under
section 151 for the individual for a taxable year beginning in the
calendar year in which the individual's taxable year begins.
Section 36B(c)(2) provides that the premium tax credit generally is
not allowed for a month with respect to an individual if for that month
the individual is eligible for minimum essential coverage other than
coverage in the individual market. However, under a special eligibility
rule in Sec. 1.36B-2(c)(4)(i), 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 such coverage only for
months that the related individual is enrolled in the coverage.
Under section 36B(a), a taxpayer's premium tax credit is equal to
the premium assistance credit amount for the taxable year. Section
36B(b)(1) and Sec. 1.36B-3(d) generally provide that the premium
assistance credit amount is the sum of the premium assistance amounts
for all coverage months in the taxable year for individuals in the
taxpayer's family, as defined in Sec. 1.36B-1(d).
Reconciliation of Advance Credit Payments With the Premium Tax Credit
Under section 1412 of the Affordable Care Act, advance payments of
the premium tax credit (advance credit payments) may be paid directly
to qualified health plans on behalf of eligible individuals. The amount
of advance credit payments made on behalf of a taxpayer in a taxable
year is determined by a number of factors, including projections of the
taxpayer's household income and family size for the taxable year. Under
Sec. 1.36B-4, a taxpayer generally must reconcile all advance credit
payments for coverage of any member of the taxpayer's family with the
amount of the premium tax credit allowed under section 36B.
Section 1.36B-4(a)(1)(ii)(B)(1) and (2) provide specific allocation
rules to reconcile advance credit payments when an individual is
enrolled by one taxpayer but another taxpayer claims a personal
exemption deduction for the individual. If advance credit payments are
made for coverage of an individual for whom no taxpayer claims a
personal exemption deduction, Sec. 1.36B-4(a)(1)(ii)(C) provides that
the taxpayer who attested to the Exchange to the intention to claim a
personal exemption deduction for the individual as part of the advance
credit payment eligibility determination for coverage of the individual
must reconcile the advance credit payments.
Income Tax Return Filing Requirements Related to the Premium Tax Credit
Section 6011 provides the general rules for filing a return.
Section 1.6011-
[[Page 31712]]
8 requires a taxpayer who receives the benefit of advance credit
payments to file an income tax return for that taxable year to
reconcile advance credit payments with the taxpayer's premium tax
credit. The regulation further provides that if advance credit payments
are made for coverage of an individual for whom no taxpayer claims a
personal exemption deduction, the taxpayer who attested to the Exchange
to the intention to claim a personal exemption deduction for the
individual as part of the advance credit payment eligibility
determination for coverage of the individual must file a tax return and
reconcile the advance credit payments. Taxpayers who are required to
reconcile advance credit payments or who claim the premium tax credit
must complete Form 8962, Premium Tax Credit (PTC), and file it with
their tax return.
Notice 2018-84
On November 5, 2018, the Treasury Department and the IRS issued
Notice 2018-84, 2018-45 I.R.B. 768, which provided interim guidance
clarifying that the reduction of the personal exemption deduction to
zero under section 151(d)(5) does not affect the ability of individual
taxpayers to claim the premium tax credit. Specifically, the notice
provides that (1) a taxpayer is considered to have claimed a personal
exemption deduction for himself or herself for a taxable year if the
taxpayer files an income tax return for the year and does not qualify
as a dependent of another taxpayer under section 152 for the year; and
(2) a taxpayer is considered to have claimed a personal exemption
deduction for an individual other than the taxpayer if the taxpayer is
allowed a personal exemption deduction for the individual, taking into
account section 151(d)(5)(B), and lists the individual's name and
taxpayer identification number (TIN) on the Form 1040, U.S. Individual
Income Tax Return, or Form 1040NR, U.S. Nonresident Alien Income Tax
Return, the taxpayer files for the year. The notice states that until
further guidance is issued, the interim guidance described in the
notice applies. The notice also states that the Treasury Department and
the IRS intend to amend the regulations under sections 36B and 6011 to
clarify the application of section 151(d)(5).
Explanation of Provisions
The current regulations under section 36B provide that a taxpayer's
family means the individuals for whom the taxpayer claims a personal
exemption deduction under section 151. For tax years prior to 2018, a
taxpayer determined the personal exemption deduction by putting the
name and TIN of each individual in the taxpayer's family on the
taxpayer's income tax return, multiplying the number of allowed
exemptions by the exemption amount, and entering that amount on his or
her income tax return. Under newly enacted section 151(d)(5), the
personal exemption deduction is zero for taxable years beginning after
December 31, 2017, and before January 1, 2026. Although the amount of
the deduction for personal exemptions is reduced to zero for those
years, taxpayers must include on their tax returns the names and TINs
of individuals for whom they are allowed a personal exemption deduction
(taking into account section 151(d)(5)(B)) in order to claim various
tax benefits with respect to those individuals.
These proposed regulations adopt the substance of the guidance in
Notice 2018-84 by amending the regulations under sections 36B and 6011
to clarify that the reduction of the personal exemption deduction to
zero under section 151(d)(5) does not affect the ability of individual
taxpayers to claim the premium tax credit. Specifically, these proposed
regulations amend the definition of family in Sec. 1.36B-1(d) to
provide that a taxpayer's family means the taxpayer, including both
spouses in the case of a joint return (except for individuals who
qualify as a dependent of another taxpayer under section 152), and any
other individual for whom the taxpayer is allowed a personal exemption
deduction (taking into account section 152(d)(5)(B)) and whom the
taxpayer properly reports on the taxpayer's income tax return for the
taxable year. The proposed regulations provide that an individual is
reported on the taxpayer's income tax return if the individual's name
and TIN are listed on the taxpayer's Form 1040 series return.
The definition of family and family size in proposed Sec. 1.36B-
1(d) will apply for purposes of Sec. Sec. 1.36B-1 through 1.36B-5.
Thus, the definition will apply to determine the computation of the
premium tax credit under Sec. 1.36B-3(d), which is based on the sum of
the premium assistance amounts for all coverage months in the taxable
year for individuals in the taxpayer's family. In addition, the
proposed regulations make conforming changes to the rules in Sec.
1.36B-2 (relating to eligibility for, and computation of, the premium
tax credit), Sec. 1.36B-4 (relating to reconciliation of advance
credit payments with the premium tax credit), and Sec. 1.6011-8
(relating to the income tax return filing requirements for taxpayers
who receive the benefit of advance credit payments or claim the premium
tax credit). These conforming changes delete references such as ``claim
a personal exemption deduction,'' ``claims a personal exemption
deduction,'' or ``claimed as a personal exemption deduction'' in the
current regulations and replace them with other terms consistent with
the definition of family in proposed Sec. 1.36B-1(d).
Proposed Applicability Date
These regulations are proposed to apply to taxable years ending
after the date the Treasury decision adopting these regulations as
final regulations is published in the Federal Register. In addition,
taxpayers may rely on these proposed regulations for taxable years to
which section 151(d)(5) applies ending on or before that date. See
section 7805(b)(7).
Special Analyses
These proposed regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement
(April 11, 2018) between the Treasury Department and the Office of
Management and Budget regarding review of tax regulations.
In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter
6), it is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
This certification is based on the fact that the proposed regulations
affect individual taxpayers, not entities.
Pursuant to section 7805(f), these proposed regulations have been
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
state, local, or tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This rule
does not include any Federal mandate that may result in expenditures by
state, local, or tribal governments, or by the private sector in excess
of that threshold.
Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from
[[Page 31713]]
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on state and local
governments, and is not required by statute, or preempts state law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive Order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on state and local governments or preempt state law
within the meaning of the Executive Order.
Statement of Availability of IRS Documents
The regulations, notices and other guidance cited in this preamble
are published in the Internal Revenue Bulletin and are available from
the Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at www.irs.gov.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to comments that are submitted timely to
the IRS as prescribed in this preamble in the ADDRESSES section. The
Treasury Department and the IRS request comments on all aspects of the
proposed regulations. Any electronic comments submitted, and to the
extent practicable any paper comments submitted, will be made available
at www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date, time, and place for
the hearing will be published in the Federal Register. Announcement
2020-4, 2020-17 IRB 1, provides that until further notice, public
hearings conducted by the IRS will be held telephonically. Any
telephonic hearing will be made accessible to people with disabilities.
Drafting Information
The principal author of these proposed regulations is Suzanne R.
Sinno of the Office of Associate Chief Counsel (Income Tax and
Accounting). However, other personnel from the Treasury Department and
the IRS participated in the development of the regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
sectional authorities in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Sections 1.36B-0, 1.36B-1, 1.36B-2, and 1.36B-4 also issued
under 26 U.S.C. 36B(g).
Section 1.6011-8 also issued under 26 U.S.C. 6011.
* * * * *
0
Par. 2. Section 1.36B-0 is amended by:
0
a. Revising the entries for Sec. 1.36B-1(d) and (o);
0
b. Revising the entries for Sec. 1.36B-2(c)(4)(i) and (e); and
0
c. Revising the entries for Sec. 1.36B-4(a)(1)(ii)(B) and (C), and
(c).
The revisions read as follows:
Sec. 1.36B-1 Premium tax credit definitions.
* * * * *
(d) Family and family size.
(1) In general.
(2) Special rule for tax years to which section 151(d)(5) applies.
* * * * *
(o) Applicability dates.
Sec. 1.36B-2 Eligibility for premium tax credit.
* * * * *
(c) * * *
(4) * * *
(i) Related individual.
* * * * *
(e) Applicability dates.
Sec. 1.36B-4 Reconciling the premium tax credit with advance credit
payments.
* * * * *
(a) * * *
(1) * * *
(ii) * * *
(B) Individuals enrolled by a taxpayer and claimed by another
taxpayer.
(C) Responsibility for advance credit payments for an individual
not reported on any taxpayer's return.
* * * * *
(c) Applicability dates.
0
Par. 3. Section 1.36B-1 is amended by
0
a. Redesignating the text of paragraph (d) as paragraph (d)(1);
0
b. Adding a paragraph heading to newly designated paragraph (d)(1);
0
c. Adding paragraph (d)(2); and
0
d. Revising paragraph (o).
The additions and revision read as follows:
Sec. 1.36B-1 Premium tax credit definitions.
* * * * *
(d) Family and family size--(1) In general. * * *
(2) Special rule for tax years to which section 151(d)(5) applies.
For taxable years to which section 151(d)(5) applies, a taxpayer's
family means the taxpayer, including both spouses in the case of a
joint return, except for individuals who qualify as a dependent of
another taxpayer under section 152, and any other individual for whom
the taxpayer is allowed a personal exemption deduction and whom the
taxpayer properly reports on the taxpayer's income tax return for the
taxable year. For purposes of this paragraph (d)(2), an individual is
reported on the taxpayer's income tax return if the individual's name
and taxpayer identification number (TIN) are listed on the taxpayer's
Form 1040 series return. See Sec. 601.602.
* * * * *
(o) Applicability dates. (1) Except for paragraphs (d)(2), (l), and
(m) of this section, this section applies to taxable years ending after
December 31, 2013.
(2) Paragraph (d)(2) of this section applies to taxable years
ending after [the date the Treasury decision adopting these regulations
as final regulations is published in the Federal Register].
(3) 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 1 edition revised as of April 1,
2016, apply to taxable years ending after December 31, 2013, and
beginning before January 1, 2019.
0
Par. 4. Section 1.36B-2 is amended by:
0
a. Revising paragraph (c)(4)(i);
0
b. Revising the heading for paragraph (e); and
0
c. Adding paragraph (e)(4).
The addition and revisions read as follows:
Sec. 1.36B-2 Eligibility for premium tax credit.
* * * * *
(c) * * *
(4) Special eligibility rules--(i) Related individual. An
individual who may enroll in minimum essential coverage because of a
relationship to another person eligible for the coverage, but is not
included in the family, as defined in Sec. 1.36B-1(d), of the other
eligible person, is treated as eligible for such minimum essential
coverage only
[[Page 31714]]
for months that the related individual is enrolled in the coverage.
* * * * *
(e) Applicability dates. * * *
(4) Paragraph (c)(4)(i) of this section applies to taxable years
ending after [the date the Treasury decision adopting these regulations
as final regulations is published in the Federal Register].
0
Par. 5. Section 1.36B-4 is amended by:
0
a. Adding a sentence to the end of paragraph (a)(1)(ii)(B)(1);
0
b. Revising paragraphs (a)(1)(ii)(B)(2) and (a)(1)(ii)(C); and
0
c. Revising the heading to paragraph (c) and adding a sentence at the
end of the paragraph.
The additions and revisions read as follows:
Sec. 1.36B-4 Reconciling the premium tax credit with advance credit
payments.
(a) * * *
(1) * * *
(ii) * * *
(B) Individual enrolled by a taxpayer and claimed by another
taxpayer--(1) In general. * * * For taxable years to which section
151(d)(5) applies, the claiming taxpayer is the taxpayer who properly
includes the shifting enrollee in his or her family for the taxable
year.
(2) Allocation percentage. The enrolling taxpayer and claiming
taxpayer may agree on any allocation percentage between zero and one
hundred percent. If the enrolling taxpayer and claiming taxpayer do not
agree on an allocation percentage, the percentage is equal to the
number of shifting enrollees properly included in the enrolling
taxpayer's family divided by the number of individuals enrolled by the
enrolling taxpayer in the same qualified health plan as the shifting
enrollee.
* * * * *
(C) Responsibility for advance credit payments for an individual
not reported on any taxpayer's return. If advance credit payments are
made for coverage of an individual who is not included in any
taxpayer's family, as defined in Sec. 1.36B-1(d), the taxpayer who
attested to the Exchange to the intention to include such individual in
the taxpayer's family as part of the advance credit payment eligibility
determination for coverage of the individual must reconcile the advance
credit payments.
* * * * *
(c) Applicability dates. * * * The last sentence of paragraph
(a)(1)(ii)(B)(1), paragraph (a)(1)(ii)(B)(2), and paragraph
(a)(1)(ii)(C) of this section apply to taxable years ending after [the
date the Treasury decision adopting these regulations as final
regulations is published in the Federal Register].
0
Par. 6. Section 1.6011-8 is amended by revising paragraphs (a) and (b)
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 (advance credit payments) 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 who is not included in
any taxpayer's family, as defined in Sec. 1.36B-1(d), the taxpayer who
attested to the Exchange to the intention to include such individual in
the taxpayer's family as part of the advance credit payment eligibility
determination for coverage of the individual must file a tax return and
reconcile the advance credit payments.
(b) Applicability dates--(1) In general. Except as provided in
paragraph (b)(2) of this section, paragraph (a) of this section applies
for taxable years ending on or after December 31, 2020.
(2) Prior periods. Paragraph (a) of this section as contained in 26
CFR part 1 edition revised as of April 1, 2016, applies to taxable
years ending after December 31, 2013, and beginning before January 1,
2017. Paragraph (a) of this section as contained in 26 CFR part 1
edition revised as of April 1, 2020, applies to taxable years beginning
after December 31, 2016, and ending before December 31, 2020.
Sunita Lough,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2020-10069 Filed 5-26-20; 8:45 am]
BILLING CODE 4830-01-P
