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April 8, 2022

IRS proposed regulations would base eligibility for premium tax credit on cost of covering employee's family

In proposed regulations (REG-114339-21) under IRC Section 36B, the IRS would amend the determination of the premium tax credit (PTC) to base the affordability of employer-sponsored minimum essential coverage on the cost of covering the employee and covered family members. The proposed regulations would also base the minimum-value requirements on the benefits provided to the employee and covered family members. This would close the so-called "family glitch" by allowing family members of an employee with an affordable offer of employee-only coverage to qualify for PTCs, which they could use in purchasing coverage through the health care marketplace exchange if the employer's family coverage does not meet the affordability definition.

The proposed rules withdraw earlier proposed rules from 2015 and would be effective for tax years after they are published as final regulations in the Federal Register. According to the Preamble, the Treasury Department and the IRS have been working closely with HHS to make the health care marketplace exchanges ready to implement the proposed changes before open enrollment for 2023 coverage. A public hearing is scheduled for June 27, 2022; anyone who wants to testify must submit a topic outline to the IRS by June 13.


Under IRC Section 36B, individuals are eligible for a PTC if, among other requirements, their employer has not offered them affordable coverage that provides minimum value (i.e., the premiums exceed an indexed percentage of household income — 9.61% in 2022). Current regulations consider family coverage affordable if the employee's self-only coverage is affordable.

IRC Section 4980H, which was added by the Affordable Care Act (ACA), imposes excise taxes (commonly known as the employer mandate penalty) on applicable large employers (ALEs) if an employee enrolls in coverage through a state-provided or federal health care marketplace and receives a PTC under IRC Section 36B.

Proposed rules

The proposed rules would expand PTC eligibility by basing the affordability determination on the required contribution for family coverage, rather than self-only coverage. In making this change, the Treasury and IRS said in the Preamble that they were exercising their regulatory authority to adopt an "alternative reading" of IRC Section 36B(c)(2)(C)(i).

The Preamble noted that the proposed regulations would change only the affordability rule for family members, not the rule for employees. As a result, a spouse or dependent could have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage. Thus, family members could be eligible for PTCs but the employee would not.

The proposed regulations would also extend the minimum-value rule to include coverage of family members. Thus, the minimum-value requirement would be met if an employer plan covers at least 60% of the total allowed costs of the family members' benefits, similar to the existing rule for employees. The plan would also have to include substantial coverage of inpatient hospital services and physician services for the employee's family members.

The proposed regulations do not modify the affordability analysis for purposes of IRC Section 4980H.


These changes affect the affordability rule for family members, not for employees. Therefore, the proposed rules would not affect an employer's liability for penalties under the ACA for failing to offer an employee affordable coverage, resulting in the employee receiving a PTC. Similarly, nothing in the proposed regulations would change an employer's liability for the employer mandate or the employer's reporting requirements on Form 1095-C. An employer's plan costs could be affected, however, if employees and their family members change their coverage, which could alter the size and makeup of the employer's risk pool.


Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services/Affordable Care Act
   • Lori Maite (
   • Rebecca Truelove (
   • Belinda Sharp Cline (
Compensation and Benefits Group
   • Christa Bierma (
   • Stephen Lagarde (
   • Rachael Walker (
   • Bing Luke (