The IRS Cannot “Fix” The “Family Glitch”

The Department of the Treasury and the Internal Revenue Service proposed, with uncharacteristic contradiction, amending a long-standing regulation on eligibility for privileged tax credits. [PTCs] Through the Affordable Care Act (ACA) markets or exchanges. Under the Health Insurance Act (ACA), workers and their dependents are ineligible for PTC services when the worker has an “affordable” offer of employer insurance (ESI) that offers at least a “minimum value.” On April 7, 2022 Federal Register Notice, the agencies are proposing a new affordability test for dependents of workers who have an employer-sponsored insurance offer, noting that they have “in principle determined” that the current rule is “not required by relevant laws.”

The newly proposed affordability test is against the law. There is only one statutory test of affordability for those with an ESI, and it applies to workers and their dependents: If a worker must pay more than 9.5 percent of household income for self-cover only, then he and his dependents are eligible for POS temporary.

The agencies present a deeply flawed rationale for new affordability testing legislation for dependents, confusing the exemption from the ACA’s tax penalty for uninsured for tax credits. After lengthy deliberations that began with the enactment of the ACA in 2010, the agencies have rightly dismissed the misinterpretation of the statute they now offer. The current rule, which was finalized in 2013, correctly interprets the law; The proposed regulation seeks to amend the law, a power reserved for Congress.

The agencies’ error is due to the failure to distinguish between provisions of the Internal Revenue Code (IRC) of the ACA that grant a small portion of the population to PTCs and provisions that exempt different classes of uninsured persons from the tax penalties of the ACA. Section 36B of the IRC defines tax credits and makes most Americans and lawful residents, as well as all illegal residents, ineligible for them. Section 5000A of the IRC imposes a tax penalty on the uninsured and exempts several categories of individuals from the penalty. (Although Congress lowered that tax penalty to $0, it left Section 5000A on the books.)

The agency improperly asserts, albeit provisionally, that subsection 5000A(e)(1)(C), which specifies whether uninsured dependent workers with an ESI offer are exempt from tax penalty, may be interpreted as an “amendment for Section 36B, which makes these dependents eligible for PTCs. This disallowed reading reflects a fundamental misunderstanding of the structure, purpose, and provisions of the statute.

Premium tax credits (section 36b)

IRC Section 36B creates a premium tax credit to support the purchase of exchange-based health insurance coverage. Subsections (a) and (b) define the recoverable amounts of credit and establish rules for their calculation. Section 36b(c)(2)(b) prevents hundreds of millions of Americans—those with another public or private source of “Minimum Basic Coverage” (MEC)—from claiming credit. In addition to Medicare and Medicaid recipients, CHIP recipients, TRICARE participants, Veterans Health Administration benefits and other forms of MEC, this provision generally excludes ESI workers and their dependents from claiming PTCs.

Subsection 36b(c)(2)(c) sets out a separate exception through a “Special Rule for Employer-Sponsored Minimum Basic Coverage.” To qualify for MEC, an employer-sponsored plan must provide workers with coverage of at least “minimum value” and “affordable.” A worker with access to an ESI that meets both criteria may not claim a PTC. It is not possible for the dependents of the worker.

The law establishes affordability based on the amount a worker must contribute for self-cover only under the plan. An employer-sponsored plan fails the affordability test if “the required employee contribution (within the meaning of Section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the taxpayer’s applicable household income.” Subparagraph 5000A(e)(1)(B), referred to in subparagraph, defines “required contribution” as “the portion of the annuity that an individual would pay…for self-cover only.”

As noted, there is only one affordability test in Section 36b, for both workers and their dependents. The last statement of 36B(c)(2)(C)(i) specifies eligibility for dependents: “This clause also applies to an individual who qualifies to enroll in the plan because of the individual’s relationship with the employee.” Thus, if the worker pays more than 9.5 percent From family income for self-cover only, then – and only then – will the worker and their dependents become eligible for temporary POS.

Fines and Tax Credits (Sec. 5000a)

The NPRM tentatively suggests that Section 5000A(e)(1)(C) (which specifies whether an uninsured dependent is exempt from the tax penalty of an uninsured) can be understood as an “amendment” to the affordability test of workers that has been Generated by Section 5000A(e)(1)(B) and the affordability test in 36B(c)(2)(C)(i). To get to their misunderstanding of the statute, the agencies are lashing out against the structure and purpose of Section 5000A.

Section 5000A(a) requires “appropriate personnel” to maintain a minimum basic coverage. Subsections (b) and (c) establish tax penalties for applicable individuals who do not maintain this coverage. Subsection (d) excludes certain classes of persons from the definition of “applicable individual,” exempting them from penalties even if they do not have a minimum basic coverage.

Subsection (E) excludes certain categories of uninsured “Applicable Persons” from the tax penalty. Paragraph (e) (1) excludes uninsured “individuals who cannot afford coverage”. Subparagraph (e)(1) (a) sets out the general rule for determining whether or not an individual meets this test: An uninsured individual is exempt from tax penalty if the cost of ACA-compliant individual insurance – the individual’s “required contribution” exceeds 8 percent of artificial general intelligence.

Subparagraphs (b) and (c) establish special rules for ESI-serving workers and dependents. Subparagraph (b) states that if a worker’s “required contribution” for self-cover only under his or her company’s health plan exceeds 9.5 percent of household income, the uninsured worker is exempt from the tax penalty. Subparagraph (c) establishes a special rule for personnel associated with employees. For those who “qualify for minimum basic coverage through an employer because of a relationship with an employee, the determination shall be made under subparagraph (a) with reference to the employee’s required contribution.” It states that the calculation of the “required contribution” of such dependents is based on subparagraph (c) of the special rule and not the general rule in subparagraph (a).

Therefore, subparagraph (c) cannot be an “amendment” to subparagraph (b), let alone 36B(c)(2)(c)(i). It’s a special, unambiguous rule for determining whether an uninsured dependent of a worker with an ESI is exempt from tax penalties, and nothing more. This exemption from tax penalties does not result in an entitlement to Transfer Terms (PTCs).

Dependents that 5000A(e)(1)(C) exempt from tax penalties are not different from many other categories of individuals who are exempt under subsections 5000A(d) and (e). These exemptions include members of certain religious denominations, individuals registered with participating ministries of health, individuals not lawfully present in the United States, incarcerated individuals, taxpayers with incomes below the filing threshold, members of Indian tribes, and any individual designated by the Secretary of Health and Human Security” to be have experienced hardship regarding being able to obtain coverage under an eligible health plan.”

All such individuals are exempt from the Section 5000A tax penalty, and none, notwithstanding this exemption, is entitled to temporary POS. The same is true for honorable workers who have an ESI offer.

NPRM adopts platform not allowed reading

Thus, subsection 5000A(e)(1)(C) cannot be distorted to extend entitlement to PTC certificates established by Section 36B.

In their quest for a reliable rationale for their “initial determination,” the preamble notes that the Joint Tax Committee’s March 2010 Technical Interpretation of the ACA’s tax provisions erroneously described the affordability test as being applicable to the cost of family coverage. The JCT corrected the error on May 4, 2010. In its “ERRATA for JCX-18-10,” it noted that the determination of affordability was “based on subjective coverage only.” And so JCT employees made a mistake and later corrected it, as they did with the other ten mistakes they corrected in that document, including mischaracterizations of the tax penalty for the uninsured and the so-called Cadillac tax on some employer-sponsored plans.

The agencies misclassified this error as “different interpretations by Joint Commission staff,” which “further expose legal ambiguity that makes the interpretation available under the Anti-Corruption Act.” But that is not how the Joint Commission staff describes the document. They called their May 2010 publication “ERRATA” – Latin for “errors”, not “different interpretations” or “ambiguities”. By their own admission, employees erred on this and other matters in their March 2010 description of the various ACA tax provisions; They corrected their mistakes after six weeks.

Congress did not amend the statute

Congress has long been aware of the so-called “family dysfunction.” Several bills have been introduced over the years to address this problem. None of them got the legislation. Most recently, the House of Representatives passed in June 2020 HR 1425, which would have amended 36B(c)(2)(C)(i) to replace the word “family” with “self-only” coverage in determining PTC eligibility for dependents of covered workers. In short, he could have modified the law to achieve what the agencies improperly sought to achieve through regulation. The Senate failed to pass the bill.

Congress’s refusal to amend the law is even more remarkable because it recently enacted broad expansions of the ACA’s tax credits. On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law. The law expanded PTCs in various ways, expanding them to those who already qualified for them, giving more people the right to receive them by removing an income cap, and making exchange-based coverage free for people receiving unemployment benefits. However, it did not “fix” the “family glitch”. The Build Back Better Act would extend many of the ARPA’s expired PTC expansions but would not cure the “family glitch.”

The ACA does not create a separate affordability test for family coverage that would award dependents of workers who submit ESI to PTCs. Congress has considered legislation to create a different test, based on the affordability of “family” coverage, rather than “self-only” coverage. You don’t. Agencies cannot modify the law by making rules.

Should Congress Fix the “Family Dysfunction?”

Congress can, of course, change its mind and amend Section 36B in the way the agencies illegally suggest. In making this decision, Congress must weigh the benefits of expanding access to PTCs against the disadvantages.

The benefits of such a policy change are clear. Some families on whom the Social Security program imposes financial burdens will ease their burdens. Some of the uninsured are eligible for government-subsidized health insurance. Some dependents in low-income families will get free coverage under Medicaid and CHIP.

It should also take into account the cost of the proposal — $45 billion over ten years, according to the CBO — and minimum The impact on reducing the number of the uninsured — 190,000 people will get coverage, according to the Urban Institute. That comes to $23,684 for each newly insured person. Also, “fixing” the “family defect” would incentivize employers to reduce or eliminate their contributions to dependent coverage, the same agencies acknowledge. It will also lead to what agencies call “split coverage” with family members on different plans with different networks and cost-sharing requirements. Agencies acknowledge that this may increase their medical expenses. Finally, it will increase the burden on states by diverting millions of people from ESI to Medicaid and CHIP.

Only Congress has the institutional power to weigh the positive and negative aspects of “fixing” the “family dysfunction” and the constitutional power to amend the law. Agencies should withdraw their illegal proposal and instead require Congress to enact the policy they prefer.

Leave a Comment