IRS Updates Guidance on Tax Credit Eligibility for Spouses, Dependent Children

The IRS has provided additional guidance on its website about the eligibility for premium tax credits when coverage is offered to an employee's spouse and dependent child under an eligible employer-sponsored health plan. This development is of particular importance to applicable large employers (ALEs) under the Affordable Care Act.


Premium tax credits may be available to lower-income individuals who buy coverage through a Health Insurance Marketplace (often referred to as an "exchange") unless they're eligible for specified types of other coverage. Employees aren't eligible for premium tax credits if offered affordable coverage that provides minimum value under an eligible employer-sponsored plan. Employer-sponsored coverage is considered affordable if the employee's cost for self-only coverage doesn't exceed a specified, indexed percentage of the employee's household income for the taxable year.

A plan provides minimum value if its share of the cost of benefits is at least 60% and it provides substantial coverage for inpatient hospitalization and physician services. An employee's spouse and dependent children aren't eligible for premium tax credits if they are offered minimum essential coverage under an eligible employer-sponsored plan, without regard to whether the coverage is affordable or provides minimum value.

Questions and Answers

In Q&A form, the IRS guidance addresses an employee who's offered affordable coverage providing minimum value under an eligible employer-sponsored health plan. The offer extends to the employee's spouse and dependent child so long as the employee enrolls. Because the employee elected not to enroll in the employer-sponsored coverage, the spouse and child weren't permitted to enroll. Nevertheless, all three family members could have enrolled in the affordable, minimum value coverage offered to the employee, so none of them is eligible for premium tax credits.

An ALE may be liable for employer shared responsibility penalties if a full-time employee obtains a premium tax credit for coverage bought through a Health Insurance Marketplace and the employer in question didn't offer affordable, minimum value coverage to the employee or minimum essential coverage to the employee's children through the last day of the month containing their 26th birthday. (An ALE isn't subject to penalties for failing to offer coverage to an employee's spouse.)

Ultimate Clarification

Ultimately, this guidance clarifies that an ALE doesn't fail to offer minimum essential coverage to an employee's child if it requires the employee to enroll as a condition of the child's enrollment. By implication, use of this common eligibility provision won't subject ALEs to employer shared responsibility penalties.

HHS Encourages States To Apply for Innovation Waivers

The Department of Health and Human Services (HHS) addressed a letter in March to state governors highlighting the availability of innovation waivers and promoting the waivers as an opportunity for states to develop innovative health care models.

Beginning on January 1, 2017, the Affordable Care Act authorizes states to apply for waivers from certain of its provisions, including requirements regarding qualified health plans, Health Insurance Marketplaces (also known as "exchanges"), premium tax credits, employer shared responsibility and the individual mandate. A state must demonstrate that the proposed innovation will:

The letter emphasizes that, if a state's waiver proposal is approved, pass-through funding may be available to help offset a portion of the costs of its program. Inviting states to pursue high-risk pools and state-operated reinsurance programs, the letter cites Alaska as an example of a state that has applied for a waiver (currently under review) to implement this type of program in 2018 and future years.

The HHS indicates that it will work with states to review their waiver applications on an expedited basis and provide further guidance on the process. For more information, you may visit this agency web page.

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