IRS Changes Family Coverage Affordability Rules

On Oct. 11, 2022, the IRS released a final rule that changed the premium tax credit (PTC) eligibility rules for family members. This change is effective for taxable years beginning after Dec. 31, 2022.

The PTC is available to eligible individuals who purchase health insurance coverage through an Exchange. Individuals are not eligible for the PTC if they have access to employer-sponsored health coverage that is affordable and provides minimum value.

Effective for 2023, the final rule changes the PTC rules for determining whether employer-sponsored coverage is affordable for family members. Currently, this determination is based on the lowest-cost self-only coverage available to the employee. Under the final rule, an employer-sponsored plan is affordable for family members if the portion of the annual premium the employee must pay for family coverage (the employee’s required contribution) does not exceed 9.5% (as adjusted annually) of household income.

The final rule does not change the affordability rules for employees. Employees will continue to have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage does not exceed 9.5% (as adjusted) of household income.

Additionally, this new guidance does not affect the Affordable Care Act’s “pay or play” penalties for applicable large employers (ALEs), as these penalties are triggered only when an employee receives a PTC, not a family member. According to the IRS, this new guidance also does not impact an employer’s reporting requirements under Internal Revenue Code Sections 6055 and 6056.