IRS issues regulations on premium tax credit

The IRS issued final regulations that govern the relief available for victims of domestic abuse or abandonment from the requirement that married taxpayers must file joint income tax returns to qualify for the Sec. 36B premium tax credit (T.D. 9822). The regulations also clarify how self-employed taxpayers who take a deduction under Sec. 162(l) for their health insurance premiums should calculate their Sec. 36B premium tax credit. The final regulations remove temporary regulations that were issued in 2014.

Domestic abuse victims

Under the regulations, a married taxpayer who is a victim of abuse or has been abandoned satisfies the Sec. 36B(c)(1) joint filing requirement if the taxpayer files using the status of married filing separately, provided the taxpayer (1) is living apart from his or her spouse when the taxpayer files the tax return; (2) is unable to file a joint return because the taxpayer is a victim of domestic abuse or spousal abandonment; and (3) certifies on the income tax return as required on the relevant forms and instructions that the taxpayer meets these criteria for claiming a premium tax credit using a filing status of married filing separately. Taxpayers may not qualify for relief from the joint filing requirement for more than three consecutive years.

The IRS received many comments on these requirements when they were issued as temporary and proposed regulations, but adopted them without substantive change. Several commenters questioned the three-year limitation on relief, but the IRS claimed that three years was sufficient and that its data indicated that most taxpayers needed this relief for only one year.

The regulations address how to determine if a taxpayer has been abandoned by his or her spouse, which requires a taxpayer to establish that he or she is unable to locate the spouse after reasonable diligence. They also provide rules for reconciling advance payments of the premium tax credit.

Self-employed taxpayers

Sec. 36B(f)(1) requires taxpayers who receive the benefit of advance premium credit payments to file a tax return and reconcile the advance credit payments with the premium tax credit the taxpayer is allowed for the tax year. The taxpayer’s income tax liability is increased by the amount that the advance credit payments for the tax year exceed the premium tax credit allowed for the tax year, subject to the repayment limitations in Sec. 36B(f)(2)(B).

For purposes of determining the Sec. 36B(f)(2)(B) limitation on additional tax, Temp. Regs. Sec. 1.36B-4T(a)(3)(iii)(C) provided a special formula for computing household income of self-employed taxpayers who claim a Sec. 162(l) deduction for health insurance premiums paid. However, the IRS discovered that this limitation amount inadvertently omitted a rule for situations in which the Sec. 162(l) deduction should be limited to the taxpayer’s earned income from the trade or business for which the health insurance plan is established. The final regulations have been modified to correct this oversight.