On Oct. 18, the IRS explained how taxpayers who may be eligible for the Sec. 36B premium tax credit or who may have to pay the Sec. 5000A shared-responsibility payment should determine their status now that the law known as the Tax Cuts and Jobs Act, P.L. 115-97, has reduced the personal exemption deduction under Sec. 151 to zero (Notice 2018-84).
Under Sec. 151(d)(5)(B), the reduction of the exemption amount to zero is not taken into account in determining whether a personal exemption deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction under Sec. 151. The IRS explained that, even though the amount of the personal exemption deduction is reduced to zero, taxpayers are still allowed personal exemption deductions under Sec. 151 for other purposes.
Sec. 36B allows a premium tax credit to eligible individuals who enroll themselves, their spouse, or any dependent in a qualified health plan through a federal health insurance exchange. The regulations under that section apply based on whether a taxpayer claimed a personal exemption deduction for an individual. Similarly, the regulations under Sec. 5000A, which requires taxpayers and their dependents to have minimum essential health insurance coverage during the tax year, also apply based on whether a taxpayer claimed a personal exemption deduction for an individual.
Therefore, the IRS clarified in the notice that for the Sec. 36B premium tax credit and the Sec. 5000A shared-responsibility payment:
- A taxpayer is considered to have claimed a personal exemption deduction for himself or herself for a tax year if the taxpayer files an income tax return for the year and does not qualify as another taxpayer's dependent under Sec. 152 for the year;
- A taxpayer is considered to have claimed a personal exemption deduction for an individual other than the taxpayer if the taxpayer is allowed a personal exemption deduction for the individual (taking into account Sec. 151(d)(5)(B)) and lists the individual's name and taxpayer identification number on the Form 1040, U.S. Individual Income Tax Return, or Form 1040NR, U.S. Nonresident Alien Income Tax Return.
The notice is effective only for 2018 tax years. The IRS intends to amend the Sec. 36B and Sec. 6011 regulations to clarify the meaning of the term "claiming a personal exemption" for the years in which the exemption is zero. It will not amend the Sec. 5000A regulations because that provision has been effectively repealed for months beginning after Dec. 31, 2018.