Rules Regarding the Health

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 36.—Refundable
Credit for Coverage under
a Qualified Health Plan
26 CFR 1.36B–2: Premium Assistance Amount.

FOR FURTHER INFORMATION
CONTACT: Arvind Ravichandran or
Shareen Pflanz, (202) 317-4718 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:

TD 9683
Background

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

Rules Regarding the Health
Insurance Premium Tax
Credit
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains final and temporary regulations relating to
the health insurance premium tax credit
enacted by the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, as
amended by the Medicare and Medicaid
Extenders Act of 2010, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, and the Department of
Defense and Full-Year Continuing Appropriations Act of 2011 and the 3% Withholding Repeal and Job Creation Act.
These regulations affect individuals who
enroll in qualified health plans through
Affordable Insurance Exchanges (Exchanges) and claim the premium tax
credit, and Exchanges that make qualified
health plans available to individuals. The
text of the temporary regulations in this
document also serves as the text of proposed regulations set forth in a notice of
proposed rulemaking (REG–104579 –13)
on this subject in the Proposed Rules section in this issue of the Bulletin.
DATES: Effective Date: These regulations are effective on July 28, 2014.
Applicability Date: For applicability
dates, see §§ 1.36B–2T(d), 1.36B–3T(m),
1.36B– 4T(c), and 1.162(l)–1T(c).

August 11, 2014

This document contains final and temporary regulations that amend the Income
Tax Regulations (26 CFR part 1) under
section 36B relating to the premium tax
credit and under section 162(l) relating to
the deduction for health insurance costs
for self-employed individuals. Section
36B was enacted by the Patient Protection
and Affordable Care Act, Public Law
111–148 (124 Stat. 119 (2010)), and the
Health Care and Education Reconciliation
Act of 2010, Public Law 111–152 (124
Stat. 1029 (2010)) (collectively, the Affordable Care Act). Section 36B provides
a refundable premium tax credit to help
individuals and families afford health insurance purchased through an Exchange.
To be eligible for a premium tax credit
under section 36B, an individual must be
an applicable taxpayer. Section 36B(c)(1)
provides that an applicable taxpayer is a
taxpayer (1) with household income for
the taxable year between 100 percent and
400 percent of the federal poverty line for
the taxpayer’s family size, (2) who may
not be claimed as a dependent by another
taxpayer, and (3) who files a joint return if
married (within the meaning of section
7703).
Section 7703(b) allows certain married
individuals to be considered not married
for purposes of the Internal Revenue
Code. Under section 7703(b), a married
taxpayer who lives apart from the taxpayer’s spouse for the last six months of the
taxable year is considered unmarried if he
or she files a separate return, maintains as
the taxpayer’s home a household that is
also the principal place of abode of a
dependent child for more than half the
year, and furnishes over half the cost of
the household during the taxable year.
Section 36B(b)(2) provides that a taxpayer’s premium tax credit is the lesser of
the premiums for the plan or plans in

330

which the taxpayer and the taxpayer’s
family enroll or the excess of the premiums for the second lowest cost silver plan
covering the taxpayer’s family (the benchmark plan) over the taxpayer’s contribution amount. A taxpayer’s contribution
amount is the product of the taxpayer’s
household income and an applicable percentage that increases as the taxpayer’s
household income increases. Under section 1412 of the Affordable Care Act,
eligible taxpayers may receive advance
payments of the premium tax credit (advance credit payments). Section 36B(f)
provides that taxpayers must reconcile
any differences between the taxpayer’s
advance credit payments for a taxable
year and the taxpayer’s premium tax
credit for the year. If the taxpayer’s advance credit payments exceed the allowed
premium tax credit, the taxpayer owes the
excess as a tax liability, subject to a repayment
limitation
in
section
36B(f)(2)(B).
Under section 162(l), a taxpayer who is
an employee within the meaning of section 401(c)(1)— generally, a selfemployed individual—is allowed a deduction for all or a portion of the taxpayer’s
premiums paid during the taxable year for
health insurance for the taxpayer, the taxpayer’s spouse, the taxpayer’s dependents, and any child of the taxpayer under
the age of 27. The deduction allowed under section 162(l) is limited to the taxpayer’s earned income from the trade or business with respect to which the health
insurance plan is established. In addition,
section 280C(g) provides that no deduction is allowed under section 162(l) for the
portion of premiums for a qualified health
plan equal to the amount of the premium
tax credit determined under section
36B(a) with respect to those premiums.
Explanation of Provisions
1. Circumstances in which a Married
Taxpayer May Claim a Premium Tax
Credit on a Separate Return
Final regulations under section 36B
(TD 9590) were published on May 23,
2012 (77 FR 30377). The final regulations

Bulletin No. 2014 –33

provide that married taxpayers must file a
joint return to claim the premium tax
credit. However, the preamble to those
regulations provided that Treasury and the
IRS would propose additional regulations
addressing domestic abuse, abandonment,
or similar circumstances that create obstacles to filing a joint return. The preamble
also requested comments on how to structure a rule to address these situations.
Several comments were received urging that such a rule be provided. Commenters suggested that the rule draw on
the existing regime for innocent spouse
relief. Commenters also suggested that relief should be allowed for up to three
years.
Notice 2014 –23, 2014 –16 IRB. 942
(March 26, 2014), allows married victims
of domestic abuse to claim a premium tax
credit without filing a joint return in 2014.
Under Notice 2014 –23, for calendar year
2014, a married taxpayer will satisfy the
joint filing requirement of section
36B(c)(1)(C) if the taxpayer files a 2014
tax return using a filing status of married
filing separately and the taxpayer (i) is
living apart from the individual’s spouse
at the time the taxpayer files his or her tax
return, (ii) is unable to file a joint return
because the taxpayer is a victim of domestic abuse, and (iii) indicates on his or her
2014 income tax return in accordance
with the relevant instructions that the taxpayer meets the criteria under (i) and (ii).
Notice 2014 –23 also provides that the
IRS and Treasury intend to propose regulations incorporating this rule.
Accordingly, the temporary regulations
incorporate the rule in Notice 2014 –23 for
2014 and subsequent taxable years to provide relief from the joint filing requirement for victims of domestic abuse. The
temporary regulations also provide relief
to victims of spousal abandonment. Consistent with the comments received, taxpayers may not qualify for relief from the
joint filing requirement for a period that
exceeds three consecutive years.
The temporary regulations define domestic abuse using a definition that is
closely based on the definition of spousal
abuse in Rev. Proc. 2013–34, 2013– 2 CB
397, for innocent spouse relief. In particular, domestic abuse includes physical,
psychological, sexual, or emotional abuse,
including efforts to control, isolate, humil-

Bulletin No. 2014 –33

iate, and intimidate, or to undermine the
victim’s ability to reason independently
and that all facts and circumstances are
considered in determining whether an individual is abused. A taxpayer qualifies as
a victim of spousal abandonment for a
taxable year if the taxpayer is abandoned
by his or her spouse and, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse
after reasonable diligence. It is expected
that the instructions for the tax form taxpayers will use to compute the premium
tax credit will provide further guidance on
claiming this relief, including that a taxpayer must certify that the taxpayer meets
the criteria for the relief.
On March 31, 2014, the Department of
Health and Human Services (HHS) issued
guidance on the application of Notice
2014 –23 to advance credit payments and
cost-sharing reductions. In accordance
with the temporary regulations included
here, it is anticipated HHS will extend its
guidance beyond 2014 and to include victims of spousal abandonment.
Comments are requested on the appropriateness of the relief provided in the
temporary regulations, and the appropriateness of the scope of relief, including
the circumstances that would make a taxpayer eligible for relief.
2. Indexing
To compute the premium tax credit, a
taxpayer determines his or her contribution amount by multiplying an applicable
percentage by the taxpayer’s household
income. The taxpayer uses the percentage
table in section 36B(b)(3)(A)(i) to compute his or her applicable percentage. Section 36B(b)(3)(A)(ii) provides that, beginning in 2015, the percentages in the table
are adjusted to reflect the excess of the
rate of premium growth over the rate of
income growth for the preceding calendar
year. Similarly, section 36B(c)(2)(C)(iv)
provides that the affordability percentage
provided in section 36B(c)(2)(C)(i)(II) is
updated in the same manner for plan years
beginning in calendar years after 2014.
The affordability percentage is used to
determine whether an employer’s offer of
coverage to an employee is affordable to
the employee. Under section 36B(c)(2)(C)(i),
a taxpayer who is not offered affordable

331

employer coverage may be eligible for a
premium tax credit.
Section 36B(b)(3)(A)(ii) does not
specify what measures should be used for
premium growth and income growth. The
temporary regulations provide that premium growth and income growth will be
determined in accordance with further
published guidance, see § 601.601(d)(2)
of this chapter. Rev. Proc. 2014 –37,
which is being released simultaneously
with these temporary regulations, provides further details on the measures to be
used for premium growth and income
growth. In particular, consistent with the
factors used by HHS to define premium
growth in indexing the required contribution percentage in section 5000A, Rev.
Proc. 2014 –37 provides that premium
growth for the preceding calendar year is
the projected per enrollee spending for
employer-sponsored private health insurance for the preceding calendar year, divided by the projected per enrollee spending for employer-sponsored private health
insurance for the calendar year two years
prior. Income growth for the preceding
calendar year will be the projected GDP
per capita for the preceding calendar year
divided by the projected GDP per capita
for the calendar year two years prior. Projected per enrollee spending for employersponsored private health insurance and
projected GDP per capita are published by
the Office of the Actuary at the Centers
for Medicare and Medicaid Services.
Section 36B(b)(3)(A)(ii) also does not
make clear what it means to adjust the
applicable percentages to “reflect the excess” of one rate “over” the other. Rates of
growth are commonly compared by taking
their ratio. In addition, the applicable percentages in section 36B(b)(3)(A)(i) and
the affordability percentage in section
36B(c)(2)(C)(i)(II) represent shares of income that a taxpayer is expected to spend
on health care premiums. The indexing of
these measures in section 36B(b)(3)(A)(ii)
appears designed to adjust these fractions
to reflect changes in the observed share of
overall income that is spent on health care
premiums. Preserving this relationship requires that the applicable percentages be
adjusted based on the ratio of the rate of
premium growth to the rate of income
growth. Accordingly, the temporary regulations provide that, for taxable years

August 11, 2014

beginning after December 31, 2014, the
applicable percentages in the table will
be adjusted by the ratio of premium
growth to income growth for the preceding calendar year.
In addition, the temporary regulations
provide that adjustments may be made to
reflect updates to the data used to compute
this ratio for the 2014 calendar year or to
reflect updates to data sources used to
compute the ratio of premium growth to
income growth. Such an adjustment may
be necessary to avoid error propagation
when making updates. In particular, in
computing this ratio for a given calendar
year, the computations rely on projected
data for the prior year and the 2013 calendar year. To the extent that the final data
for the prior calendar year prove different
from the projected data, the projected data
used in later years will automatically adjust for those differences. However, if the
final data for the 2013 calendar year
proves different from the projected data,
projected data in later years will not adjust
for these differences, so an additional adjustment will be needed. Similarly, if alternative data sources are used to compute
the ratio in later years, an additional adjustment may be needed to avoid error
that could result from transitioning from
the prior data sources to the new ones.
These adjustments will be made as part of
the procedure by which the applicable
percentages and affordability percentage
are updated by the ratio of premium
growth to income growth and will apply
prospectively only. For example, if data
for the 2013 calendar year data is finalized
in early 2016, the additional adjustment
will be made in determining the applicable percentages and affordability percentage in effect for the 2017 calendar year.
With respect to the affordability percentage, the final regulations under section 36B inadvertently refer to taxable
years rather than plan years beginning after 2014. Consistent with the language in
section 36B(c)(2)(C)(iv), the temporary
regulations provide that, for plan years
beginning in a calendar year after 2014,
the affordability percentage will be adjusted by the same method used to adjust
the applicable percentages.
The indexing methodology provided
for in the temporary regulations is based
on the same data sources as the method-

August 11, 2014

ology adopted by HHS for adjusting the
required contribution percentage in section 5000A, which is used to determine
eligibility for an exemption from the
shared responsibility payment, and it will
result in adjustments to the applicable percentages and affordability percentage that
are consistent with the adjustments made
by HHS to the required contribution percentage in section 5000A. See 79 Fed.
Reg. 30240 (May 27, 2014).
Comments are requested on the methodology for indexing. In particular, comments are requested on whether this approach properly captures the rate of
premium growth relative to the rate of
income growth and whether alternative
indices or data sources should be used.
3. Allocations for Reconciliation of
Advance Credit Payments and the
Premium Tax Credit
The final regulations under section 36B
provide that a taxpayer must reconcile all
advance credit payments for coverage of
any member of the taxpayer’s family. A
taxpayer’s family includes the taxpayer,
the taxpayer’s spouse and the taxpayer’s
dependents. The final regulations, however, do not address how a taxpayer computes the premium tax credit and reconciles advance credit payments for
coverage of a family member if the family
member was enrolled in a qualified health
plan by another taxpayer, especially in
situations in which the family member is
enrolled with others who are not in the
taxpayer’s family. For example, suppose
Adult 1 enrolls herself and her three children in a qualified health plan and, based
on a good faith assertion that she will
claim the children as dependents, is approved for advance credit payments for
coverage of the family. One of the children (Child), however, is not claimed by
Adult 1 and instead is properly claimed by
Adult 2 as a dependent for the taxable
year. In this circumstance, the final regulations neither address how much of the
premium for the plan purchased by Adult
1 each taxpayer should take into account
in determining his or her premium tax
credit, nor the amount of advance credit
payments for Adult 1’s plan that Adult 2
must reconcile for Child’s coverage. In
addition, the final regulations under sec-

332

tion 36B require Adult 1 and Adult 2 to
determine their adjusted monthly premium for the applicable benchmark plan
(benchmark plan premium) in this circumstance using the rules that apply to taxpayers who do not have family members
enrolled by another taxpayer.
The temporary regulations provide
rules to address how taxpayers determine
their premium tax credit and reconcile advance credit payments in cases in which
an individual is enrolled by one taxpayer
but another taxpayer claims a personal
exemption deduction for the individual. In
particular, the temporary regulations provide that if a taxpayer (the enrolling taxpayer) enrolls an individual in a qualified
health plan, but another taxpayer (the
claiming taxpayer) claims a personal exemption deduction for the enrollee (the
shifting enrollee), then for purposes of
computing each taxpayer’s premium tax
credit and reconciling any advance credit
payments, the premiums and any advance
credit payments for the plan in which the
shifting enrollee was enrolled are allocated between the enrolling taxpayer and
the claiming taxpayer using an allocation
percentage. In addition, the temporary
regulations provide an alternate calculation that is used to determine each taxpayer’s benchmark plan premium when advance credit payments are allocated, using
the same allocation percentage.
The enrolling taxpayer and claiming
taxpayer may generally agree on any allocation percentage between zero and one
hundred percent. For instance, Adult 1
and Adult 2 may determine that the premium attributable to Child is 20 percent of
the total premium for Adult 1’s family
plan, and agree on an allocation percentage of 20 percent. If the claiming taxpayer
and enrolling taxpayer do not agree on a
percentage, the allocation percentage is
equal to the number of shifting enrollees
divided by the total number of individuals
enrolled by the enrolling taxpayer in the
same qualified health plan as the shifting
enrollees. In the example above, if Adult 1
and Adult 2 did not agree on an allocation
percentage, the allocation percentage
would be 25 percent (one, the number of
shifting enrollees, divided by four, the total number of individuals enrolled by
Adult 1 in the same plan as the shifting
enrollee).

Bulletin No. 2014 –33

In computing the premium tax credit,
the claiming taxpayer is allocated a portion of the premiums for the plan in which
the enrollee was enrolled equal to the premiums times the allocation percentage.
The enrolling taxpayer is allocated the
remainder of the premiums. Similarly, in
reconciling advance credit payments, the
claiming taxpayer is allocated a portion of
the advance credit payments for the plan
in which the shifting enrollee was enrolled
equal to the advance credit payments
times the allocation percentage. The enrolling taxpayer is allocated the remainder
of these amounts. Advance credit payments are allocated to the claiming taxpayer only if advance credit payments are
made for coverage of the shifting enrollee.
Finally, if advance credit payments are
allocated under the rules above, the taxpayers, in computing their premium tax
credit, must use an alternative calculation
to determine their benchmark plan premium. The benchmark plan premium is
generally the premium an issuer would
charge for the applicable benchmark plan
to cover all members of the taxpayer’s
coverage family, adjusted only for the age
of each member of the coverage family.
Under the alternative calculation, each
taxpayer will first determine the allocable
portion of the enrolling taxpayer’s benchmark plan premium (allocable portion).
The allocable portion is equal to the product of (1) the allocation percentage and (2)
the benchmark plan premium for the enrolling taxpayer’s coverage family had the
enrolling taxpayer claimed a personal exemption deduction for the shifting enrollee or enrollees for the taxable year. If
the enrolling taxpayer’s coverage family
is enrolled in more than one qualified
health plan, the allocable portion is determined as if the enrolling taxpayer’s coverage family includes only the family
members who enrolled in the same plan as
the shifting enrollee or enrollees. The
benchmark plan premium for the claiming
taxpayer is equal to this allocable portion
plus the benchmark plan premium for the
claiming taxpayer’s coverage family excluding the shifting enrollee or enrollees.
The enrolling taxpayer’s benchmark plan
premium is equal to the benchmark plan
premium for the enrolling taxpayer’s coverage family had the enrolling taxpayer
claimed a personal exemption deduction

Bulletin No. 2014 –33

for the shifting enrollee or enrollees, minus the allocable portion.
4. Reconciliation for Divorced and
Separated Taxpayers
The temporary regulations clarify how
taxpayers who legally separate or divorce
allocate the benchmark plan premium, the
premium for the plan in which the taxpayers or their dependents enroll, and the
advance credit payments to compute their
respective premium tax credit and excess
advance credit payments. The final section
36B regulations provide that if just one of
the taxpayers is enrolled in the qualified
health plan for the married months, all of
the items are allocated to that taxpayer,
even if the taxpayer’s former spouse had
one or more dependents also enrolled in
the same plan. The temporary regulations
expand the circumstances in which the
items are allocated between the former
spouses to include dependent situations
and limit the instances in which all of the
items are allocated to just one of the
spouses.
Under the temporary regulations, taxpayers who are married (within the meaning of section 7703) to each other during a
taxable year but are not married to each
other on the last day of the taxable year,
and who are enrolled in the same qualified
health plan, must allocate the benchmark
plan premium, the premium for the plan in
which the taxpayers and their dependents
enroll, and the advance credit payments
for the period the taxpayers are married
during the taxable year. In addition, these
items must be allocated for periods in
which just one of the former spouses is
enrolled if one or more dependents of the
other former spouse is also enrolled in the
plan. The taxpayers may allocate these
items to each former spouse in any proportion but must allocate all items in the
same proportion. If the taxpayers do not
agree on an allocation that is reported to
the IRS in accordance with the relevant
forms and instructions, 50 percent of each
item is allocated to each taxpayer. If a
plan covers for a time period only one of
the taxpayers and no dependents, only one
of the taxpayers and one or more dependents of that same taxpayer, or only one or
more dependents of just one of the taxpayers, then the benchmark plan pre-

333

mium, the premium for the plan in which
the taxpayers or their dependents enroll,
and the advance credit payments for that
period are allocated entirely to that taxpayer.
5. Reconciliation for Married Taxpayers
Who File Separately
The temporary regulations also amend
the reconciliation rules for taxpayers who
are married and file separate returns. The
final regulations under section 36B provide that a married taxpayer who receives
advance credit payments and files an income tax return as married filing separately has received excess advance payments. Under the temporary regulations, a
taxpayer who uses a filing status of married filing separately may be allowed a
premium tax credit if the taxpayer is a
victim of spousal abuse or abandonment.
Consequently, in these limited circumstances, a married taxpayer who receives
advance credit payments and uses a married filing separately filing status will not
have excess advance payments by reason
of his or her filing status. The temporary
regulations also clarify the manner in
which taxpayers reconcile advance credit
payments in situations in which the taxpayers indicate that they are married when
applying for advance credit payments, but
one or both file their tax return using the
head of household filing status. Taxpayers
who qualify to use the head of household
filing status may be eligible for a premium
tax credit. In particular, the temporary
regulations provide that, in such cases, 50
percent of the advance credit payments for
a period of coverage in a qualified health
plan are allocated to each taxpayer. However, all of the advance credit payments
are allocated to only one of the taxpayers
for a period in which a qualified health
plan covers only that taxpayer, only that
taxpayer and one or more dependents of
that taxpayer, or only one or more dependents of that taxpayer. Premiums for the
plan in which the taxpayers or their dependents are enrolled are allocated in the
same manner whether or not the taxpayers
receive advance credit payments. These
rules result in the advance credit payments
and premiums being allocated in the same
proportion to the two taxpayers.

August 11, 2014

6. Deduction for Health Insurance Costs
of Self-employed Individuals
Under section 162(l), a taxpayer who is
an employee within the meaning of section 401(c)(1) (generally, a self-employed
individual) is allowed a deduction for all
or a portion of the taxpayer’s premiums
paid during the taxable year for health
insurance for the taxpayer, the taxpayer’s
spouse, the taxpayer’s dependents, and
any child of the taxpayer under the age of
27. The section 162(l) deduction is allowed in computing adjusted gross income. The deduction allowed under section 162(l) may not exceed the taxpayer’s
earned income from the trade or business
with respect to which the health insurance
plan is established. In addition, section
280C(g) provides that no deduction is allowed under section 162(l) for the portion
of premiums for a qualified health plan
equal to the amount of the premium tax
credit determined under section 36B(a)
with respect to those premiums.
The temporary regulations provide
rules for the interaction between the section 162(l) deduction and both the premium tax credit and the limitation on additional tax under section 36B(f)(2)(B).
The temporary regulations provide that a
taxpayer is allowed a deduction under section 162(l) for specified premiums not to
exceed the lesser of (1) the specified premiums less the premium tax credit attributable to the specified premiums; and (2)
the sum of the specified premiums not
paid through advance credit payments and
the additional tax imposed (if any) under
section 36B(f)(2)(A) with respect to the
specified premiums after applying the limitation in section 36B(f)(2)(B). Specified
premiums means premiums for a specified
qualified health plan or plans for which
the taxpayer may otherwise claim a deduction under section 162(l). A specified
qualified health plan is a qualified health
plan, as defined in § 1.36B–1(c), covering
the taxpayer, the taxpayer’s spouse, or a
dependent of the taxpayer (enrolled family member) for a month that is a coverage
month within the meaning of § 1.36B–
3(c) for the enrolled family member. If a
specified qualified health plan covers one
or more individuals other than enrolled
family members, the specified premiums
include only the portion of the premiums

August 11, 2014

for the specified qualified health plan that
is allocable to the enrolled family members under rules similar to § 1.36B–3(h),
which provides rules for determining the
amount under § 1.36B–3(d)(1) when two
families are enrolled in the same qualified
health plan.
Although a taxpayer’s section 162(l)
deduction is limited under section
280C(g) only to the extent of the taxpayer’s premium tax credit, some taxpayers
with advance payments in excess of their
premium tax credit will not have to repay
the entire excess because of the limitation
on additional tax in section 36B(f)(2)(B).
Because the taxpayer does not bear the
cost of any portion of the premium that is
paid through advance credit payments and
that is not subject to repayment due to the
limitations, any such amount is treated as
an amount of premium tax credit for purposes of section 280C(g).
As a computational matter, the premium tax credit and the limitation on additional tax bear a circular relationship to
the section 162(l) deduction that may create challenges for taxpayers. Specifically,
the amount of the section 162(l) deduction
affects a taxpayer’s adjusted gross income, which affects both the premium tax
credit and the limitation on additional tax.
Conversely, both the premium tax credit
and the limitation on additional tax affect
the amount a taxpayer spends on health
insurance premiums, which in turn affects
the taxpayer’s section 162(l) deduction.
A taxpayer may resolve the circularity
between the section 162(l) deduction and
the premium tax credit by taking any position that satisfies the requirements of
section 36B, section 162(l) and other applicable tax law and the regulations issued
under those sections, including the temporary regulations in this rulemaking.
To address the circularity between the
section 162(l) deduction and the limitation
on additional tax under section 36B(f)(2)(B)
(limitation amount), the temporary regulations provide rules for determining
which limitation amount, if any, a taxpayer may use. Taxpayers make this determination before calculating their section 162(l) deduction and premium tax
credit. To determine the limitation
amount, a taxpayer tests his or her eligibility for each of the limitation amounts
that may apply, starting with the lowest,

334

until the taxpayer either determines that
he or she qualifies for one of the limitation
amounts or exhausts them without qualifying for one. For each limitation amount,
the taxpayer qualifies to use that limitation
amount if the taxpayer’s household income as a percentage of the Federal poverty line, determined by using a section
162(l) deduction equal to the sum of (1)
specified premiums, as defined above, not
paid through advance credit payments, (2)
the limitation amount, and (3) premiums
other than specified premiums for which
the taxpayer may claim a section 162(l)
deduction, is equal to or less than the
maximum household income as a percentage of the Federal poverty line for which
that limitation amount is available. For
example, if a taxpayer’s 2014 household
income, using a section 162(l) deduction
equal to the sum of the specified premiums not paid through advance credit payments and the $600 limitation amount, is
less than 200 percent of the Federal poverty line, the taxpayer uses the $600 limitation amount in determining additional
tax under section 36B(f)(2)(B). If a taxpayer is unable to qualify for any limitation amount under this rule, the limitation
on additional tax under section 36B(f)(2)(B)
does not apply to the taxpayer.
A taxpayer who deducts specified premiums under section 162(l) must use the
limitation amount determined under this
rule notwithstanding that household income as a percentage of the Federal poverty line would, but for this rule, result in
a different limitation amount. After a taxpayer determines his or her limitation
amount, if any, under this rule, the taxpayer then determines the section 162(l)
deduction and premium tax credit under
the other rules described above, except
using the limitation amount determined
under these rules when necessary. These
rules apply only for purposes of determining the limitation amount; they do not
affect eligibility for the premium tax
credit. Thus, it is possible that a taxpayer
with household income under 400 percent
of the Federal poverty line for the taxpayer’s family size may properly claim a premium tax credit but not qualify for a limitation on additional tax.
The temporary regulations further provide that Treasury and IRS may issue additional published guidance to address

Bulletin No. 2014 –33

potential complexities arising from the interaction of the section 36B premium tax
credit and the section 162(l) deduction.
To provide additional assistance to taxpayers with addressing the circularity between the section 162(l) deduction and the
premium tax credit, Rev. Proc. 2014 – 41
provides calculation methods that a taxpayer may use to determine amounts of
the section 162(l) deduction and the premium tax credit. The IRS and Treasury
request comments on other methods for
simplifying these calculations.
Effective/Applicability Date
For applicability dates, see §§ 1.36B–
2T(d), 1.36B–3T(m), 1.36B– 4T(c), and
1.162(l)–1T(c). The applicability of these
regulations expires on or before July 24,
2017.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order
12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6)
please refer to the cross-reference notice
of proposed rulemaking published elsewhere in this issue of the Bulletin. Pursuant to section 7805(f), these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on their impact
on small business.
Drafting Information
The principal authors of these regulations are Arvind Ravichandran, Shareen
Pflanz and Steve Toomey of the Office of
the Associate Chief Counsel (Income Tax
& Accounting). However, other personnel
from the IRS and the Treasury Department participated in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is
amended as follows:

Bulletin No. 2014 –33

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.36B–2 is amended by:
1. Revising paragraphs (b)(2)
(c)(3)(v)(C).
2. Adding paragraph (d).

and

The revisions and additions read as follows:
§ 1.36B–2 Eligibility for premium tax
credit.
*****
(b) * * *
(2) [Reserved]. For further guidance,
see § 1.36B–2T(b)(2).
*****
(c) * * *
(3) * * *
(v) * * *
(C) [Reserved]. For further guidance,
see § 1.36B–2T(c)(3)(v)(C).
*****
(d) [Reserved]. For further guidance,
see § 1.36B–2T(d).
Par. 3. Section 1.36B–2T is added to
read as follows:
§ 1.36B–2T Eligibility for premium tax
credit (temporary).
(a) through (b)(1) [Reserved]. For further guidance, see § 1.36B–2(a) through
(b)(1).
(2) Married taxpayers must file joint
return—(i) In general. Except as provided
in paragraph (b)(2)(ii) of this section, a
taxpayer who is married (within the meaning of section 7703) at the close of the
taxable year is an applicable taxpayer only
if the taxpayer and the taxpayer’s spouse
file a joint return for the taxable year.
(ii) Victims of domestic abuse and
abandonment. Except as provided in paragraph (b)(2)(v) of this section, a married
taxpayer satisfies the joint filing requirement of paragraph (b)(2)(i) of this section
if the taxpayer files a tax return using a
filing status of married filing separately
and the taxpayer—
(A) Is living apart from the taxpayer’s
spouse at the time the taxpayer files the
tax return;

335

(B) Is unable to file a joint return because the taxpayer is a victim of domestic
abuse, as described in paragraph (b)(2)(iii)
of this section, or spousal abandonment,
as described in paragraph (b)(2)(iv) of this
section; and
(C) Certifies on the return, in accordance with the relevant instructions, that
the taxpayer meets the criteria of this
paragraph (b)(2)(ii).
(iii) Domestic abuse. For purposes of
paragraph (b)(2)(ii) of this section, domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate,
humiliate, and intimidate, or to undermine
the victim’s ability to reason independently. All the facts and circumstances are
considered in determining whether an individual is abused, including the effects of
alcohol or drug abuse by the victim’s
spouse. Depending on the facts and circumstances, abuse of the victim’s child or
another family member living in the
household may constitute abuse of the
victim.
(iv) Abandonment. For purposes of
paragraph (b)(2)(ii) of this section, a taxpayer is a victim of spousal abandonment
for a taxable year if, taking into account
all facts and circumstances, the taxpayer is
unable to locate his or her spouse after
reasonable diligence.
(v) Three-year rule. Paragraph
(b)(2)(ii) of this section does not apply if
the taxpayer met the requirements of paragraph (b)(2)(ii) of this section for each of
the three preceding taxable years.
(b)(3) through (c)(3)(v)(B) [Reserved].
For further guidance, see § 1.36B–2(b)(3)
through (c)(3)(v)(B).
(C) Required contribution percentage.
The required contribution percentage is
9.5 percent. For plan years beginning in a
calendar year after 2014, the percentage
will be adjusted by the ratio of premium
growth to income growth for the preceding calendar year and may be further adjusted to reflect changes to the data used
to compute the ratio of premium growth to
income growth for the 2014 calendar year
or the data sources used to compute the
ratio of premium growth to income
growth. Premium growth and income
growth will be determined under published guidance, see § 601.601(d)(2) of
this chapter. In addition, the percentage

August 11, 2014

may be adjusted for plan years beginning
in a calendar year after 2018 to reflect
rates of premium growth relative to
growth in the consumer price index.
(c)(3)(v)(D) through (c)(4) [Reserved].
For further guidance, see § 1.36B–
2(c)(3)(v)(D) through (c)(4).
(d) Effective/applicability date. Paragraphs (b)(2) and (c)(3)(v)(C) of this section apply to taxable years beginning after
December 31, 2013.
(e) Expiration date. Paragraphs (b)(2)
and (c)(3)(v)(C) of this section expire on
July 24, 2017.
Par. 4. Section 1.36B–3 is amended by:
1. Revising paragraph (g)(1).
2. Adding paragraph (m).
The revisions and additions read as follows:
§ 1.36B–3 Computing the premium assistance credit amount.
*****
(g) * * *
(1) [Reserved]. For further guidance,
see § 1.36B–3T(g)(1).
*****
(m) [Reserved]. For further guidance,
see § 1.36B–3T(m).
Par. 5. Section 1.36B–3T is added to
read as follows:
§ 1.36B–3T Computing the premium
assistance credit amount (temporary).
(a) through (f) [Reserved]. For further
guidance, see § 1.36B–3(a) through (f).
(g) Applicable percentage—(1) In general. The applicable percentage multiplied
by a taxpayer’s household income determines the taxpayer’s annual required
share of premiums for the benchmark
plan. The required share is divided by 12
and this monthly amount is subtracted
from the adjusted monthly premium for
the applicable benchmark plan when computing the premium assistance amount.
The applicable percentage is computed by
first determining the percentage that the
taxpayer’s household income bears to the
Federal poverty line for the taxpayer’s
family size. The resulting Federal poverty
line percentage is then compared to the
income categories described in the table in
paragraph (g)(2) of this section (or successor tables). An applicable percentage
within an income category increases on a

August 11, 2014

sliding scale in a linear manner and is
rounded to the nearest one-hundredth of
one percent. For taxable years beginning
after December 31, 2014, the applicable
percentages in the table will be adjusted
by the ratio of premium growth to income
growth for the preceding calendar year
and may be further adjusted to reflect
changes to the data used to compute the
ratio of premium growth to income
growth for the 2014 calendar year or the
data sources used to compute the ratio of
premium growth to income growth. Premium growth and income growth will be
determined in accordance with published
guidance, see § 601.601(d)(2) of this
chapter. In addition, the applicable percentages in the table may be adjusted for
taxable years beginning after December
31, 2018, to reflect rates of premium
growth relative to growth in the consumer
price index.
(g)(2) through (l) [Reserved]. For further guidance, see § 1.36B–3(g)(2)
through (l).
(m) Effective/applicability date. Paragraph (g)(1) of this section applies to taxable years beginning after December 31,
2013.
(n) Expiration date. Paragraph (g)(1)
of this section expires on July 24, 2017.
Par. 6. Section 1.36B– 4 is amended
by:
1. Revising paragraph (a)(1)(ii).
2. Adding paragraph (a)(3)(iii).
3. In paragraph (a)(4), revising Example
4 and adding Examples 10, 11, 12,
13, and 14.
4. Revising paragraphs (b)(3) and
(b)(4).
5. Removing paragraph (b)(5).
6. Redesignating paragraph (b)(6) as
paragraph (b)(5), and revising Example 9, and adding Example 10 to
newly redesignated paragraph (b)(5).
7. Adding paragraph (c).
The revisions and additions read as follows:
§ 1.36B– 4 Reconciling the premium tax
credit with advance credit payments.
(a) * * * (1) * * *
(ii) [Reserved]. For further guidance,
see § 1.36B– 4T(a)(1)(ii).
*****

336

(3) * * *
(iii) [Reserved]. For further guidance,
see § 1.36B– 4T(a)(3)(iii).
(4) * * *
Example 4. [Reserved]. For further guidance, see
§ 1.36B– 4T(a)(4), Example 4.

*****
Example 10. [Reserved]. For further
see § 1.36B– 4T(a)(4), Example 10.
Example 11. [Reserved]. For further
see § 1.36B– 4T(a)(4), Example 11.
Example 12. [Reserved]. For further
see § 1.36B– 4T(a)(4), Example 12.
Example 13. [Reserved]. For further
see § 1.36B– 4T(a)(4), Example 13.
Example 14. [Reserved]. For further
see § 1.36B– 4T(a)(4), Example 14.

guidance,
guidance,
guidance,
guidance,
guidance,

(b) * * *
(3) [Reserved]. For further guidance,
see § 1.36B– 4T(b)(3).
(4) [Reserved]. For further guidance,
see § 1.36B– 4T(b)(4).
(5) * * *
Example 9. [Reserved]. For further guidance, see
§ 1.36B– 4T(b)(5), Example 9.
Example 10. [Reserved]. For further guidance,
see § 1.36B– 4T(b)(5), Example 10.

*****
(c) [Reserved]. For further guidance,
see § 1.36B– 4T(c).
Par. 7. Section 1.36B– 4T is added to
read as follows:
§ 1.36B– 4T Reconciling the premium
tax credit with advance credit payments
(temporary).
(a)(1)(i) [Reserved]. For further guidance, see § 1.36B– 4(a)(1)(i).
(ii) Allocation rules and responsibility
for advance credit payments—(A) In general. A taxpayer must reconcile all advance credit payments for coverage of any
member of the taxpayer’s family.
(B) Individuals enrolled by a taxpayer
and claimed as a personal exemption deduction by another taxpayer—(1) In general. If a taxpayer (the enrolling taxpayer)
enrolls an individual in a qualified health
plan and another taxpayer (the claiming
taxpayer) claims a personal exemption deduction for the individual (the shifting enrollee), then for purposes of computing
each taxpayer’s premium tax credit and
reconciling any advance credit payments,
the premiums and advance credit payments for the plan in which the shifting
enrollee was enrolled are allocated under
this paragraph (a)(1)(ii)(B) according to
the allocation percentage described in

Bulletin No. 2014 –33

paragraph (a)(1)(ii)(B)(2) of this section.
If advance credit payments are allocated
under paragraph (a)(1)(ii)(B)(4) of this
section, the claiming taxpayer and enrolling taxpayer must use this same allocation
percentage to calculate their § 1.36B–
3(d)(2) adjusted monthly premiums for
the applicable benchmark plan (benchmark plan premiums). This paragraph
(a)(1)(ii)(B) does not apply to amounts
allocated under § 1.36B–3(h) (qualified
health plan covering more than one family) or if the shifting enrollee or enrollees
are the only individuals enrolled in the
qualified health plan. For purposes of this
paragraph (a)(1)(ii)(B)(1), a taxpayer who
is expected at enrollment in a qualified
health plan to be the taxpayer filing an
income tax return for the year of coverage
with respect to an individual enrolling in
the plan has enrolled that individual.
(2) Allocation percentage. The enrolling taxpayer and claiming taxpayer may
agree on any allocation percentage between zero and one hundred percent. If the
enrolling taxpayer and claiming taxpayer
do not agree on an allocation percentage,
the percentage is equal to the number of
shifting enrollees claimed as a personal
exemption deduction by the claiming taxpayer divided by the number of individuals enrolled by the enrolling taxpayer in
the same qualified health plan as the shifting enrollee.
(3) Allocating premiums. In computing
the premium tax credit, the claiming taxpayer is allocated a portion of the premiums for the plan in which the shifting
enrollee was enrolled equal to the premiums for the plan times the allocation percentage. The enrolling taxpayer is allocated the remainder of the premiums
not allocated to one or more claiming
taxpayers.
(4) Allocating advance credit payments. In reconciling any advance credit
payments, the claiming taxpayer is allocated a portion of the advance credit payments for the plan in which the shifting
enrollee was enrolled equal to the enrolling taxpayer’s advance credit payments
for the plan times the allocation percentage. The enrolling taxpayer is allocated
the remainder of the advance credit payments not allocated to one or more claiming
taxpayers.
This
paragraph
(a)(1)(ii)(B)(4) only applies in situations

Bulletin No. 2014 –33

in which advance credit payments are
made for coverage of a shifting enrollee.
(5) Premiums for the applicable benchmark plan. If paragraph (a)(1)(ii)(B)(4) of
this section applies, the claiming taxpayer’s benchmark plan premium is the sum
of the benchmark plan premium for the
claiming taxpayer’s coverage family, excluding the shifting enrollee or enrollees,
and the allocable portion. The allocable
portion for purposes of this paragraph
(a)(1)(ii)(B)(5) is the product of the
benchmark plan premium for the enrolling
taxpayer’s coverage family if the shifting
enrollee was a member of the enrolling
taxpayer’s coverage family and the allocation percentage. If the enrolling taxpayer’s coverage family is enrolled in more
than one qualified health plan, the allocable portion is determined as if the enrolling taxpayer’s coverage family includes
only the coverage family members who
enrolled in the same plan as the shifting
enrollee or enrollees. The enrolling taxpayer’s benchmark plan premium is the
benchmark plan premium for the enrolling
taxpayer’s coverage family had the shifting enrollee or enrollees remained a part
of the enrolling taxpayer’s coverage family, minus the allocable portion.
(C) Responsibility for advance credit
payments for an individual for whom no
personal exemption deduction is claimed.
If advance credit payments are made for
coverage of an individual for whom no
taxpayer claims a personal exemption deduction, the taxpayer who attested to the
Exchange to the intention to claim a personal exemption deduction for the individual as part of the advance credit payment eligibility determination for
coverage of the individual must reconcile
the advance credit payments.
(a)(1)(iii) through (a)(3)(ii) [Reserved].
For further guidance, see § 1.36B–
4(a)(1)(iii) through (a)(3)(ii).
(iii) Limitation on additional tax for
taxpayers who claim a section 162(l) deduction for a qualified health plan—(A)
In general. A taxpayer who receives advance credit payments and deducts premiums for a qualified health plan under section
162(l) must use paragraphs (a)(3)(iii)(B)
and (C) of this section to determine the
limitation on additional tax in this paragraph (a)(3) (limitation amount). Taxpayers must make this determination before

337

calculating their section 162(l) deduction
and premium tax credit. For additional
rules for taxpayers who may claim a deduction under section 162(l) for a qualified health plan for which advance credit
payments are made, see § 1.162(l)–1T.
(B) Determining the limitation amount.
A taxpayer described in paragraph
(a)(3)(iii)(A) of this section must use the
limitation amount for which the taxpayer
qualifies under the requirements of paragraph (a)(3)(iii)(C) of this section. The
limitation amount determined under this
paragraph (a)(3)(iii) replaces the limitation amount that would otherwise be determined under the additional tax limitation table in paragraph (a)(3)(ii) of this
section.
In
applying
paragraph
(a)(3)(iii)(C) of this section, a taxpayer
must first determine whether he or she
qualifies for the limitation amount applicable to taxpayers with household income
of less than 200 percent of the Federal
poverty line for the taxpayer’s family size.
If the taxpayer is unable to meet the requirements of paragraph (a)(3)(iii)(C) of
this section for that limitation amount, the
taxpayer must next determine whether he
or she qualifies for the limitation applicable to taxpayers with household income of
less than 300 percent of the Federal poverty line for the taxpayer’s family size. If
the taxpayer is unable to meet the requirements of paragraph (a)(3)(iii)(C) of this
section for taxpayers with household income of less than 300 percent of the Federal poverty line for the taxpayer’s family
size, the taxpayer must next determine
whether he or she qualifies for the limitation applicable to taxpayers with household income of less than 400 percent of
the Federal poverty line for the taxpayer’s
family size. If the taxpayer is unable to
meet the requirements of paragraph
(a)(3)(iii)(C) of this section for any limitation amount, the limitation on additional
tax under section 36B(f)(2)(B) does not
apply to the taxpayer.
(C) Requirements. A taxpayer meets
the requirements of this paragraph
(a)(3)(iii)(C) for a limitation amount if the
taxpayer’s household income as a percentage of the Federal poverty line is less than
or equal to the maximum household income as a percentage of the Federal poverty line for which that limitation is available. Household income for this purpose

August 11, 2014

is determined by using a section 162(l)
deduction equal to the sum of the specified premiums for the plan not paid
through advance credit payments and the
limitation amount in addition to any deduction allowable under section 162(l) for
premiums other than specified premiums.
For purposes of this paragraph
(a)(3)(iii)(C), specified premiums not paid
through advance credit payments means
specified premiums, as defined in
§ 1.162(l)–1T(a)(2), minus advance credit
payments made with respect to the specified premiums.
(D) Examples. For examples illustrating the rules of this paragraph (a)(3)(iii),
see Examples 13 and 14 of paragraph
(a)(4) of this section.
(a)(4), Example 1, through Example 3
[Reserved]. For further guidance, see
§ 1.36B– 4(a)(4), Example 1 through Example 3.
Example 4. Family size decreases. (i) Taxpayers
B and C are married and have two children, K and L
(ages 17 and 20), whom they claim as dependents in
2013. The Exchange for their rating area projects
their 2014 household income to be $63,388 (275
percent of the Federal poverty line for a family of
four, applicable percentage 8.78). B and C enroll in
a qualified health plan for 2014 that covers the four
family members. The annual premium for the applicable benchmark plan is $14,100. B’s and C’s advance credit payments for 2014 are $8,535, computed as follows: benchmark plan premium of
$14,100 less contribution amount of $5,565 (projected household income of $63,388 ⫻ .0878) ⫽
$8,535.
(ii) In 2014, B and C do not claim L as their
dependent (and no taxpayer claims a personal exemption deduction for L). Consequently, B’s and C’s
family size for 2014 is three, their household income
of $63,388 is 332 percent of the Federal poverty line
for a family of three (applicable percentage 9.5), and
the annual premium for their applicable benchmark
plan is $12,000. Their premium tax credit for 2014 is
$5,978 ($12,000 benchmark plan premium less
$6,022 contribution amount (household income of
$63,388 ⫻ .095)). Because B’s and C’s advance
credit payments for 2014 are $8,535 and their 2014
credit is $5,978, B and C have excess advance payments of $2,557. B’s and C’s additional tax liability
for 2014 under paragraph (a)(1) of this section, however, is limited to $2,500 under paragraph (a)(3) of
this section.
Example 5 through Example 9 [Reserved]. For
further guidance, see 1.36B– 4(a)(4), Example 5
through Example 9.
Example 10. Allocation percentage, agreement
on allocation. (i) Taxpayers G and H are divorced
and have two children, J and K. G enrolls herself and
J and K in a qualified health plan for 2014. The
premium for the plan in which G enrolls is $13,000.
The Exchange in G’s rating area approves advance
credit payments for G based on a family size of

August 11, 2014

three, an annual benchmark plan premium of
$12,000 and projected 2014 household income of
$58,590 (300 percent of the Federal poverty line for
a family of three, applicable percentage 9.5). G’s
advance credit payments for 2014 are $6,434
($12,000 benchmark plan premium less $5,566 contribution amount (household income of $58,590 ⫻
.095)). G’s actual household income for 2014 is
$58,900.
(ii) K lives with H for more than half of 2014 and
H claims K as a dependent for 2014. G and H agree
to an allocation percentage, as described in paragraph (a)(1)(ii)(B)(2) of this section, of 20 percent.
Under the agreement, H is allocated 20 percent of the
items to be allocated and G is allocated the remainder of those items.
(iii) If H is eligible for a premium tax credit, H
takes into account $2,600 of the premiums for the
plan in which K was enrolled ($13,000 ⫻ .20) and
$2,400 of G’s benchmark plan premium ($12,000 ⫻
.20). In addition, H is responsible for reconciling
$1,287 ($6,434 ⫻ .20) of the advance credit payments for K’s coverage.
(iv) G’s family size for 2014 includes only G and
J and G’s household income of $58,900 is 380 percent of the Federal poverty line for a family of two
(applicable percentage 9.5). G’s benchmark plan
premium for 2014 is $9,600 (the benchmark premium for the plan covering G, J and K ($12,000),
minus the amount allocated to H ($2,400). Consequently, G’s premium tax credit is $4,004 (G’s
benchmark plan premium of $9,600 minus G’s contribution amount of $5,596 ($58,900 ⫻ .095)). G has
an excess advance payment of $1,143 (the excess of
the advance credit payments of $5,147 ($6,434 –
$1,287 allocated to H) over the premium tax credit of
$4,004).
Example 11. Allocation percentage, no agreement on allocation. (i) The facts are the same as in
Example 10, except that G and H do not agree on an
allocation
percentage.
Under
paragraph
(a)(1)(ii)(B)(2) of this section, the allocation percentage is 33 percent, computed as follows: the number
of shifting enrollees, 1 (K), divided by the number of
individuals enrolled by the enrolling taxpayer on the
same qualified health plan as the shifting enrollee, 3
(G,J, and K). Thus, H is allocated 33 percent of the
items to be allocated and G is allocated the remainder of those items.
(ii) If H is eligible for a premium tax credit, H
takes into account $4,290 of the premiums for the
plan in which K was enrolled ($13,000 ⫻ .33). H, in
computing H’s benchmark plan premium must include $3,960 of G’s benchmark plan premium
($12,000 ⫻ .33). In addition, H is responsible for
reconciling $2,123 ($6,434 ⫻ .33) of the advance
credit payments for K’s coverage.
(iii) G’s benchmark plan premium for 2014 is
$8,040 (the benchmark premium for the plan covering G, J, and K ($12,000), minus the amount allocated to H ($3,960). Consequently, G’s premium tax
credit is $2,444 (G’s benchmark plan premium of
$8,040 minus G’s contribution amount of $5,596
($58,900 ⫻ .095)). G has an excess advance credit
payment of $1,867 (the excess of the advance credit
payments of $4,311 ($6,434 ⫺ $2,123 allocated to
H) over the premium tax credit of $2,444).

338

Example 12. Allocations for an emancipated
child. Spouses L and M enroll in a qualified health
plan with their child, N. L and M attest that they will
claim N as a dependent and advance credit payments
are made for the coverage of all three family members. However, N files his own return and claims a
personal exemption deduction for himself for the
taxable year. Under paragraph (a)(1)(ii)(B)(1) of this
section, L and M are enrolling taxpayers, N is a
claiming taxpayer and all are subject to the allocation rules in paragraph (a)(1)(ii)(B) of this section.
Example 13. Taxpayer with advance credit payments allowed a section 162(l) deduction but not a
limitation on additional tax. (i) In 2014, B, B’s
spouse, and their two dependents enroll in the applicable second lowest cost silver plan with an annual
premium of $14,000. B’s advance credit payments
attributable to the premiums are $8,000. B is selfemployed for all of 2014 and derives $75,000 of
earnings from B’s trade or business. B’s household
income without including a deduction under section
162(l) for specified premiums is $103,700. The Federal poverty line for a family the size of B’s family
is $23,550.
(ii) Because B received advance credit payments
and deducts premiums for a qualified health plan
under section 162(l), B must determine whether B is
allowed a limitation on additional tax under paragraph (a)(3)(iii) of this section. B begins by testing
eligibility for the $600 limitation amount for taxpayers with household income at less than 200
percent of the Federal poverty line for the taxpayer’s family size. B determines household income
as a percentage of the Federal poverty line by
taking a section 162(l) deduction equal to the sum
of the amount of premiums not paid through advance
credit payments, $6,000 ($14,000 ⫺ $8,000), and the
limitation amount, $600. The result is $97,100
($103,700 ⫺ $6,600) or 412 percent of the Federal
poverty line for B’s family size. Since 412 percent is
not less than 200 percent, B may not use a $600
limitation amount.
(iii) B performs the same calculation for the
$1,500 ($103,700 ⫺ $7,500 ⫽ $96,200 or 408 percent of the Federal poverty line) and $2,500 limitation amounts ($103,700 ⫺ $8,500 ⫽ $95,200 or 404
percent of the Federal poverty line), the amounts for
taxpayers with household income of less than 300
percent or 400 percent, respectively, of the Federal
poverty line for the taxpayer’s family size, and determines that B may not use either of those limitation
amounts. Because B does not meet the requirements
of paragraph (a)(3)(iii) of this section for any of the
limitation amounts in section 36B(f)(2)(B), B is not
eligible for the limitation on additional tax for excess
advance credit payments.
(iv) Although B may not claim a limitation on
additional tax for excess advance credit payments, B
may still be eligible for a premium tax credit. B
would determine eligibility for the premium tax
credit and the amounts of the premium tax credit and
the section 162(l) deduction using other rules, including the regulations under section 36B and section 162(l), applying no limitation on additional tax.
Example 14. Taxpayer with advance credit payments allowed a section 162(l) deduction and a
limitation on additional tax. (i) Same facts as Example 13, except that B’s household income without

Bulletin No. 2014 –33

including a deduction under section 162(l) for specified premiums is $78,802.
(ii) Because B received advance credit payments
and deducts premiums for a qualified health plan
under section 162(l), B must determine whether B is
allowed a limitation on additional tax under paragraph (a)(3)(iii) of this section. B first determines
that B does not meet the requirements of paragraph
(a)(3)(iii)(C) of this section for using the $600 or
$1,500 limitation amounts, the amounts for taxpayers with household income of less than 200 percent
or 300 percent, respectively, of the Federal poverty
line for the taxpayer’s family size. That is because
B’s household income as a percentage of the Federal
poverty line, determined by using a section 162(l)
deduction for premiums for the qualified health plan
equal to the sum of the premiums for the plan not
paid through advance credit payments and the limitation amount, is more than the maximum household
income as a percentage of the Federal poverty line
for which that limitation is available (using the $600
limitation, B’s household income would be $72,202
($78,802 – ($6,000 ⫹ $600)), which is 307 percent
of the Federal poverty line for B’s family size; and
using the $1,500 limitation, B’s household income
would be $71,302 ($78,802 – ($6,000 ⫹ $1,500)),
which is 303 percent of the Federal poverty line for
B’s family size).
(iii) However, B meets the requirements of paragraph (a)(3)(iii)(C) of this section using the $2,500
limitation amount for taxpayers with household income of less than 400 percent of the Federal poverty
line for the taxpayer’s family size. This is because
B’s household income as a percentage of the Federal
poverty line by taking a section 162(l) deduction
equal to the sum of the amount of premiums not paid
through advance credit payments, $6,000, and the
limitation amount, $2,500, is $70,302 (299 percent
of the Federal poverty line), which is below 400
percent of the Federal poverty line for B’s family
size, and is less than the maximum amount for which
that limitation is available. Thus, B uses a limitation
amount of $2,500 in computing B’s additional tax on
excess advance credit payments.
(iv) B may then determine the amount of the
premium tax credit and section 162(l) deduction
using the rules under section 36B and section 162(l),
applying the $2,500 limitation amount determined
above.

(b)(1) through (b)(2) [Reserved]. For
further guidance, see § 1.36B– 4(b)(1)
through (b)(2).
(3) Taxpayers not married to each
other at the end of the taxable year. Taxpayers who are married (within the meaning of section 7703) to each other during a
taxable year but legally separate under a
decree of divorce or of separate maintenance during the taxable year, and who
are enrolled in the same qualified health
plan at any time during the taxable year
must allocate the benchmark plan premium, the premium for the plan in which
the taxpayers enroll, and the advance
credit payments for the period the taxpay-

Bulletin No. 2014 –33

ers are married during the taxable year.
Taxpayers must also allocate these items
if one of the taxpayers has a dependent
enrolled in the same plan as the taxpayer’s
former spouse or enrolled in the same plan
as a dependent of the taxpayer’s former
spouse. The taxpayers may allocate these
items to each former spouse in any proportion but must allocate all items in the
same proportion. If the taxpayers do not
agree on an allocation that is reported to
the IRS in accordance with the relevant
forms and instructions, 50 percent of the
premium for the applicable benchmark
plan, the premium for the plan in which
the taxpayers enroll, and the advance
credit payments for the married period are
allocated to each taxpayer. If for a period
a plan covers only one of the taxpayers
and no dependents, only one of the taxpayers and one or more dependents of that
same taxpayer, or only one or more dependents of one of the taxpayers, then
the benchmark plan premium, the premium for the plan in which the taxpayers
enroll, and the advance credit payments
for that period are allocated entirely to
that taxpayer.
(4) Taxpayers filing returns as married
filing separately or head of household—(i)
Allocation of advance credit payments.
Except as provided in § 1.36B–2(b)(2)(ii),
the premium tax credit is allowed to married (within the meaning of section 7703)
taxpayers only if they file joint returns.
See § 1.36B–2(b)(2)(i). Taxpayers who
receive advance credit payments as married taxpayers and do not file a joint return
must allocate the advance credit payments
for coverage under a qualified health plan
equally to each taxpayer for any period
the plan covers and advance credit payments are made for both taxpayers, only
one of the taxpayers and one or more
dependents of the other taxpayer, or one
or more dependents of both taxpayers. If
for a period a plan covers or advance
credit payments are made for only one of
the taxpayers and no dependents, only one
of the taxpayers and one or more dependents of that same taxpayer, or only one or
more dependents of one of the taxpayers,
the advance credit payments for that period are allocated entirely to that taxpayer.
If one or both of the taxpayers is an applicable taxpayer eligible for a premium
tax credit for the taxable year, the pre-

339

mium tax credit is computed by allocating
the premiums for the plan in which the
taxpayers or their family members enroll
under paragraph (b)(4)(ii) of this section.
The repayment limitation described in
paragraph (a)(3) of this section applies to
each taxpayer based on the household income and family size reported on that
taxpayer’s return. This paragraph (b)(4)
also applies to taxpayers who receive advance credit payments as married taxpayers and file a tax return using the head of
household filing status.
(ii) Allocation of premiums. If taxpayers who are married within the meaning of
section 7703, without regard to section
7703(b), do not file a joint return, 50 percent of the premiums for a period of coverage in a qualified health plan are allocated to each taxpayer. However, all of
the premiums are allocated to only one of
the taxpayers for a period in which a qualified health plan covers only that taxpayer,
only that taxpayer and one or more dependents of that taxpayer, or only one or more
dependents of that taxpayer.
(b)(5), Example 1 through Example 8
[Reserved]. For further guidance, see
§ 1.36B– 4(b)(5), Example 1 through Example 8.
Example 9. (i) The facts are the same as in
Example 8, except that X and Y live apart for over 6
months of the year and X properly files an income
tax return as head of household. Under section
7703(b), X is treated as unmarried and therefore is
not required to file a joint return. If X otherwise
qualifies as an applicable taxpayer, X may claim the
premium tax credit based on the household income
and family size X reports on the return. Y is not an
applicable taxpayer and is not eligible to claim the
premium tax credit.
(ii) X must reconcile the amount of credit with
advance credit payments under paragraph (a) of this
section. The premium for the applicable benchmark
plan covering X and his two dependents is $9,800.
X’s premium tax credit is computed as follows:
$9,800 benchmark plan premium minus X’s contribution amount of $5,700 ($60,000 ⫻ .095) equals
$4,100.
(iii) Under paragraph (b)(4) of this section, half
of the advance payments ($6,880/2 ⫽ $3,440) is
allocated to X and half is allocated to Y. Thus, X is
entitled to $660 additional premium tax credit
($4,100 ⫺ $3,440). Y has $3,440 excess advance
payments, which is limited to $600 under paragraph
(a)(3) of this section.
Example 10. (i) A is married to B at the close of
2014 and they have no dependents. A and B are
enrolled in a qualified health plan for 2014 with an
annual premium of $10,000 and advance credit payments of $6,500. A is not eligible for minimum
essential coverage (other than coverage described in

August 11, 2014

section 5000A(f)(1)(C)) for any month in 2014. A is
a victim of domestic abuse as described in § 1.36B–
2(b)(2)(iii). At the time A files her tax return for
2014, A is unable to file a joint return with B for
2014 because of the domestic abuse. A certifies on
her 2014 return, in accordance with relevant instructions, that she is living apart from B and is unable to
file a joint return because of domestic abuse. Thus,
under § 1.36B–2(b)(2)(ii), A satisfies the joint return
filing requirement in section 36B(c)(1)(C) for 2014.
(ii) A’s family size for 2014 for purposes of
computing the premium tax credit is one and A is the
only member of her coverage family. Thus, A’s
benchmark plan for all months of 2014 is the second
lowest cost silver plan offered by the Exchange for
A’s rating area that covers A. A’s household income
includes only A’s modified adjusted gross income.
Under paragraph (b)(4)(ii) of this section, A takes
into account $5,000 ($10,000 ⫻ .50) of the premiums for the plan in which she was enrolled in determining her premium tax credit. Further, A must
reconcile $3,250 ($6,500 ⫻ .50) of the advance
credit payments for her coverage under paragraph
(b)(4)(i) of this section.

(c) Effective/applicability date. Paragraphs (a)(1)(ii), (a)(3)(iii), (a)(4), Examples
4, 10, 11, 12, 13, and 14, (b)(3), (b)(4), and
(b)(5), Examples 9 and 10 apply to taxable
years beginning after December 31, 2013.
(d) Expiration date. Paragraphs (a)(1)(ii),
(a)(3)(iii), (a)(4), Examples 4, 10, 11, 12, 13,
and 14, (b)(3), (b)(4), and (b)(5), Examples
9 and 10 expire on July 24, 2017.
Par. 8. Section 1.162(l)–1T is added to
read as follows:
§ 1.162(l)–1T Deduction for health
insurance costs of self-employed
individuals (temporary).
(a) Coordination of section 162(l) deduction for taxpayers subject to section
36B—(1) In general. A taxpayer is allowed a deduction under section 162(l) for
specified premiums, as defined in paragraph (a)(2) of this section, not to exceed
an amount equal to the lesser of—
(i) The specified premiums less the
premium tax credit attributable to the
specified premiums; and
(ii) The sum of the specified premiums
not paid through advance credit payments,
as described in paragraph (a)(3) of this
section, and the additional tax (if any)
imposed under section 36B(f)(2)(A) and
§ 1.36B– 4(a)(1) with respect to the specified premiums after application of the
limitation on additional tax in section
36B(f)(2)(B) and § 1.36B– 4(a)(3).
(2) Specified premiums. For purposes
of paragraph (a)(1) of this section, speci-

August 11, 2014

fied premiums means premiums for a
specified qualified health plan or plans for
which the taxpayer may otherwise claim a
deduction under section 162(l). For purposes of this paragraph (a)(2), a specified
qualified health plan is a qualified health
plan, as defined in § 1.36B–1(c), covering
the taxpayer, the taxpayer’s spouse, or a
dependent of the taxpayer (enrolled family member) for a month that is a coverage
month within the meaning of § 1.36B–
3(c) for the enrolled family member. If a
specified qualified health plan covers individuals other than enrolled family members, the specified premiums include only
the portion of the premiums for the specified qualified health plan that is allocable
to the enrolled family members under
rules similar to § 1.36B–3(h), which provides rules for determining the amount under § 1.36B–3(d)(1) when two families are
enrolled in the same qualified health plan.
(3) Specified premiums not paid
through advance credit payments. For
purposes of paragraph (a)(1)(ii) of this
section, specified premiums not paid
through advance credit payments equal
the amount of the specified premiums minus the advance credit payments attributable to the specified premiums.
(b) Additional guidance. The Secretary
may provide by publication in the Federal
Register or in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter)
additional guidance on coordinating the
deduction allowed under section 162(l)
and the credit provided under section 36B.
(c) Effective/applicability date. This
section applies for taxable years beginning after December 31, 2013.
(d) Expiration date. This section expires on July 24, 2017.
John Dalrymple
Deputy Commissioner for
Services and Enforcement.
Approved July 22, 2014.
Mark J. Mazur
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on July 25, 2014,
8:45 a.m., and published in the issue of the Federal Register
for July 28, 2014, 79 F.R. 43622)

340

Section 708.—Continuation
of Partnership
26 CFR 1.708 –1: Deductibility of start-up expenditures and organizational expenses for partnerships

TD 9681
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

Partnerships; Start-up
Expenditures; Organization
and Syndication Fees
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains final
regulations concerning the deductibility of
start-up expenditures and organizational expenses for partnerships. The final regulations provide guidance regarding the deductibility of start-up expenditures and
organizational expenses for partnerships following a termination of a partnership under
section 708(b)(1)(B). These final regulations affect partnerships that undergo section 708(b)(1)(B) terminations and their
partners.
DATE: Effective Date: These regulations
are effective on July 23, 2014.
FOR FURTHER INFORMATION
CONTACT: Rachel S. Smith, (202) 3176852 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final amendments to the Income Tax Regulations (26
CFR part 1) under section 708(b) of the
Internal Revenue Code (Code). On December 9, 2013, proposed regulations
(REG–126285–12, 78 FR 73753) were
published in the Federal Register. The
proposed regulations were intended to
eliminate uncertainty regarding whether a
partnership is entitled to immediately deduct any unamortized start-up and organizational expenses upon its technical termination. Specifically, the proposed
regulations provided that the new partner-

Bulletin No. 2014 –33