On December 14, 2016, the IRS finalized regulations addressing the ACA's premium tax credit (PTC) (81 Fed. Reg. 91755). The regulations, which finalize proposed regulations issued this summer, address numerous PTC issues including rules involving individuals who demonstrate intentional or reckless disregard for the facts in providing information to the ACA health exchanges (see Legal Update, IRS Expands on Employer Opt-Out Payment Rules).

However, the final regulations do not include rules addressing the effect of opt-out arrangements on an employee's required contributions for employer-sponsored coverage. The IRS reserved those rules and they will be finalized separately at a later date.

Individuals are eligible for a PTC for a month if they are enrolled in a qualified health plan (QHP) under an ACA exchange and not eligible for minimum essential coverage (MEC), which generally includes employer-sponsored health plans that are affordable and provide minimum value (see Article, Health Insurance Exchange and Related Requirements Under the ACA). Under a safe harbor, an employer-sponsored plan is not considered affordable for a plan year if an exchange determines that the plan is unaffordable when an employee enrolls in a QHP for a period that coincides with the plan year. However, the safe harbor does not apply if an exchange determines that an individual is ineligible for affordable employer-sponsored coverage because the individual, with "reckless disregard of the facts," provided incorrect information to the exchange regarding the plan's affordability.

The IRS's proposed PTC regulations included additional intentional-or-reckless-disregard exceptions, which also are reflected in the final regulations. Under the final regulations, the intentional-or-reckless-disregard for the facts exceptions apply if an individual provides inaccurate information to an exchange (or makes little or no effort to determine whether information provided is accurate) under circumstances demonstrating "a substantial deviation from the standard of conduct a reasonable person would observe." According to the IRS, the intentional-or-reckless-disregard standard:

Individuals are only responsible for information they provide to an exchange (but not for information provided by third parties, such as an employer). Also, an individual does not act recklessly when following the advice of an authorized advisor, assuming the individual provided the advisor necessary and accurate information.

In some cases, an individual who declines to enroll in employer-sponsored coverage for a plan year may not have the chance to enroll in that coverage in later years. For PTC purposes, the individual is treated as ineligible for the coverage for the later plan years for which there is no enrollment opportunity. In introductory material accompanying the final regulations, the IRS clarified that this rule also applies to employers with fiscal year employer plans. This provision applies for tax years beginning on or after January 1, 2017.

Under opt-out arrangements, which were addressed in IRS guidance from December 2015 (Notice 2015-87) and the proposed PTC regulations, an employer makes available a payment to employees who decline coverage under the employer's health plan (see Legal Update, IRS Guidance Addresses HRAs, COBRA, ACA Information Reporting and TRICARE). In finalizing its PTC regulations, IRS noted that it will finalize regulations "at a later time" addressing the effect of opt-arrangements on an employee's required contribution for purposes of eligibility for the PTC and an exemption from the ACA individual mandate (26 U.S.C. § 5000A; see Legal Update, Supreme Court Upholds the ACA's Individual Mandate).

Once issued, the IRS's final regulations on opt-outs will apply for periods after the regulations' applicability date. Pending issuance of the final regulations, however, employers may continue to rely on the opt-out related guidance under Notice 2015-87 and the proposed regulations. This includes rules addressing opt-out arrangements in collective bargaining agreements in effect before December 16, 2015 (see Collective Bargaining Basics Toolkit). As a result, until the final regulations apply, individuals may treat opt-out payments under an "unconditional" opt-out arrangement as increasing the individual's required contribution for PTC and individual mandate purposes (see Legal Update, IRS Expands on Employer Opt-Out Payment Rules). Also, individuals who can show that they meet the requirements for receiving an opt-out payment under a "conditional" opt-out arrangement (as addressed in introductory material accompanying the proposed regulations) may treat the conditional opt-out payment amount as increasing the employee's required contribution for PTC and individual mandate purposes.

Also, until the final opt-out regulations are issued and apply, employers need not increase an employee's required contribution by the amount of payments under an opt-out arrangement for purposes of ACA information reporting under Code Section 6056 (26 U.S.C. § 6056; see Practice Notes, ACA Information Reporting: Forms 1095-C and 1094-C (Overview) and ACA Information Reporting: Forms 1095-C and 1094-C Line Instructions). However, this treatment does not apply to "non-relief-eligible" opt-out arrangements under Notice 2015-87. Also, a payment under an opt-out arrangement is not treated as increasing the employee's required contribution for employer mandate purposes (see Employer Mandate Toolkit).

In some cases, an individual who is enrolled in a QHP and receiving advance credit payments may inform an exchange that:

Under the proposed PTC regulations, if an exchange fails to discontinue advance payments for the first month after the individual notifies the exchange, the individual is treated as eligible for other MEC starting the first day of the second month beginning after the first month the individual may enroll in the other MEC. Commenters responding to the proposed regulations asked the IRS to provide instructions to address situations involving delays in discontinuing or terminating advance credit payments, so that individuals are not:

According to the IRS, this issue will be addressed in the instructions to Form 8962 ("Premium Tax Credit (PTC)" and Publication 974 ("Premium Tax Credit"). The IRS also plans to issue Q&A guidance addressing delays in the discontinuance of advance credit payments where an individual is allowed a PTC for a month and receives a Form 1095-B or 1095-C showing that the individual was enrolled in non-exchange MEC.

Other issues addressed in the final PTC regulations (or their related introductory material) include: