Premium tax credit unaffected by personal exemption decrease to zero
The IRS issued long-promised proposed regulations explaining how taxpayers who may qualify for the Sec 36B premium tax credit are affected by the temporary reduction of the personal exemption deduction under Sec. 151 to zero (REG-124810-19). The regulations replaced guidance issued in Notice 2018-84.
Under Sec. 151(d)(5)(B), the reduction of the exemption amount to zero in 2018 through 2025 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. Even though the amount of the personal exemption deduction was reduced to zero by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, 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.
The proposed regulations adopt the substance of the guidance in Notice 2018-84, but the regulations clarify that the reduction of the personal exemption deduction to zero under Sec. 151(d)(5) does not affect the ability of individual taxpayers to claim the premium tax credit. They amend the definition of family in Prop. Regs. Sec. 1.36B-1(d) to provide that a taxpayer’s family means the taxpayer, including both spouses in the case of a joint return (except for individuals who qualify under Sec. 152 as a dependent of another taxpayer), and any other individual for whom the taxpayer is allowed a personal exemption deduction under Sec. 152(d)(5)(B) and whom the taxpayer properly reports on the taxpayer’s income tax return for that tax year.
An individual is reported on the taxpayer’s income tax return if the individual’s name and taxpayer identification number (TIN) are listed on the taxpayer’s Form 1040 series return. The definition of family and family size in Prop. Regs. Sec. 1.36B-1(d) will apply for purposes of Regs. Secs. 1.36B-1 through 1.36B-5, which governs the amount of the premium tax credit.
Finally, the proposed regulations make conforming changes to the rules in Regs. Sec.1.36B-2 (relating to eligibility for, and computation of, the premium tax credit), Regs. Sec. 1.36B-4 (relating to reconciliation of advance credit payments with the premium tax credit), and Regs. Sec. 1.6011-8 (relating to the income tax return filing requirements for taxpayers who receive the benefit of advance credit payments or claim the premium tax credit). They delete references to “claim a personal exemption deduction,” “claims a personal exemption deduction,” or “claimed as a personal exemption deduction” and replace them with terms consistent with the definition of family in Prop. Regs. Sec. 1.36B-1(d).
The IRS is accepting comments and requests for a public hearing until 60 days after the regulations are published in the Federal Register.
The regulations are proposed to apply to tax years ending after they are adopted as final, but taxpayers may rely on them for tax years to which Sec. 151(d)(5) applies ending on or before that date.
— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.
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