Code Sec. 36B tax credit

The Patient Protection and Affordable Care Act (ACA) introduced a premium tax credit under Code Sec. 36B, which is meant to defray some or all of the cost of obtaining health care coverage through a state or federal Exchange. Qualified individuals may be eligible for the tax credit if they are not eligible for affordable coverage and if their household income falls within specified thresholds, based on the federal poverty level (FPL). The taxpayer's household income generally would be between 100 percent and 400 percent of the FPL.

The Code Sec. 36B credit is not available if the individual is eligible for MEC through an employer-sponsored plan that is deemed affordable and that provides minimum value. Coverage is affordable if the employee's required contribution to the plan for self-only coverage does not exceed 9.5 percent of the taxpayer's household income. Providing minimum value requires that the plan's share of the employee's health costs be at least 60 percent of total costs.

Halbig v. Sebelius

Prior to the filing of Halbig v. Sebelius, D-D.C., No. 13-00623 the IRS had issued regulations providing that federally-facilitated exchanges and state-established Marketplaces have the same authority and play the same role under the ACA. In response, several individuals and businesses located in states that did not establish health insurance Marketplaces filed suit in district court, arguing that Congress had only intended for the Code Sec. 36B credit to be available when individuals purchase health insurance through a state-established Marketplace. They argued that the IRS regulations exceeded the IRS's authority under the PPACA by authorizing the credit to be issued for taxpayers who obtained health insurance through the federal Marketplace.

The district court dismissed the defendant's motion to dismiss the case. Oral arguments are scheduled for early December, but the district court could also decide to rule on the plaintiff's motion for summary judgment. If the district court rules in favor of the plaintiffs, the decision could result in increased health care costs for individuals in the states have opted not to establish their own independent state health insurance marketplaces.

If you have questions relating to eligibility for the Code Sec. 36B premium tax credit and/or other developments regarding the Affordable Care Act, please contact our offices.