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Last year, the IRS released a final rule that changed the eligibility rules for the premium tax credit (PTC) for family members beginning with the 2023 tax year. The credit lowers the monthly premiums for eligible individuals who purchase health insurance through an Exchange. Individuals aren’t eligible for PTC if they have access to employer-sponsored coverage.
Before 2023, the affordability of employer-sponsored coverage was determined based on the lowest-cost self-only coverage available to the employee rather than the cost of family coverage. This glitch made it more difficult for family members to receive a PTC. The final rule fixes the glitch by basing affordability of employer-sponsored coverage for family members on the cost of family coverage.
The IRS also issued Notices 2022-41 to expand permitted midyear election changes for Section 125 cafeteria plans. Starting in 2023, employers can permit employees to revoke their elections from family coverage to allow one or more family members to enroll in an Exchange plan if certain requirements are met.
Due to these changes, more family members may be eligible for the PTC for coverage purchased through an Exchange. But affordability rules for employees are still based on the employer’s required contribution for self-only coverage. An employer’s health coverage may be unaffordable for a family member even though it’s affordable for the employee. Employers may see some employees move from family coverage to self-only coverage.
In addition, employers that decide to expand their cafeteria plan’s midyear election change events based on the new guidance, should amend their plan documents by the deadline.
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