IRS Proposal on ACA “Family Glitch”

April 20, 2022

On April 5, 2022, the Internal Revenue Service (IRS) issued a proposed rule to revise its current interpretation on eligibility for premium tax credits for families. This would, if finalized, fix the Affordable Care Act’s (ACA’s) so-called “family glitch” by extending marketplace subsidies to millions of people who are currently ineligible for financial help through the marketplaces.

The so-called “family glitch” stems from a 2013 interpretation by the IRS that whether an employer’s offer of coverage is “affordable” is determined based on the cost of employee-only (rather than family) coverage. This means that an employee and their family members are ineligible for premium tax credits when the employee is offered affordable employee-only coverage. This is true even if the cost of family coverage would otherwise be unaffordable (i.e., the employee’s contribution towards premiums for family coverage would exceed 9.5 percent of household income). Put simply, the employee’s share of the premium towards family coverage is currently not considered when determining whether job-based coverage is “affordable” for family members.

The proposed rule would extend marketplace tax credits to only the family members of workers who are not offered affordable job-based family coverage. It would do nothing to affect the eligibility of employees and thus should not implicate the employer mandate.

The proposed rule was published on April 7, and comments will be due in 60 days. The IRS will also hold a hearing on the proposed rule on June 27.

Click here to view the proposal and submit your comments.