IRS Issues Final Rules on Affordability of Coverage for Family Members

Published October 11, 2022

The Internal Revenue Service (IRS) issued final regulations on the affordability of employer coverage for family members of employees.

The final regulations under section 36B of the Internal Revenue Code (Code):
  • Amend the regulations regarding eligibility for the premium tax credit (PTC) to provide that affordability of employer-sponsored minimum essential coverage (employer coverage) for family members of an employee is determined based on the employee’s share of the cost of covering the employee and those family members, not the cost of covering only the employee;
  • Add a minimum value rule for family members of employees based on the benefits provided to the family members; and
  • Affect taxpayers who enroll, or enroll a family member, in individual health insurance coverage through a Health Insurance Exchange (Exchange) and who may be allowed a PTC for the coverage. 

The final regulations are effective December 12, 2022.

IRS issued Notice 2022-41 in conjunction with regulations under section 36B.

The notice expands the application of the permitted change-in-status rules for health coverage under a section 125 cafeteria plan (cafeteria plan). In particular, the notice addresses the situation in which, during a period of coverage (typically a plan year), a cafeteria plan participant may wish to revoke the employee’s election under the cafeteria plan for other than-self-only (family) coverage under a group health plan (other than a flexible spending arrangement (FSA)) to allow one or more family members to enroll in a Qualified Health Plan (QHP) through a Health Insurance Exchange (Exchange) in the individual market. 

Under the notice, the employee can elect out-of-family coverage and into self-only coverage (or family coverage including one or more already-covered related individuals) under that health plan prospectively during a period of coverage, provided specific conditions are satisfied.

The Department of the Treasury and IRS intend to modify the Income Tax Regulations under section 125 of the Code consistent with the notice's provisions.

Taxpayers may rely on the guidance in the notice for plan amendments allowing elections effective on or after January 1, 2023.