IRS offers guidance on claiming premium tax credit after new tax law

The Internal Revenue Service issued a notice Thursday providing interim guidance to clarify how the suspension of the personal exemption deduction in the Tax Cuts and Jobs Act will affect some of the rules under the Affordable Care Act for claiming the premium tax credit for health insurance.

The tax overhaul that Congress passed last December eliminated personal exemptions, such as for claiming dependents, and also got rid of the individual mandate requiring most taxpayers to have health insurance coverage. The Tax Cuts and Jobs Act thus reduced the personal exemption deduction to zero for tax years starting after Dec. 31, 2017 and before Jan. 1, 2026 since most of the individual tax provisions in the law expire in 2025. However, the rules under the Affordable Care Act for claiming premium tax credits that help people buy health insurance coverage include references to claiming a personal exemption deduction. The rules can also affect eligibility for the premium tax credit, computation of the credit and reconciliation of advanced payments of the credit.

The Treasury Department and the IRS plan to amend the regulations to clarify how the rules should apply, but until the future guidance is issued, Notice 2018-84, which the IRS issued Thursday, provides some interim guidance:

1. Taxpayers are considered to have claimed a personal exemption deduction for themselves if they file a tax return for the tax year and don’t qualify as a dependent of another taxpayer for that year.

2. A taxpayer is considered to have claimed a personal exemption deduction for an individual other than the taxpayer if they’re allowed a personal exemption deduction for the individual and they list the individual’s name and Taxpayer Identification Number on the Form 1040 or on the Form 1040NR, U.S. Nonresident Alien Income Tax Return, that the taxpayer files for the year.

An IRS office building in East Harlem
An IRS office building in the East Harlem neighborhood of New York

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