On December 23, 2025, the Internal Revenue Service released updated guidance in Fact Sheet FS-2025-10, titled "Updates to Questions and Answers about the Premium Tax Credit." This issuance supersedes previous guidance and incorporates critical legislative changes enacted under P.L. 119-21, specifically regarding the expiration of temporary relief measures codified in Internal Revenue Code (IRC) Section 36B. For tax professionals, the most immediate and material technical updates concern the sunsetting of repayment limitations for excess Advance Premium Tax Credits (APTC) and the adjustment of applicable affordability percentages for tax years beginning after December 31, 2025.

Elimination of Repayment Caps for Excess Advance Payments

The most significant compliance shift detailed in the revised Fact Sheet is the removal of the limitation on tax liability increases for excess APTC repayment. Historically, under Section 36B(f)(2)(B), taxpayers with household income less than 400 percent of the federal poverty line (FPL) benefited from a statutory cap on the amount of excess advance payments they were required to repay.

However, the IRS concludes in the revised Topic E, Question 4 that this protection expires for tax years beginning after 2025. The Service states: "There is no repayment cap for tax years after 2025. For tax years after 2025, you must repay the full amount by which your advance credit payments exceed your Premium Tax Credit". The guidance further explains that this excess amount "is added to your total tax liability, which will reduce your refund or increase your balance due".

This administrative conclusion aligns with the statutory text of Section 36B(f)(2) as amended by P.L. 119-21, which dictates that if advance payments exceed the allowed credit, "the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess". The table limiting these increases, found in prior law, is absent from the statute effective for tax years beginning after December 31, 2025.

Reinstatement of the 400 Percent Poverty Line Cliff

The Fact Sheet also addresses the expiration of the temporary expansion of eligibility for taxpayers with household incomes exceeding 400 percent of the FPL. In Topic B, Question 3, the IRS updates the income limit rules, noting that "For tax years 2021 through 2025, Congress temporarily expanded eligibility for the Premium Tax Credit by eliminating the requirement that a taxpayer’s household income may not be more than 400 percent of the federal poverty line".

For tax years following this period, the statutory requirement under Section 36B(c)(1)(A) reverts to the pre-expansion definition of an "applicable taxpayer," defined as a taxpayer "whose household income for the taxable year equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved". Consequently, the IRS guidance implies that for post-2025 tax years, taxpayers exceeding this threshold will face full disqualification from the credit, necessitating a full repayment of any APTC received.

Updated Affordability Percentages for Employer-Sponsored Plans

In determining eligibility for the Premium Tax Credit (PTC), a taxpayer is generally ineligible if they have access to affordable, minimum value employer-sponsored coverage. The IRS revised Topic C, Question 1 to provide the specific inflation-adjusted percentages used to determine affordability under Section 36B(c)(2)(C).

The Fact Sheet provides the requisite percentages for upcoming planning: "2025, the percentage is 9.02 percent – see Revenue Procedure 2024-35". "2026, the percentage is 9.96 percent – see Revenue Procedure 2025-32".

These percentages are critical for applying the safe harbors found in Section 36B(c)(2)(C)(i)(II), which establishes that coverage is unaffordable if the employee’s required contribution "exceeds 9.5 percent of the applicable taxpayer’s household income," indexed annually.

Computation and Reconciliation Mechanics

The IRS updated Topic D, Question 2 regarding the computation of the credit amount. The guidance reiterates the statutory formula found in Section 36B(b)(2), stating that the credit "cannot be more than the premiums for the Marketplace plan or plans in which you or your family enroll". This mirrors the code section which limits the premium assistance amount to the "lesser of" the monthly premiums for the plan in which the taxpayer enrolled or the excess of the adjusted monthly premium for the applicable second lowest cost silver plan over the taxpayer’s contribution amount.

Regarding reconciliation, the IRS revised Topic E, Question 1 to emphasize the mandatory filing requirement. The Service rules that "If you have APTC in any amount, you must file a Form 8962, and attach it to your federal income tax return for that year". The conclusion drawn by the IRS is strict regarding non-compliance: "If APTC is paid on behalf of you or an individual in your family, and you do not file a tax return, you will not be eligible for APTC to help pay for your Marketplace health insurance coverage in future years".

Definition of Household Income

The Fact Sheet also provides technical clarification on the calculation of "household income," a pivotal element in determining both eligibility and the reconciliation amount. In Topic B, Question 4, the IRS defines household income as "modified adjusted gross income for the year plus that of every other member of your family (see Topic B: Q6) who is required to file a federal income tax return".

This definition tracks with Section 36B(d)(2)(A), which aggregates the modified adjusted gross income (MAGI) of the taxpayer and family members. The Fact Sheet further specifies the components of MAGI for this specific credit: "adjusted gross income on your federal income tax return plus any excluded foreign income, nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and tax-exempt interest received or accrued during the taxable year". This aligns with Section 36B(d)(2)(B), which mandates the inclusion of amounts excluded under Section 911, tax-exempt interest, and the non-taxable portion of social security benefits.

Regulatory Safe Harbors for Affordability Determinations

Finally, the Fact Sheet includes a "safe harbor" provision regarding conflicting determinations of affordability. In Topic C, Question 4, the IRS addresses scenarios where the Marketplace determines employer coverage is unaffordable, but actual household income later suggests otherwise. The IRS concludes: "Under the safe harbor, employer-sponsored coverage is treated as unaffordable for an individual if... the Marketplace determined that advance payments of the Premium Tax Credit (APTC) could be made for the individual’s Marketplace coverage because the employer-sponsored coverage was unaffordable based on projected household income".

Under this ruling, "a Premium Tax Credit would still be allowed for the individual’s Marketplace coverage if the other eligibility criteria are met, even though the employer-sponsored coverage would have been affordable based on actual household income". However, practitioners must note the caveat that this relief is denied if information was provided "with reckless disregard for the facts".

Prepared with assistance from NotebookLM.