Tax professionals must remain apprised of the annual adjustments to critical provisions governing the Affordable Care Act (ACA), particularly those affecting the premium tax credit (PTC) under Internal Revenue Code (Code) §36B and the affordability of employer-sponsored health coverage. Rev. Proc. 2025-25, 2025-32 IRB 1, issued by the Internal Revenue Service (IRS) and the Department of the Treasury, provides these essential indexing adjustments for taxable years and plan years beginning in calendar year 2026. This revenue procedure supplements Rev. Proc. 2014-37, 2014-2 C.B. 363, which outlined the original methodology for these adjustments.

Purpose and Scope of Rev. Proc. 2025-25

The primary purpose of Rev. Proc. 2025-25 is to announce the indexing adjustments to the Applicable Percentage Table found in Code §36B(b)(3)(A)(i) for taxable years beginning in calendar year 2026. This table is fundamental to calculating an individual’s premium tax credit. Additionally, the revenue procedure details the indexing adjustment for the Required Contribution Percentage in Code §36B(c)(2)(C)(i)(II) for plan years beginning in calendar year 2026. This percentage is crucial for determining whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Code §36B. Unless otherwise specified, all section or § references within the revenue procedure refer to sections of the Code or the Income Tax Regulations (26 CFR part 1).

IRS Methodology for Indexing Adjustments

The indexing adjustments for both the Applicable Percentage Table and the Section 36B Required Contribution Percentage for plan years beginning in calendar year 2026 are based on the most recent projections of premium growth and income growth. These calculations refer to §§1.36B-2(c)(3)(v)(C) and 1.36B-3(g) of the Income Tax Regulations. The rates of premium growth and income growth are specifically calculated using the National Health Expenditure Accounts (NHEA) Projections, 2024-2033, which are publicly available from the Centers for Medicare & Medicaid Services (CMS).

An important note for the 2026 adjustments is that the additional adjustment provided in Code §36B(b)(3)(A)(ii)(II) is not required. This is due to a determination by the Treasury Department and the IRS that the failsafe exception described in Code §36B(b)(3)(A)(ii)(III) applies for plan years beginning in calendar year 2026.

Changes to Premium Growth Adjustment Methodology

A significant change highlighted in Rev. Proc. 2025-25 concerns the methodology used to compute the premium growth adjustment. Historically, for 2025 and several preceding years, the rate of premium growth was derived from per enrollee spending for employer-sponsored insurance, as published in the National Health Expenditure Account.

However, effective for calendar year 2026 and beyond, guidance from the Department of Health and Human Services (HHS) introduces a new premium growth measure. This updated measure is designed to capture increases in individual market premiums in addition to increases in employer-sponsored insurance premiums. This change is detailed in the HHS Marketplace Integrity and Affordability rule, 90 Fed. Reg. 27074 (June 25, 2025). The Treasury Department and the IRS have adopted this new premium growth measure from the 2026 HHS Marketplace Integrity and Affordability rule for purposes of calculating both the Applicable Percentage Table and the Section 36B Required Contribution Percentage indexing adjustments. The overall computation of these indexing adjustments still adheres to the methodology described in section 4 of Rev. Proc. 2014-37 and guidance from HHS.

Adjusted Items for 2026

For taxable years and plan years beginning in calendar year 2026, the specific adjusted items are as follows:

Applicable Percentage Table for 2026: For purposes of Code §36B(b)(3)(A)(i) and §1.36B-3(g), the Applicable Percentage Table is adjusted as follows:

Household income percentage of Federal poverty line:	Initial percentage	Final percentage
Less than 133%	2.10%	2.10%
At least 133% but less than 150%	3.14%	4.19%
At least 150% but less than 200%	4.19%	6.60%
At least 200% but less than 250%	6.60%	8.44%
At least 250% but less than 300%	8.44%	9.96%
At least 300% but not more than 400%	9.96%	9.96%

Required Contribution Percentage for 2026: For plan years beginning in calendar year 2026, the Required Contribution Percentage for purposes of Code §36B(c)(2)(C)(i)(II) and §1.36B-2(c)(3)(v)(C) is set at 9.96%.

Effective Date and Further Information

Rev. Proc. 2025-25 is effective for taxable years and plan years beginning in calendar year 2026. As noted, it supplements Rev. Proc. 2014-37. For additional information regarding this revenue procedure, tax professionals may contact the principal author, Clara L. Raymond of the Office of Associate Chief Counsel (Income Tax and Accounting), at (202) 317-4718 (not a toll-free call).

Prepared with assistance from NotebookLM.