Department of the Treasury, Internal Revenue Service, Premium Tax Credit, Notice of Proposed Rulemaking and Notice of Public Hearing, REG-101576-26, RIN 1545-BS15, 26 CFR Part 1, FR Doc. 2026-21056, scheduled for publication in the Federal Register on Oct. 15, 2026

The Department of the Treasury and the Internal Revenue Service have issued a Notice of Proposed Rulemaking (REG-101576-26, RIN 1545-BS15) amending the Income Tax Regulations (26 CFR Part 1) under Section 36B of the Internal Revenue Code. These proposed regulations implement significant statutory amendments enacted under sections 71119 and 71301 through 71305 of Public Law 119-21, 139 Stat. 72, 306–315, 321–325 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA).

This article provides tax practitioners—specifically Certified Public Accountants (CPAs) and Enrolled Agents (EAs)—with a comprehensive technical breakdown of the proposed amendments, the IRS’s legal justification, statutory effective dates, and taxpayer reliance rules.

Regulatory Objectives and Statutory Authority

The primary objective of REG-101576-26 is to operationalize the statutory revisions introduced by the OBBBA across eligibility criteria, computation methodologies, verification enforcement, advance payment reconciliation, and Exchange reporting requirements under Section 36B. Treasury’s legal authority rests on express delegations within the Code:

“Section 36B(h) provides an express delegation of authority for the Secretary of the Treasury or the Secretary’s delegate (Secretary) to prescribe such regulations as may be necessary to carry out section 36B, including regulations that provide for the coordination of the Premium Tax Credit (PTC) allowed under section 36B with the program for advance payment of the Premium Tax Credit (APTC) under section 1412 of the Affordable Care Act (ACA).”

In addition, Treasury relies on the general rulemaking authority of IRC § 7805(a), which empowers the Secretary to “prescribe all needful rules and regulations for the enforcement of the Code including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.”

Revisions to the Definition of Qualified Health Plan

Under IRC § 36B(c)(3)(A) and Treas. Reg. § 1.36B-1(c), eligibility for a Premium Tax Credit (PTC) requires enrollment in a Qualified Health Plan (QHP) through a Health Insurance Exchange. The proposed regulations amend Treas. Reg. § 1.36B-1(c) to incorporate two strict statutory exclusions added by Sections 71303(b) and 71304(a) of the OBBBA.

First, proposed Treas. Reg. § 1.36B-1(c)(2) mandates that for taxable years beginning after December 31, 2027, the term “qualified health plan” excludes any plan enrolled in through an Exchange if the Exchange fails to provide a mandatory pre-enrollment verification process:

“The proposed regulations would provide that the term ‘qualified health plan’ does not include any plan enrolled in through an Exchange if the Exchange fails to provide a pre-enrollment verification process through which an applicant may, beginning not later than August 1 of the year prior to the enrollment year, verify with the Exchange the applicant’s household income and eligibility for enrollment in a plan for the plan year beginning in the subsequent year.”

Second, proposed Treas. Reg. § 1.36B-1(c)(3) disqualifies coverage obtained through income-based Special Enrollment Periods (SEPs). Under the proposed rule, a QHP does not include any plan enrolled in during a SEP offered on the basis of expected household income relative to the Federal Poverty Line (FPL) “and not in connection with the occurrence of an event or change in circumstances specified by the Secretary of Health and Human Services for such purposes.” This provision directly targets low-income SEPs that operated outside traditional qualifying life events.

Elimination of Below-100% FPL Safe Harbor for Lawfully Present Aliens

Prior to the OBBBA, IRC § 36B(c)(1)(B) and Treas. Reg. § 1.36B-2(b)(5) contained a special relief provision: a lawfully present alien with household income below 100% of the FPL was treated as an “applicable taxpayer” eligible for the PTC if they were ineligible for Medicaid solely due to their immigration status under Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA).

Section 71302(a) of the OBBBA repealed IRC § 36B(c)(1)(B) effective for taxable years beginning after December 31, 2025. Conforming to this statutory deletion, the proposed regulations remove Treas. Reg. § 1.36B-2(b)(5). Consequently, for taxable years beginning after December 31, 2025, lawfully present aliens with household income under 100% FPL who are blocked from Medicaid due to alien status are strictly prohibited from receiving a PTC or APTC.

Interaction with Medicaid Community Engagement Requirements

Section 71119(a) of the OBBBA added subsection (xx) to Section 1902 of the Social Security Act (42 U.S.C. 1396a), requiring adult-group Medicaid beneficiaries to demonstrate “community engagement”—defined as completing at least 80 hours per month of employment, community service, work program participation, or education.

Under Social Security Act § 1902(xx)(7)(B) (42 U.S.C. 1396a(xx)(7)(B)), an individual who fails to satisfy community engagement is deemed eligible for Medicaid Minimum Essential Coverage (MEC) under IRC § 5000A(f)(1)(A)(ii). Under IRC § 36B(c)(2)(B), eligibility for MEC prevents a month from qualifying as a “coverage month” for PTC purposes.

To implement this statutory intersection, proposed Treas. Reg. § 1.36B-2(c)(2)(ii)(B) establishes that an individual who is determined ineligible for Medicaid solely due to non-compliance with community engagement is treated as eligible for MEC. The IRS explains:

“The proposed regulations would amend § 1.36B-2(c)(2)(ii) to provide that an individual who is determined or assessed... by an Exchange to be not eligible for Medicaid solely because the individual failed to meet the requirement to demonstrate community engagement... is treated as being eligible for minimum essential coverage... The months the individual was ineligible for Medicaid solely for failing to meet the requirement to demonstrate community engagement would not be coverage months for the individual.”

However, proposed Treas. Reg. § 1.36B-2(c)(2)(ii)(C) and (v)(C) clarify that this prohibition ceases once the individual becomes ineligible for Medicaid for an independent reason (e.g., household income rising above the state Medicaid threshold). From the first calendar month following an Exchange determination of ineligibility based on independent grounds, the months may again qualify as coverage months under IRC § 36B.

Furthermore, proposed Treas. Reg. § 1.36B-2(c)(2)(vi) contains a strict anti-abuse rule: any redetermination or assessment of Medicaid ineligibility based on incorrect information submitted by the taxpayer with “intentional or reckless disregard for the facts” will be disregarded for PTC eligibility purposes.

Exchange Verification Mandates and Coverage Month Determinations

Section 71303(a) of the OBBBA enacted IRC § 36B(c)(5), effective for taxable years beginning after December 31, 2027. This statute conditions coverage month status on mandatory Exchange verification using applicable enrollment information.

Proposed Treas. Reg. § 1.36B-3(c)(6) bifurcates verification obligations depending on whether advance credit payments (APTC) are requested:

For Unsubsidized Enrollees (No APTC Paid): The Exchange must verify enrollment eligibility items—specifically, state residence under 45 CFR 155.305(a)(3) and status as a U.S. citizen, U.S. national, or lawfully present alien.
For Subsidized Enrollees (APTC Paid): The Exchange must verify both enrollment eligibility items and APTC eligibility items, including projected household income, family size, absence of other MEC, and status as an “eligible alien” under IRC § 36B(e)(2)(B).

The Treasury Department invoked its discretionary statutory authority under IRC § 36B(c)(5)(B)(v) in consultation with HHS to specify citizenship, national status, and lawful presence as required verification elements:

“Section 36B(c)(5)(B)(ii) specifies that applicable enrollment information includes whether an individual is an eligible alien, but section 36B(c)(5)(B) does not express identify citizenship, status as a national of the U.S., or lawful presence... Accordingly, pursuant to the authority of the Secretary under section 36B(c)(5)(B)(v)... these proposed regulations would provide that information regarding whether an individual is a U.S. citizen, a national of the U.S., or an alien lawfully present in the U.S., is applicable enrollment information necessary to verify eligibility to enroll in a QHP through an Exchange and, if applicable, eligibility for APTC.”

If an Exchange enrolls an individual while verification remains pending, but subsequently fails to verify enrollment eligibility or APTC criteria, those months of enrollment are stripped of coverage month status, disqualifying the taxpayer from claiming PTC upon tax return filing.

Special Enrollment Periods and Family-Size Verification Waiver

Under IRC § 36B(c)(5)(E), Congress authorized the Secretary to grant verification waivers for individuals enrolling during SEPs triggered by a change in family size.

Proposed Treas. Reg. § 1.36B-3(c)(6)(ii) defines family-size SEPs by cross-referencing HHS regulations at 45 CFR 155.420(d)(2)(i) and (ii), encompassing events such as birth, adoption, placement in foster care, marriage, divorce, legal separation, or death of an enrollee or dependent.

This waiver permits the immediate payment of APTC during mid-year family transitions prior to full Exchange verification. In its economic analysis, Treasury justified this broad policy choice by citing administrative efficiency and protection of vulnerable populations:

“HHS, in consultation with the Treasury Department, identified a risk that, while verification remained pending for an individual in the household, the SEP window could expire or that families could face full-price premiums... Relative to the alternative, the broader waiver should reduce the risk of delayed or disrupted coverage in family-change situations and should reduce the out-of-pocket health care costs and administrative strain...”

Treasury estimates that approximately 50,000 families with newborns will benefit annually from this waiver, preventing $22 million in APTC payment delays.

Prior Year APTC Reconciliation Compliance Mandate

Section 71303(a) of the OBBBA enacted IRC § 36B(c)(6), providing that a month is not a coverage month if the Exchange fails to satisfy the prior year APTC reconciliation verification rules set forth in 45 CFR 155.305(f)(4)(iii).

Proposed Treas. Reg. § 1.36B-3(c)(7) implements this statutory rule for taxable years beginning after December 31, 2027. Under this regulation, if an Exchange fails to verify that a tax filer (or spouse if filing jointly) filed IRS Form 8962 and reconciled APTC for prior coverage years, APTC cannot be paid, and affected months will fail to qualify as coverage months for PTC calculation.

PTC Computation and Premium Allocation for Non-Eligible Lawfully Present Aliens

Section 71301(a) of the OBBBA amended IRC § 36B(e)(1) effective for taxable years beginning after December 31, 2026. Previously, IRC § 36B(e)(1) only excluded non-lawfully present aliens from PTC computations. The OBBBA expands this exclusion to include lawfully present aliens who do not meet the newly enacted definition of an “eligible alien” under IRC § 36B(e)(2)(B).

Proposed Treas. Reg. § 1.36B-3(d)(2) mandates that taxpayers must reduce both enrollment premiums (§ 1.36B-3(d)(1)(i)) and benchmark plan premiums (§ 1.36B-3(d)(1)(ii)) by the portion allocable to family members who are non-lawfully present or lawfully present but non-eligible aliens.

Furthermore, proposed Treas. Reg. § 1.36B-3(l) updates the statutory fraction used to determine applicable percentage and household income relative to FPL. Household income is multiplied by a fraction where the numerator is the FPL excluding non-eligible aliens, and the denominator is the FPL including non-eligible aliens.

For policies covering multiple tax families under a single policy where one or more enrollees are non-eligible aliens, proposed Treas. Reg. § 1.36B-3(h)(2) provides detailed allocation formulas:

Standard Multi-Family Policy Allocation (§ 1.36B-3(h)(2)(i)): The allocated premium equals the total policy enrollment premium multiplied by a fraction:
1. Numerator: The taxpayer’s benchmark plan premium, excluding non-eligible aliens.
2. Denominator: The benchmark plan premium calculated as if all policy enrollees belonged to a single coverage family, including non-eligible aliens.
Multi-Family Policy with Uninsured/MEC Enrollees (§ 1.36B-3(h)(2)(ii)): Uses a two-step “net allocable premium” calculation to allocate premiums accurately without distorting benchmark comparisons.

Full Elimination of the Excess Advance Payment Repayment Limitation

Under prior law, IRC § 36B(f)(2)(B) and Treas. Reg. § 1.36B-4(a)(3) provided statutory caps limiting the amount of excess APTC a taxpayer was required to repay if their actual household income at tax filing exceeded expected income but remained below 400% FPL.

Section 71305 of the OBBBA repealed IRC § 36B(f)(2)(B) for taxable years beginning after December 31, 2025. Proposed Treas. Reg. § 1.36B-4(c)(3) conforms the regulations by terminating the applicability of Treas. Reg. § 1.36B-4(a)(3) for tax years beginning after December 31, 2025.

As a result, beginning with the 2026 tax year, 100% of excess APTC increases the taxpayer’s income tax liability on Form 1040 without dollar limitation. Treasury projects that in 2028 alone, approximately 3.7 million tax returns will reflect full excess APTC repayments, significantly impacting year-end tax liabilities and Form 8962 reconciliations. Conforming amendments are also made to the self-employed health insurance deduction under IRC § 162(l).

Exchange Information Reporting Requirements on Form 1095-A

Section 36B(f)(3) and Treas. Reg. § 1.36B-5 require Exchanges to report QHP enrollment data to taxpayers and the IRS on IRS Form 1095-A, Health Insurance Marketplace Statement.

To reflect OBBBA § 71301 amendments regarding non-eligible aliens, proposed Treas. Reg. § 1.36B-5(c)(1)(iv) and (viii) require Exchanges to exclude premium amounts allocable to non-eligible aliens from reported enrollment premiums and benchmark plan premiums.

Significantly, Treasury and the IRS adopted a narrow reporting rule applying exclusively to households where APTC was paid:

“The proposed regulations would also reduce reporting and implementation burdens in the eligible-alien context by selecting a narrower reporting approach for Form 1095-A... An alternative to the proposed regulations would extend that reporting rule to unsubsidized enrollees... requiring reporting adjustments for approximately 2.1 million unsubsidized Exchange enrollees... Treasury and the IRS estimate that the proposed regulations, relative to the alternative, would reduce the cost and disruption of system changes, and avoid a broader redesign of Exchange reporting...”

This targeted reporting approach ensures that Form 1095-A amounts directly align with figures required on Form 8962, reducing taxpayer miscalculations during return preparation.

IRS Legal Analysis and Economic Considerations

Throughout the preamble, Treasury and the IRS articulate the legal and administrative rationale supporting these proposed regulations. In accordance with Executive Orders 12866 and 13563, Office of Management and Budget (OMB) review designated REG-101576-26 as a significant regulatory action.

The IRS balanced administrative feasibility against statutory compliance. For instance, in evaluating Exchange verification requirements under IRC § 36B(c)(5), Treasury rejected an approach that would leave coverage month determinations to case-by-case administrative interpretation, opting instead for clear, objective regulatory standards.

Additionally, the IRS emphasized that regulatory clarification was essential to prevent widespread taxpayer error:

“In the absence of regulatory clarification, similarly situated taxpayers could face inconsistent Exchange treatment, less reliable reporting information, and greater uncertainty regarding whether months of enrollment are coverage months and how the PTC must be computed... The proposed regulations provide clarity and should result in fewer amended tax returns.”

Proposed Applicability Dates, Statutory Effective Dates, and Taxpayer Reliance

The proposed regulations set forth specific regulatory applicability dates across amended sections:

Treas. Reg. § 1.36B-1(c)(2) and § 1.36B-3(c)(6), (7): Apply to taxable years beginning after December 31, 2027 (Exchange pre-enrollment verification, general verification mandates, and prior reconciliation checks).
Treas. Reg. § 1.36B-1(c)(3): Applies to plan years beginning on or after the date of publication of the final regulations in the Federal Register (income-based SEP QHP exclusion).
Removal of Treas. Reg. § 1.36B-2(b)(5) and Termination of § 1.36B-4(a)(3): Apply to taxable years beginning on or after the date of publication in the Federal Register.
Treas. Reg. § 1.36B-2(c)(2)(ii), (v), (vi), § 1.36B-3(d)(2), (h), (l), and § 1.36B-5: Apply to taxable years beginning after December 31, 2026 (Medicaid community engagement, eligible alien premium allocations, multi-family policy allocations, and Form 1095-A reporting).

Critical Distinction: Statutory Effective Dates vs. Regulatory Applicability

Tax practitioners must observe a crucial legal distinction highlighted by Treasury in the preamble regarding taxpayer reliance and legal effect:

“While certain sections of the proposed regulations apply to tax years and plan years beginning on or after [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER], the related statutory provisions are effective for tax years and plan years beginning on or after December 31, 2025, and supersede any conflicting provisions in the existing regulations as of that date.”

Because statutory amendments enacted by Congress under Public Law 119-21 take effect for tax years beginning after December 31, 2025, those statutory provisions control as a matter of law as of their statutory effective date, overriding any conflicting provisions in current Treasury Regulations. Consequently, CPAs and EAs cannot rely on outdated regulatory safe harbors (such as the excess APTC repayment caps or the below-100% FPL alien rule) for tax years beginning after December 31, 2025, even if final Treasury Regulations have not yet been promulgated. Taxpayers may rely on the positions set forth in these proposed regulations pending finalization to the extent they reflect reasonable interpretations of the self-executing statutory provisions of the OBBBA.

Prepared with assistance from Gemini Notebook.

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