Proposed Regulations Update Premium Tax Credit Rules Following 2025 Legislation

Overview of the Proposed Rulemaking

On October 15, 2026, the Internal Revenue Service published a notice of proposed rulemaking that would revise regulations under section 36B of the Internal Revenue Code governing the Premium Tax Credit. The changes are required to align existing rules with amendments enacted by the One, Big, Beautiful Bill Act (OBBBA) in 2025.

The proposal addresses taxpayer eligibility, computation of the credit, treatment of excess advance payments, and definitions of qualified health plans and coverage months. It applies to individuals who enroll in coverage through a Health Insurance Exchange. A public hearing is scheduled for December 8, 2026, with comments and requests to speak due by November 30, 2026.

These are proposed regulations, not final rules. The Treasury Department and IRS will review submitted comments before issuing final regulations. Readers should monitor the Federal Register for any final action.

Changes to Qualified Health Plan Eligibility

The proposed regulations would implement two statutory restrictions on what counts as a qualified health plan for PTC purposes. For plan years beginning after December 31, 2025, coverage obtained during a special enrollment period triggered by a change in expected household income would no longer qualify for the credit.

Beginning with taxable years after December 31, 2027, a plan would also fail to qualify if the Exchange does not offer a pre-enrollment verification process meeting statutory standards. These provisions tighten the link between Exchange processes and PTC availability.

The proposal distinguishes these new limits from existing open-enrollment and other special enrollment rules. Taxpayers considering mid-year enrollment based on income changes after 2025 should verify whether the coverage will support a claim for the credit.

Medicaid Community Engagement and Coverage Month Rules

Under the OBBBA, states must generally impose community engagement requirements as a condition of Medicaid eligibility for certain adults beginning no later than January 1, 2027. Individuals who would qualify for Medicaid except for failure to meet these work, service, education, or income-related requirements are treated as eligible for minimum essential coverage.

This deeming rule means such months would not count as coverage months for PTC purposes, even if the taxpayer enrolls in Exchange coverage. Existing regulatory exceptions for Exchange eligibility determinations would be updated to reflect the new statutory framework.

The proposed regulations explain how this interacts with the definition of a coverage month, which requires that the individual not be eligible for other minimum essential coverage for the full month. Exceptions and exemptions from community engagement requirements in the statute would continue to apply.

Eligibility for Lawfully Present Aliens and Computation Adjustments

Effective for taxable years beginning after December 31, 2025, the proposal removes the prior rule that treated lawfully present aliens ineligible for Medicaid due to immigration status as applicable taxpayers even if household income fell below 100 percent of the federal poverty level.

Beginning after December 31, 2026, the credit computation rules that currently apply to unlawfully present aliens would be extended to lawfully present aliens who are not "eligible aliens" as newly defined by the OBBBA. This changes how family size, household income, enrollment premiums, and benchmark plan premiums are determined when such individuals are part of the family.

These adjustments prevent the PTC from being claimed on behalf of non-eligible aliens while preserving the credit for eligible family members.

Excess Advance Payments and Other Provisions

For taxable years beginning after December 31, 2025, the repayment limitation on excess advance payments of the PTC is eliminated. Taxpayers would owe the full amount by which advance payments exceed the allowable credit, without caps based on income.

Additional proposed changes address verification requirements for coverage months after 2027, reconciliation failures that can block future advance payments, and coordination with Exchange reporting on Form 1095-A.

Republic Tax Relief notes that these policy adjustments to the Premium Tax Credit may raise separate questions for individuals who already face IRS tax debt or repayment obligations from prior years. Affected taxpayers can contact the firm for a free, no-obligation initial consultation to evaluate private tax-resolution services and discuss suitability, scope, fees, and availability of assistance in communicating with the IRS.

Next Steps and Verification

The IRS encourages detailed comments supported by data, research, and citations. Electronic submissions are preferred through the Federal eRulemaking Portal using REG-101576-26. The public hearing will be held only if requests to speak are received by the deadline.

Because these are proposed rather than final regulations, the effective dates and specific requirements remain subject to change. Taxpayers and Exchanges should continue following current rules until final regulations are issued and should verify the latest guidance on IRS.gov or through official Federal Register notices.