Premium tax credit unaffected by zeroing of personal exemptions

In final regulations issued late Tuesday, the IRS clarified that a taxpayer’s ability to claim the health care premium tax credit is unaffected by the reduction of the personal exemption deduction to zero for tax years beginning after 2017 and before 2026, even though the calculation of the premium tax credit depends partly on the taxpayer’s personal exemptions (T.D. 9912).

The Service made no changes to the proposed regulations issued in May 2020 (REG-124810-19), noting that no comments were received and there were no requests for a public hearing on the proposed regulations, so no public hearing was held.

Certain premium tax credit rules depend partly on whether taxpayers properly claim or claimed a personal exemption deduction under Sec. 151 for themselves, a spouse, and any dependents. The rules affected by personal exemptions include eligibility for the premium tax credit, how the premium tax credit is computed, how advance credit payments are reconciled, and income tax return filing requirements related to the premium tax credit.

The final regulations establish that the reduction of the personal exemption deduction to zero under the law known as the Tax Cuts and Jobs Act, P.L. 115-97, does not affect the Sec. 36B premium tax credit in any manner. This is consistent with the fact that taxpayers are still allowed Sec. 151 personal exemption deductions for other purposes, as stated in Sec. 151(d)(5)(B).

Taxpayers will need to properly report on their income tax return the individuals for whom they are claiming a personal exemption deduction. An individual is reported on the taxpayer’s income tax return if the individual’s name and taxpayer identification number are listed on the taxpayer’s Form 1040 series return.

The final regulations apply for tax years ending on or after Dec. 31, 2020. However, taxpayers may apply the final regulations for tax years to which Sec. 151(d)(5) applies ending before Dec. 31, 2020.

— Dave Strausfeld, J.D., (David.Strausfeld@aicpa-cima.com) is a Tax Adviser senior editor.