8822 / How does access to a QSEHRA impact an employee’s eligibility for the premium tax credit?
Generally, an employee is eligible for a premium tax credit if he or she (1) is enrolled in a qualified plan through the health insurance marketplace and (2) is not eligible for employer-provided coverage that constitutes minimum essential coverage that is affordable and provides minimum value. The coverage is considered affordable if the employee contribution is less than 9.5 percent (the base amount is adjusted for inflation, to 9.96% in 2026, 9.02% in 2025, 8.39% in 2024, 9.12 percent in 2023, 9.61 percent in 2022 and 9.83 percent in 2021) of his or her household income. Once this is satisfied, the taxpayer is only eligible for the premium tax credit during “coverage months.”1
“Coverage month” means a month where (1) the taxpayer or family member is enrolled in a qualified marketplace plan and is not eligible for another qualified plan and (2) the premium is paid by the original due date for the taxpayer’s tax return. Employees (and their family members) do not have a coverage month if they are provided with a QSEHRA that is affordable coverage.2 A QSEHRA is affordable coverage for the month if the excess of the monthly premium for the self-only second lowest cost silver plan over 1/12 of the employee’s permitted benefit does not exceed 1/12 of 9.5 percent of the employee’s household income.3
Although tax reform suspended the availability of the personal exemption for 2018-2025, prior IRS guidance provided that if an employee is provided an affordable QSEHRA for any coverage month, the premium tax credit allocated to the person claiming the personal exemption with respect to that employee must be reduced by 1/12 of the employee’s permitted benefit for that month.4 Logically, this rule will require modification unless the personal exemption is reinstated after the suspension is set to expire after 2025.
The maximum permitted benefit for self-only coverage is used to determine whether the QSEHRA is affordable, regardless of whether family coverage is available to certain employees. However, if the premium tax credit amount must be reduced, the maximum permitted benefit for the actual coverage type in which the employee is enrolled is used. If the employee has family coverage for a portion of the year and self-only coverage for other months, the pro-rated benefit levels are used.
If the QSEHRA is only provided for some months of the year, affordability is determined for each month using the pro-rated benefit for self-only coverage. Similarly, pro-rated benefit levels are used to determine any reduction in the available premium tax credit.
Carryover amounts from a prior tax year do not impact the affordability determination in the subsequent year (however, the sum of the permitted benefit and carryover amount cannot exceed the statutory limit in the subsequent year, see Q 8800).
If the marketplace determines that the QSEHRA is not affordable when the employee enrolls in the marketplace plan, the QSEHRA is treated as unaffordable for all months of the year, regardless of whether it later would actually satisfy the affordability test.5
1. IRC § 36B(c)(2); Treas. Reg. §§ 1.36B-2(a) and 1.36B-3(c).
2. IRC § 36B(c)(4)(A).
3. IRC § 36B(c)(4)(C).
4. IRC § 36B(c)(4)(B).
5. Notice 2017-67.