IRS Provides 2020 Indexing Adjustments for Premium Tax Credit

Supplements Rev. Proc. 2014-37

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.

(Also §§ 36B, 1.36B-2, 1.36B-3.)

SECTION 1. PURPOSE

This revenue procedure provides indexing adjustments for certain provisions under § 36B of the Internal Revenue Code. In particular, it updates the applicable percentage table in § 36B(b)(3)(A)(i) (Applicable Percentage Table) to provide the Applicable Percentage Table for calendar year 2020. This table is used to calculate an individual's premium tax credit. This revenue procedure also updates the required contribution percentage in § 36B(c)(2)(C)(i)(II) for plan years beginning after calendar year 2019 (Section 36B Required Contribution Percentage). This percentage is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under § 36B. This revenue procedure uses the methodology described in Section 4 of Rev. Proc. 2014-37, 2014-2 C.B. 363, and the Department of Health and Human Services (HHS) Notice of Benefit and Payment Parameters for 2020, 84 Fed. Reg. at 17454 (April 25, 2019) (2020 Benefit and Payment Notice), to index the Applicable Percentage Table and the Section 36B Required Contribution Percentage.

In addition to the adjustments described in Rev. Proc. 2014-37, for adjusting the Applicable Percentage Table, § 36B(b)(3)(A)(ii)(II) provides that, except as provided in § 36B(b)(3)(A)(ii)(III), an additional adjustment must be made for calendar years after 2018 to reflect the rates of premium growth relative to the growth in the consumer price index. The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have determined that the failsafe exception described in § 36B(b)(3)(A)(ii)(III) applies for calendar year 2020 and no additional adjustment under § 36B(b)(3)(A)(ii)(II) is required for calendar year 2020.

SECTION 2. CHANGE TO PREMIUM GROWTH ADJUSTMENT METHODOLOGY

The Applicable Percentage Table and the Section 36B Required Contribution Percentage are adjusted annually by the ratio of premium growth to income growth for the preceding calendar year, and may be further adjusted to reflect updates to the data and data sources used to compute the ratio of premium growth to income growth. See §§ 1.36B-2(c)(3)(v)(C) and 1.36B-3(g). These adjustments are computed using a premium adjustment percentage provided in guidance issued by HHS. For years prior to 2020, the rate of premium growth was based on per enrollee spending for employer-sponsored insurance as published in the National Health Expenditure Account. However, in the 2020 Benefit and Payment Notice, HHS provided a new premium growth measure beginning in calendar year 2020 that captures increases in individual market premiums in addition to increases in employer-sponsored insurance premiums for purposes of calculating the premium adjustment percentage for the 2020 benefit year and beyond. The Treasury Department and the IRS adopt the new premium growth measure provided in the 2020 Benefit and Payment Notice for purposes of the Applicable Percentage Table and the Section 36B Required Contribution Percentage indexing adjustments.

SECTION 3. ADJUSTED ITEMS

.01 Applicable Percentage Table for 2020. For taxable years beginning in calendar year 2020, the Applicable Percentage Table for purposes of § 36B(b)(3)(A)(i) and § 1.36B-3(g) is:

.02 Section 36B Required Contribution Percentage for 2020. For plan years beginning in calendar year 2020, the required contribution percentage for purposes of § 36B(c)(2)(C)(i)(II) and § 1.36B-2(c)(3)(v)(C) is 9.78%.

SECTION 4. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2014-37 is supplemented.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for taxable years and plan years beginning after December 31, 2019.

SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Bill Ruane of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Ruane at (202) 317-4718 (not a toll-free call).