The Treasury Department and the IRS published proposed regulations on Oct. 15 that would rewrite the rules for the premium tax credit, the refundable credit that subsidizes health coverage bought through the Health Insurance Exchanges. The notice of proposed rulemaking (REG-101576-26, FR Doc. 2026-21056, 91 FR 65494) would amend who qualifies for the credit, how it is computed, and how much an enrollee owes back when advance payments exceed the credit actually allowed. Comments are due Nov. 30, 2026.
Most of the substance is already law. The proposal conforms 26 CFR part 1 to sections 71119 and 71301 through 71305 of Public Law 119-21, the July 4, 2025 statute the rule calls the One, Big, Beautiful Bill Act and Treasury’s Oct. 14 press release calls the Working Families Tax Cuts. The release summarizes the timing as “Beginning in 2027.” The rule text is less tidy: its dates are staggered across 2026, 2027 and 2028.
1. Repayment: the cap is gone
When advance payments of the credit (APTC) exceed the credit a taxpayer is allowed at filing, the difference is added to that year’s tax bill. For taxable years before 2026, the statute capped that repayment for many households, and the current regulations carry the cap in Sec. 1.36B-4(a)(3)(ii), with a separate version in Sec. 1.36B-4(a)(3)(iii) for taxpayers who also claim the section 162(l) deduction for their premiums. Section 71305 of the 2025 law deleted the cap.
Thus, for taxable years beginning after December 31, 2025, a taxpayer’s tax liability for the taxable year of the coverage is increased by the full amount of the excess APTC.
EXCERPT · IRS proposed rule REG-101576-26, Background, Part VII
That makes 2026 coverage, reconciled on 2026 returns, the first year with no ceiling. The proposal brings the regulation in line with a change the statute has already made; it does not create the liability.
The repayment change is already in force for 2026 coverage. The regulation is catching up to the statute.
2. Who loses eligibility, and when
| Change | 2025 law | Applies to | Regulation touched |
|---|---|---|---|
| Repayment cap on excess APTC removed | Sec. 71305 | Taxable years after Dec. 31, 2025 | Sec. 1.36B-4(a)(3) |
| No credit for lawfully present immigrants below 100% of poverty who are barred from Medicaid by status | Sec. 71302(a) | Taxable years after Dec. 31, 2025 | Sec. 1.36B-2(b)(5) removed |
| Plans bought in an income-based special enrollment period excluded | Sec. 71304(a) | Plan years after Dec. 31, 2025 | Sec. 1.36B-1(c) |
| Lawfully present noncitizens who are not “eligible aliens” carved out of the computation | Sec. 71301 | Taxable years after Dec. 31, 2026 | Sec. 1.36B-3 |
| Medicaid community-engagement failures count as Medicaid eligibility | Sec. 71119(a) | As states implement, by Jan. 1, 2027 unless exempted | Sec. 1.36B-2(c)(2) |
| Pre-enrollment and coverage-month verification by Exchanges | Sec. 71303 | Taxable years after Dec. 31, 2027 | Sec. 1.36B-1(c), Sec. 1.36B-3(c) |
The immigration changes come in two steps. From 2026, a lawfully present noncitizen with household income under 100% of the federal poverty level who is ineligible for Medicaid because of immigration status can no longer claim the credit. From 2027, the premium reductions that already apply to family members who are not lawfully present extend to those who are lawfully present but are not “eligible aliens” as the amended statute defines them. Treasury’s release puts it as restricting eligibility to “U.S. citizens, U.S. nationals, and certain lawfully present noncitizens.”
The Medicaid work requirement gets its own tax rule. Under the 2025 law, states must require adult-group enrollees to show “community engagement,” generally 80 hours a month of work, service, a work program or half-time school, no later than Jan. 1, 2027, with HHS able to grant good-faith exemptions through Dec. 31, 2028. Proposed Sec. 1.36B-2(c)(2)(ii)(B) would treat someone denied Medicaid solely for failing that test as eligible for Medicaid, so those months would not be coverage months. The rule’s example: a taxpayer denied in January for that reason buys a plan without APTC; when income rises above the state’s Medicaid threshold in March, the credit may be available from March.
3. Verification from 2028
Starting with taxable years after Dec. 31, 2027, a plan does not count if the Exchange fails to offer pre-enrollment verification of household income and enrollment eligibility beginning no later than Aug. 1 of the prior year. Separately, a month is a coverage month only if the Exchange verifies eligibility, whether or not the enrollee requests APTC.
The proposal adds citizenship, U.S. national status and lawful presence to the list of verified items, using authority under section 36B(c)(5)(B)(v). For months with APTC, the Exchange must also verify household income and family size, eligibility for other minimum essential coverage and, for lawfully present noncitizens, eligible-alien status. If an Exchange enrolls someone while verification is pending and later cannot verify, those months are not coverage months.
Mid-year changes follow a one-way rule. In the rule’s example, an enrollee getting $250 a month who reports lower income keeps $250 until the Exchange verifies the new figure; one who reports higher income can have APTC cut immediately. The proposal would treat special enrollment periods under 45 CFR 155.420(d)(2)(i) and (ii), including gaining a dependent, as the family-size periods eligible for verification waivers.
4. Two framings of one rule
The rule text presents itself as conforming regulations to statute. The release frames it as fraud prevention. “Hardworking American taxpayers should not be forced to subsidize health care for people who are ineligible under federal law,” said Treasury Secretary Scott Bessent. IRS Chief Executive Officer Frank J. Bisignano said the measures “are designed to curb improper claims.” The release cites CMS’s removal of more than 760,000 unverified enrollees, which it says saved $2.2 billion. Exchange operations are left to parallel HHS proposals the release says are expected.
5. What happens next
- Nov. 30, 2026: comments due via regulations.gov (cite IRS and REG-101576-26), along with requests to speak and topic outlines for the hearing.
- Dec. 4, 5 p.m. ET: deadline to request to attend the hearing.
- Dec. 8, 10 a.m. ET: telephonic public hearing, cancelled if no outlines arrive by Nov. 30.
- Jan. 1, 2027: statutory deadline for states to implement Medicaid community-engagement rules, absent an HHS exemption.
- Pending: companion HHS proposed rules on Exchange verification procedures, with no date given.
For more on how the same 2025 law is reshaping 2027 filing, see gov.house’s file on the coming inflation adjustments.
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