Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.30D-5   Transfer of credit.
(a) In general. This section provides rules related to the transfer and advance payment of the section 30D credit pursuant to section 30D(g) of the Internal Revenue Code (Code). Under the rules of section 30D(g) and this section, a taxpayer may elect to transfer a section 30D credit to an eligible entity, and the eligible entity may receive an advance payment for such credit, provided certain requirements are met. See paragraph (d) of this section for rules applicable to credit transfer elections. See paragraph (f) of this section for rules applicable to advance payments of transferred section 30D credits. Section 30D(g)(2) sets forth certain requirements that a dealer must satisfy to be an eligible entity for credit transfer and advance payment purposes. Section 30D(g)(2)(A) requires registration with the IRS. See paragraph (c) of this section for rules related to dealer registration. Section 30D(g)(2)(B) through (D) and paragraph (f)(2) of this section impose additional requirements that a registered dealer must satisfy in order to be an eligible entity for credit transfer and advance payment purposes.
(b) Definitions. This paragraph (b) provides definitions that apply for purposes of section 30D(g) and this section. See § 1.30D-2(b) for definitions that are generally applicable to section 30D and the section 30D regulations.
(1) Advance payment program. Advance payment program means the program described in paragraph (f)(1) of this section.
(2) Credit transfer election. Credit transfer election has the meaning provided in section 30D(g) and paragraph (d) of this section.
(3) Dealer. Dealer has the meaning provided in section 30D(g)(8), except that, for purposes of this section, the term does not include persons licensed solely by a territory of the United States, and includes a dealer licensed by any jurisdiction (other than one licensed solely by a territory of the United States) that makes sales at sites outside of the jurisdiction in which it is licensed.
(4) Dealer tax compliance. Dealer tax compliance means the dealer has filed all required Federal information and tax returns, including for Federal income and employment tax purposes, and the dealer has paid all Federal tax, penalties, and interest due as of the time of sale. A dealer that has entered into an installment agreement with the IRS for which a dealer is current on its obligations (including filing obligations) is treated as in dealer tax compliance.
(5) Electing taxpayer. Electing taxpayer means an individual who purchases and places in service a new clean vehicle and elects to transfer the section 30D credit that would otherwise be allowable to such individual to an eligible entity pursuant to section 30D(g) and paragraph (d) of this section. A taxpayer is an electing taxpayer only if the taxpayer makes certain attestations to the registered dealer, pursuant to procedures provided in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter), including that the taxpayer does not anticipate exceeding the modified adjusted gross income limitation of section 30D(b)(1) and § 1.30D-4(b) and that the taxpayer will use the vehicle predominantly for personal use.
(6) Eligible entity. Eligible entity has the meaning provided in section 30D(g)(2) and paragraph (f)(2) of this section.
(7) Incentive. For purposes of the eligible entity requirements of section 30D(g)(2)(B)(ii) and (D), incentive means any reduction in price available to the taxpayer from the dealer or manufacturer, including in combination with other incentives, other than a reduction in the form of a partial payment or down payment for the purchase of a new clean vehicle pursuant to section 30D(g)(2)(C).
(8) Registered dealer. Registered dealer means a dealer that has completed registration with the IRS as provided in paragraph (c) of this section.
(9) Sale price. The sale price of a new clean vehicle means the total price agreed upon by the taxpayer and dealer in a written contract at the time of sale, including any delivery charges and after the application of any incentives. The sale price of a new clean vehicle does not include separately stated taxes and fees required by State or local law. The sale price of a new clean vehicle is determined before the application of any trade-in value.
(10) Time of sale. Time of sale means the date the new clean vehicle is placed in service, as defined in § 1.30D-2(b)(36).
(c) Dealer registration —(1) In general. A dealer must register with the IRS in the manner set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter) for the dealer to receive credits transferred by an electing taxpayer pursuant to section 30D(g) and paragraph (d) of this section.
(2) Dealer tax compliance required. A dealer must be in dealer tax compliance to complete and maintain its registration with the IRS and paragraph (d) of this section. If the dealer is not in dealer tax compliance for any of the taxable periods during the last five taxable years, then the dealer may complete its initial registration with the IRS, but the dealer will not be eligible for the advance payment program (and, therefore, the dealer will not be eligible to receive transferred section 30D credits) until the compliance issue is resolved. The IRS will notify the dealer in writing that the dealer is not in dealer tax compliance, and the dealer will have the opportunity to address any failure through regular procedures. If the failure is corrected, the IRS will complete the dealer's registration, and, provided all other requirements of section 30D(g) and this section are met, the dealer will then be allowed to receive transferred section 30D credits and participate in the advance payment program. Additional procedural guidance regarding this paragraph is set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(3) Suspension of registration. A registered dealer's registration may be suspended pursuant to the procedures described in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter). Any decision made by the IRS relating to the suspension of a registered dealer's registration is not subject to administrative appeal to the IRS Independent Office of Appeals unless the IRS and the IRS Independent Office of Appeals agree that such review is available and the IRS provides the time and manner for such review.
(4) Revocation of registration. A registered dealer's registration may be revoked pursuant to the procedures described in guidance published in the Internal Revenue Bulletin (see § 601.601). Any decision made by the IRS relating to the revocation of a dealer's registration is not subject to administrative appeal to the IRS Independent Office of Appeals unless the IRS and the IRS Independent Office of Appeals agree that such review is available and the IRS provides the time and manner for such review.
(d) Credit transfer election by electing taxpayer. For a new clean vehicle placed in service after December 31, 2023, an electing taxpayer may elect to apply the rules of section 30D(g) and this section to make a credit transfer election with respect to the vehicle so that the section 30D credit with respect to the vehicle is allowed to the eligible entity specified in the credit transfer election (and not to the electing taxpayer) pursuant to the advance payment program described in paragraph (f) of this section. The electing taxpayer, as part of the credit transfer election, must transfer the entire amount of the credit that would otherwise be allowable to the electing taxpayer under section 30D with respect to the vehicle, and the eligible entity specified in the credit transfer election must pay the electing taxpayer an amount equal to the amount of the credit included in the credit transfer election. A credit transfer election must be made no later than the time of sale, and must be made in the manner set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter). Once made, a credit transfer election is irrevocable. No credit transfer election may be made to transfer an amount of credit that would otherwise be allowed to the electing taxpayer under section 38.
(e) Federal income tax consequences of the credit transfer election —(1) Tax consequences for electing taxpayer. In the case of a credit transfer election, the Federal income tax consequences for the electing taxpayer are as follows—
(i) The credit amount under section 30D that the electing taxpayer elects to transfer to the eligible entity under section 30D(g) and paragraph (d) of this section may exceed the electing taxpayer's regular tax liability (as defined in section 26(b)(1) of the Code) for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture on the basis that it exceeded the electing taxpayer's regular tax liability;
(ii) The payment made by an eligible entity to an electing taxpayer under section 30D(g)(2)(C) and paragraph (d) of this section to an electing taxpayer pursuant to the credit transfer election is not includible in the gross income of the electing taxpayer; and
(iii) The payment made by an eligible entity to an electing taxpayer under section 30D(g)(2)(C) and paragraph (d) of this section is treated as repaid by the electing taxpayer to the eligible entity as partial payment of the sale price of the new clean vehicle. Thus, the repayment by the electing taxpayer is included in the electing taxpayer's basis in the new clean vehicle prior to the application of the basis reduction rule in section 30D(f)(1).
(2) Tax consequences for eligible entity. In the case of a credit transfer election, the Federal income tax consequences for the eligible entity are as follows—
(i) The eligible entity is allowed the section 30D credit with respect to the new clean vehicle and may receive an advance payment pursuant to section 30D(g)(7) and paragraph (f) of this section;
(ii) Advance payments received by the eligible entity are not treated as a tax credit in the hands of the eligible entity and may exceed the eligible entity's regular tax liability (as defined in section 26(b)(1)) for the taxable year in which the sale occurs;
(iii) An advance payment received by the eligible entity is not included in the gross income of the eligible entity;
(iv) The payment made by an eligible entity under section 30D(g)(2)(C) and paragraph (d) of this section to an electing taxpayer is not deductible by the eligible entity;
(v) The payment made by an eligible entity to an electing taxpayer under section 30D(g)(2)(C) and paragraph (d) of this section is treated as repaid by the electing taxpayer to the eligible entity as partial payment of the sale price of the new clean vehicle. Thus, the repayment by the electing taxpayer is treated as an amount realized by the eligible entity under section 1001 of the Code and the regulations under section 1001; and
(vi) If the eligible entity is a partnership or an S corporation, then—
(A) The IRS will make the advance payment to such partnership or S corporation equal to the amount of the section 30D credit allowed that is transferred to the eligible entity;
(B) Such section 30D credit is reduced to zero and is, for any other purpose of the Code, deemed to have been allowed solely to such entity (and not allocated or otherwise allowed to its partners or shareholders) for such taxable year; and
(C) The amount of the advance payment is not treated as tax exempt income to the partnership or S corporation for purposes of the Code.
(3) Form of payment from eligible entity to electing taxpayer. The tax treatment of the payment made by the eligible entity to the electing taxpayer described in paragraphs (e)(1) and (2) of this section is the same regardless of whether the payment is made in cash, in the form of a partial payment or down payment for the purchase of the new clean vehicle, or as a reduction in sale price (without the payment of cash) of the new clean vehicle.
(4) Additional requirements. In the case of a credit transfer election, the following additional rules apply—
(i) The requirements of section 30D(f)(1) (regarding basis reduction) and 30D(f)(2) (regarding no double benefit) apply to the electing taxpayer as if the credit transfer election were not made (so, for example, the electing taxpayer must reduce the electing taxpayer's basis in the vehicle by the amount of the section 30D credit, regardless of the credit transfer election);
(ii) Section 30D(f)(6) (regarding the election not to take the credit) will not apply (in other words, by electing to transfer the credit, the electing taxpayer is electing to take the credit);
(iii) Section 30D(f)(9) (regarding the vehicle identification number requirement) will be treated as satisfied if the eligible entity provides the vehicle identification number of such vehicle to the IRS in the form and manner set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter). The electing taxpayer must also provide the vehicle identification number with their tax return for the taxable year in which the vehicle is placed in service. See section 6213(g)(2)(T) of the Code and § 301.6213-2 of this chapter for rules relating to the omission of a correct vehicle identification number.
(5) Examples. The following examples illustrate the rules of paragraph (e) of this section.
(i) Example 1: Electing taxpayer's regular tax liability less than amount of credit —(A) Facts. T, an individual, purchases a new clean sport utility vehicle from a dealer, D, which is a C corporation. T satisfies the requirements to be an electing taxpayer and elects to transfer the section 30D credit to D. D is a registered dealer and satisfies the requirements to be an eligible entity. The sale price of the vehicle is $57,500. The section 30D credit otherwise allowable to T is $7,500. D makes the payment required to be made to T in the form of a cash payment of $7,500. T uses the $7,500 as a partial payment for the vehicle. T pays D an additional $50,000 from other funds. T's regular tax liability for the year is less than $7,500.
(B) Analysis. Under paragraph (e)(1)(i) of this section, T may transfer the credit to D, even though T's regular tax liability is less than $7,500, and no amount of the credit will be recaptured from T on the basis that the allowable credit exceeds T's regular tax liability. D's $7,500 payment to T is not included in T's gross income, and the sale price of the vehicle is $57,500 (including both the $7,500 payment and the additional $50,000 paid by T from other funds), prior to the application of the basis reduction rule of section 30D(f)(1). After application of the basis reduction rule, T's basis in the vehicle is $50,000. D is eligible to receive an advance payment of $7,500 for the transferred section 30D credit as provided in section 30D(g)(7) and paragraph (f) of this section. Under paragraph (e)(2) of this section, D may receive the advance payment irrespective of the fact that D's regular tax liability is less than $7,500. The advance payment is not treated as a credit toward D's tax liability (if any), nor is it included in D's gross income. Further, D's $7,500 payment to T is not deductible, and D's amount realized is $57,500 upon the sale of the vehicle (including both the $7,500 payment from D to T that T uses as a partial payment, and the additional $50,000 paid by T from other funds).
(ii) Example 2: Non-cash payment by eligible entity to electing taxpayer —(A) Facts. The facts are the same as in paragraph (e)(5)(i)(A) of this section (facts of Example 1 ), except that D makes the payment to T in the form of a reduction in the sale price of the vehicle (rather than as a cash payment).
(B) Analysis. Paragraph (e)(3) of this section provides that the application of paragraphs (e)(1) and (2) of this section is not dependent on the form of payment from an eligible entity to an electing taxpayer (for example, a payment in cash or a payment in the form of a reduction in sale price). Thus, the analysis is the same as in paragraph (e)(5)(i)(B) of this section (analysis of Example 1 ).
(iii) Example 3: Eligible entity is a partnership —(A) Facts. The facts are the same as in paragraph (e)(5)(i)(A) of this section (facts of Example 1 ), except that D is a partnership.
(B) Analysis. The analysis as to T is the same as in paragraph (e)(5)(i)(B) of this section (analysis of Example 1 ). Because D is a partnership, paragraph (e)(2)(vi) of this section applies. Thus, the advance payment is made to the partnership, the credit is reduced to zero and is, for any other purpose of the Code, deemed to have been allowed solely to the partnership (and not allocated or otherwise allowed to its partners) for such taxable year. The amount of the advance payment is not treated as tax-exempt income to the partnership for purposes of the Code.
(f) Advance payments received by eligible entities —(1) In general. An eligible entity may receive advance payments from the IRS (corresponding to the amount of the section 30D credit for which a credit transfer election was made by an electing taxpayer to transfer the credit to the eligible entity pursuant to section 30D(g) and paragraph (d) of this section) before the eligible entity files its Federal income tax return or information return, as appropriate, for the taxable year with respect to which the credit transfer election corresponds. This advance payment program is the exclusive mechanism for an eligible entity to receive the section 30D credit transferred pursuant to section 30D(g) and paragraph (d) of this section. An eligible entity receiving a transferred section 30D credit may not claim the credit on a tax return.
(2) Requirements for a registered dealer to become an eligible entity. A registered dealer qualifies as an eligible entity, and may therefore receive an advance payment, in connection with a credit transfer election, if it meets the following requirements:
(i) The registered dealer submits required registration information and is in dealer tax compliance;
(ii) The registered dealer retains information regarding the credit transfer election for three calendar years beginning with the year immediately after the year in which the vehicle is placed in service, as described in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter);
(iii) The registered dealer meets any other requirements set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter) or in forms and instructions; and
(iv) The registered dealer meets any other requirements of section 30D(g), including those in section 30D(g)(2)(B) through (E).
(g) Increase in tax —(1) Recapture if electing taxpayer exceeds modified adjusted gross income limitation. If an electing taxpayer has modified adjusted gross income that exceeds the limitation in section 30D(f)(10) and § 1.30D-4(b), then the income tax imposed on such taxpayer under chapter 1 of the Code (chapter 1) for the taxable year in which such vehicle was placed in service is increased by the amount of the payment received by the taxpayer. The electing taxpayer must recapture such amounts on the return described in paragraph (h) of this section.
(2) Excessive payments —(i) In general. This paragraph provides rules under section 30D(g)(7)(B), which provides that rules similar to the rules of section 6417(d)(6) of the Code apply to the advance payment program. In the case of any advance payment to an eligible entity that the IRS determines constitutes an excessive payment, the tax imposed on the eligible entity under chapter 1, regardless of whether such entity would otherwise be subject to tax under chapter 1, for the taxable year in which such determination is made will be increased by the sum of the following amounts—
(A) The amount of the excessive payment; plus
(B) An amount equal to 20 percent of such excessive payment.
(ii) Reasonable cause. The amount described in paragraph (g)(2)(i)(B) of this section will not apply to an eligible entity if the eligible entity demonstrates to the satisfaction of the IRS that the excessive payment resulted from reasonable cause. In the case of a new clean vehicle (with respect to which a credit transfer election was made by the electing taxpayer) that is returned to the eligible entity within 30 days of being placed in service, the eligible entity will be treated as having demonstrated that the excessive payment resulted from reasonable cause.
(iii) Excessive payment defined. Excessive payment means an advance payment made—
(A) To a registered dealer that fails to meet the requirements to be an eligible entity provided in section 30D(g)(2) and paragraph (f)(2) of this section, or
(B) Except as provided in paragraph (g)(2)(iv) of this section, to an eligible entity with respect to a new clean vehicle to the extent the payment exceeds the amount of the credit that, without application of section 30D(g) and this section, would be otherwise allowable to the electing taxpayer with respect to the vehicle for such tax year.
(iv) Special rule for cases in which the electing taxpayer's modified adjusted gross income exceeds the limitation. Any excess described in paragraph (g)(2)(iii)(B) of this section that arises due to the electing taxpayer exceeding the limitation based on modified adjusted gross income in section 30D(f)(10) and § 1.30D-4(b) is not an excessive payment. Instead, the amount of the advance payment is recaptured from the electing taxpayer under section 30D(g)(10) and paragraph (g)(1) of this section.
(3) Examples. The following examples illustrate the excessive payment rules in paragraph (g)(2) of this section.
(i) Example 1: Registered dealer is not an eligible entity —(A) Facts. In 2024, D, a registered dealer, receives an advance payment of $7,500 with respect to a credit transferred under section 30D(g)(1) and paragraph (d) of this section for a new clean vehicle V. In 2025, the IRS determines that D was not an eligible entity with respect to new clean vehicle V at the time of the receipt of the advance payment in 2024, because D failed to satisfy one of the requirements of section 30D(g)(2) and paragraph (f)(2) of this section. D is unable to show reasonable cause for the failure.
(B) Analysis. Under paragraph (g)(2)(i) of this section, the tax imposed on D is increased by the amount of the excessive payment if the advance payment received by D constitutes an excessive payment. Under paragraph (g)(2)(iii) of this section, the entire amount of the $7,500 advance payment received by D is an excessive payment because D did not meet the requirements to be an eligible entity under section 30D(g)(2) and paragraph (f)(2) of this section. Additionally, because D cannot show reasonable cause for its failure to meet these requirements, the tax imposed under chapter 1 on D is increased by $9,000 in 2025 (the taxable year of the IRS determination). This is comprised of the $7,500 value of the credit plus the $1,500 penalty, calculated as a 20% penalty on such $7,500 (20% × $7,500 = $1,500). This treatment applies regardless of whether D is otherwise subject to tax under chapter 1 (for example, if D is a partnership).
(ii) Example 2: Incorrect manufacturer certifications —(A) Facts. In 2024, T, a taxpayer, makes an election to transfer a credit under section 30D(g)(1) and paragraph (d) of this section to E, a registered dealer, for a new clean vehicle V. M, the manufacturer of such vehicle, certified to the IRS that vehicle V was eligible for a $7,500 credit because it met both the critical minerals and the battery components requirements. T transfers the $7,500 credit to E. Subsequent to T's purchase and election to transfer the $7,500 credit to E, M reports to the IRS that vehicle V was only eligible for a $3,750 credit because it did not meet the critical minerals requirement.
(B) Analysis. Under § 1.30D-4(h), T may rely on the information and certifications provided in M's written report to the IRS regarding vehicle V's eligibility for the section 30D credit. Under paragraph (g)(2)(iii)(B) of this section, an advance payment to an eligible entity with respect to a vehicle is an excessive payment to the extent the payment exceeds the amount of the credit that, without a credit transfer election, would be otherwise allowable to the electing taxpayer with respect to the vehicle for such taxable year. Because the amount of the credit that would be allowable to T for 2024 is $7,500, and T transferred the $7,500 credit to E, there is no excessive payment with respect to E.
(h) Return requirement. An electing taxpayer that makes a credit transfer election must file a Federal income tax return or information return, as appropriate, for the taxable year in which the credit transfer election is made and indicate such election on the return in accordance with the instructions to the form on which the return is made. The electing taxpayer must attach a completed Form 8936, Clean Vehicle Credits, or successor form, and a completed Schedule A (Form 8936), Clean Vehicle Credit Amount, or successor form or schedule, including the vehicle identification number of the new clean vehicle and such other information as provided in forms and instructions.
(i) Two credit transfer elections per year. A taxpayer may make no more than two credit transfer elections per taxable year, consisting of either two elections to transfer section 30D credits, or one election to transfer a section 30D credit and one election to transfer a section 25E credit. In the case of taxpayers who file a joint return, each individual taxpayer may make no more than two credit transfer elections per taxable year.
(j) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions will continue in effect.
(k) Applicability date. This section applies to new clean vehicles placed in service after December 31, 2023, in taxable years ending after December 31, 2023.
§ 1.30D-6   Foreign entity of concern restriction.
(a) In general. This section provides rules related to the excluded entities provision of section 30D(d)(7) of the Internal Revenue Code (Code), which imposes certain restrictions on the extraction, processing, or recycling of applicable critical minerals, and the manufacturing or assembly of battery components contained in a clean vehicle battery by a foreign entity of concern (FEOC). Specifically, section 30D(d)(7) provides that the term new clean vehicle does not include any vehicle placed in service after December 31, 2023, with respect to which any of the battery components in the clean vehicle battery were manufactured or assembled by a FEOC, or any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the clean vehicle battery were extracted, processed, or recycled by a FEOC (FEOC restriction). See § 1.30D-2(b) for definitions applicable to section 30D(d)(7) and this section.
(b) Due diligence required —(1) In general. The qualified manufacturer must conduct due diligence with respect to all battery components and applicable critical minerals (and associated constituent materials) that are relevant to determining whether such components or minerals are FEOC-compliant. Such due diligence must comply with standards of tracing for battery materials available in the industry at the time of the attestation or certification that enables the qualified manufacturer to know with reasonable certainty the provenance of applicable critical minerals, associated constituent materials, and battery components. Reasonable reliance on a supplier attestation or certification will be considered due diligence if the qualified manufacturer, or any third-party manufacturer or supplier, does not know or have reason to know that such supplier attestation or certification is incorrect. See paragraph (c)(5) of this section for rules related to third-party manufacturers and suppliers. The qualified manufacturer must conduct due diligence prior to the qualified manufacturer determining the information necessary to establish any compliant-battery ledger under paragraph (d) of this section, and the qualified manufacturer must continue to conduct due diligence on an ongoing basis.
(2) Transition rule for impracticable-to-trace battery materials. For any new clean vehicles for which the qualified manufacturer provides a periodic written report before January 1, 2027, the due diligence requirement of paragraph (b)(1) of this section may be satisfied by excluding identified impracticable-to-trace battery materials. To use this transition rule, a qualified manufacturer must submit a report during the up-front review process described in paragraph (d)(2)(ii) of this section demonstrating how the qualified manufacturer will comply with the FEOC restriction of section 30D(d)(7) and this section, including information about efforts made to date to secure a FEOC-compliant supply of these battery materials once the transition rule is no longer in effect.
(c) FEOC compliance —(1) In general. In the case of any new clean vehicle placed in service after December 31, 2023, the clean vehicle battery or batteries of the vehicle must be FEOC-compliant. A serial number or other identification system must be used to physically track FEOC-compliant batteries to specific new clean vehicles. The determination that a clean vehicle battery is FEOC-compliant is made as follows:
(i) Step 1. The qualified manufacturer determines whether battery components and applicable critical minerals (and associated constituent materials) are FEOC-compliant, in accordance with paragraph (c)(4) of this section.
(ii) Step 2. The FEOC-compliant battery components and FEOC-compliant applicable critical minerals (and associated constituent materials) are physically tracked to specific battery cells, in accordance with paragraph (c)(3)(i) of this section. Alternatively, FEOC-compliant applicable critical minerals and associated constituent materials (but not battery components) may be allocated to battery cells, without physical tracking, in accordance with paragraph (c)(3)(ii) of this section. In addition, the determination of whether a battery cell is FEOC-compliant may be made by applying the transition rule for impracticable-to-trace battery materials, in accordance with paragraph (c)(3)(iii) of this section.
(iii) Step 3. The battery components, including battery cells, are physically tracked to specific clean vehicle batteries, in accordance with paragraph (c)(2) of this section.
(2) FEOC-compliant batteries. The determination that a clean vehicle battery is FEOC-compliant must be made by physically tracking FEOC-compliant battery components (including battery cells) to such battery. With respect to battery cells, a serial number or other identification system must be used to physically track FEOC-compliant battery cells to such batteries.
(3) FEOC-compliant battery cells —(i) In general. Except as provided in paragraph (c)(3)(ii) of this section, the determination that a battery cell contains FEOC-compliant battery components and FEOC-compliant applicable critical minerals and their associated constituent materials must be made by physically tracking FEOC-compliant battery components to specific battery cells, and by physically tracking the mass of FEOC-compliant applicable critical minerals and their associated constituent materials to specific battery cells.
(ii) Allocation-based determination for applicable critical minerals and associated constituent materials of a battery cell —(A) In general. The determination that a battery cell is FEOC-compliant may be based on an allocation of available mass, procured or contracted for, of applicable critical minerals and their associated constituent materials to specific battery cells manufactured or assembled in a battery cell production facility, without the physical tracking of mass of applicable critical minerals and associated constituent materials to specific battery cells.
(B) Allocation limited to applicable critical minerals in the battery cell. The rules of this paragraph (c)(3)(ii) are limited to applicable critical minerals and their associated constituent materials that are incorporated into a battery cell or its battery components. Battery components must be physically tracked.
(C) Separate allocation required for each type of associated constituent material —( 1 ) In general. Any allocation under this paragraph (c)(3)(ii) with respect to the mass of an applicable critical mineral must be made within the type of associated constituent material (such as powders of cathode active materials, powders of anode active materials, or foils) in which such applicable critical mineral is contained. Masses of an applicable critical mineral may not be aggregated across constituent materials with which such applicable critical mineral is not associated, and an allocation of a mass of an applicable critical mineral may not be made from one type of constituent material to another.
( 2 ) Example. M, a qualified manufacturer, operates a battery cell production facility. M manufactures a line of battery cells that contains applicable critical mineral Z (ACM-Z) in constituent material 1 and in constituent material 2. With respect to constituent material 1, M procures 20,000,000 kilograms (kg) of ACM-Z for the battery cell production facility, of which 4,000,000 kg are FEOC-compliant and 16,000,000 kg are not FEOC-compliant. With respect to constituent material 2, M procures another 15,000,000 kg of ACM-Z for the battery cell production facility, of which 7,500,000 kg are FEOC-compliant and 7,500,000 kg are not FEOC-compliant. M determines which battery cells are FEOC-compliant through an allocation-based determination with respect to battery cells manufactured or assembled in the battery cell production facility. Under this paragraph (c)(3)(ii)(C), any allocation with respect to the mass of ACM-Z must be made within the type of constituent material in which ACM-Z is contained. Thus, M may not aggregate the 4,000,000 kg of FEOC-compliant ACM-Z contained in constituent material 1 with the 7,500,000 kg of FEOC-compliant ACM-Z contained in constituent material 2, and allocations may not be made from constituent material 1 to constituent material 2. As a result, overall FEOC compliance is constrained by the 20% of constituent material 1 that is FEOC-compliant due to having 4,000,000 kg of ACM-Z, even though 33% (4,000,000 + 7,500,000)/(20,000,000 + 15,000,000) of the total mass of ACM-Z is FEOC-compliant.
(D) Allocation within each product line of battery cells. Any allocation under this paragraph (c)(3)(ii) with respect to applicable critical minerals and their associated constituent materials must be allocated within one or more specific battery cell product lines of the battery cell production facility.
(E) Limitation on number of FEOC-compliant battery cells. If a qualified manufacturer uses an allocation-based determination described in this paragraph (c)(3)(ii), the number of FEOC-compliant battery cells that can be produced from such allocation may not exceed the total number of battery cells for which there is enough of every FEOC-compliant applicable critical mineral. That number will necessarily be limited by the applicable critical mineral that has the lowest percentage of FEOC-compliant supply. For example, if a qualified manufacturer allocates applicable critical mineral A, which is 20 percent FEOC-compliant, and applicable critical mineral B, which is 60 percent FEOC-compliant, to a battery cell product line, no more than 20 percent of the battery cells in that battery cell product line will be treated as FEOC-compliant.
(iii) Transition rule for impracticable-to-trace battery materials. For any new clean vehicles for which the qualified manufacturer provides a periodic written report before January 1, 2027, the qualified manufacturer's determination of whether a battery cell is FEOC-compliant under this paragraph (c)(3) may be satisfied by excluding identified impracticable-to-trace battery materials (and associated constituent materials).
(4) FEOC-compliant battery components and applicable critical minerals —(i) In general. The determination of whether battery components and applicable critical minerals (and their associated constituent materials) are FEOC-compliant must be made prior to any determination under paragraphs (c)(2) and (3) of this section.
(ii) Timing of determination of FEOC or FEOC-compliant status. Whether an entity is a FEOC is determined at the time of the entity's performance of the relevant activity, which for applicable critical minerals is the time of extraction, processing, or recycling, and for battery components is the time of manufacturing or assembly. The determination of whether an applicable critical mineral is FEOC-compliant is determined at the end of processing or recycling the applicable critical mineral into a constituent material, taking into account all applicable steps through and including final processing or recycling.
(iii) Example: Timing of FEOC compliance determination. Mineral X, an applicable critical mineral, was not extracted by a FEOC but was later processed by a FEOC. Mineral X is not FEOC-compliant because one step of the extraction and processing was performed by a FEOC. Therefore, any battery containing Mineral X is not FEOC-compliant.
(5) Third-party manufacturers or suppliers. The determinations under paragraphs (c)(2) through (4) of this section, which are generally made by the qualified manufacturer, may be made by a third-party manufacturer or supplier that operates a battery cell production facility, provided the third-party manufacturer satisfies the requirements of paragraph (c)(5)(i) through (iii) of this section, and paragraph (c)(5)(iv) of this section, if applicable.
(i) Due diligence required. The third-party manufacturer or supplier must perform the due diligence described in paragraph (b) of this section.
(ii) Provision of required information to qualified manufacturer. The third-party manufacturer or supplier must provide the qualified manufacturer of the new clean vehicle information sufficient to establish a basis for the determinations under paragraphs (c)(2) through (4) of this section, including information related to the due diligence described in paragraph (c)(5)(i) of this section.
(iii) Contractual obligations. The third-party manufacturer or supplier must be contractually required to provide the information in paragraph (c)(5)(ii) of this section to the qualified manufacturer and must be contractually required to inform the qualified manufacturer of any change in the supply chain that affects the determinations of FEOC compliance under paragraph (c)(2) through (4) of this section.
(iv) Additional requirements in case of multiple third-party manufacturers or suppliers. If there are multiple third-party manufacturers or suppliers (such as a case in which a qualified manufacturer contracts with a battery manufacturer, that, in turn, contracts with a battery cell manufacturer or supplier that operates a battery cell production facility), the due diligence and information requirements of this paragraph (c) must be satisfied by each third-party manufacturer or supplier, either by providing all required information directly to the qualified manufacturer or indirectly through contractual relationships.
(d) Compliant-battery ledger —(1) In general. For new clean vehicles placed in service after December 31, 2024, the qualified manufacturer must determine and provide information to the IRS to establish a compliant-battery ledger for each calendar year, as described in paragraphs (d)(2)(i) and (ii) of this section. The qualified manufacturer may establish one compliant-battery ledger for all vehicles for a calendar year, or separate ledgers for specific models or classes of vehicles to account for different battery cell chemistries or differing quantities of cells in each clean vehicle battery.
(2) Determination of number of batteries —(i) In general. To establish a compliant-battery ledger for a calendar year, the qualified manufacturer must determine the number of clean vehicle batteries, with respect to new clean vehicles for which the qualified manufacturer anticipates providing a periodic written report during the calendar year, that it knows or reasonably anticipates will be FEOC-compliant, pursuant to the requirements of paragraphs (b) and (c) of this section. The determination is based on the battery components and applicable critical minerals (and associated constituent materials) that are procured or contracted for the calendar year and that are known or reasonably anticipated to be FEOC-compliant battery components or FEOC-compliant applicable critical minerals, as applicable.
(ii) Upfront review. The qualified manufacturer must attest to the number of FEOC-compliant clean vehicle batteries determined under paragraph (d)(2)(i) of this section and provide the basis for the determination, including attestations, certifications and documentation demonstrating compliance with paragraphs (b) and (c) of this section, at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). The IRS, with analytical assistance from the Department of Energy (DOE), will review the attestations, certifications, and documentation. Once the IRS determines that the qualified manufacturer provided the required attestations, certifications, and documentation, the IRS will approve or reject the determined number of FEOC-compliant batteries. The IRS may approve the determined number in whole or part. The approved number is the initial balance in the compliant-battery ledger.
(iii) Decrease or increase to compliant-battery ledger —(A) Once the compliant-battery ledger is established with respect to a calendar year, the qualified manufacturer must determine and take into account any decrease in the number of FEOC-compliant batteries for such calendar year and any of the prior three calendar years for which the qualified manufacturer had a compliant-battery ledger, within 30 days of discovery. In addition, the qualified manufacturer may determine and take into account any increase in the number of FEOC-compliant batteries. Such determinations, and any supporting attestations, certifications, and documentation, must be provided on a periodic basis, in accordance with paragraph (d)(2)(ii) of this section and the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(B) The decrease described in paragraph (d)(2)(iii)(A) of this section may decrease the compliant-battery ledger below zero, creating a negative balance in the compliant-battery ledger.
(C) If any decrease described in paragraph (d)(2)(iii)(A) of this section is determined subsequent to the calendar year to which it relates, the decrease must be taken into account in the year in which the change is discovered.
(D) Any remaining balance in the compliant-battery ledger at the end of the calendar year, whether positive or negative, will be included in the compliant-battery ledger for the subsequent calendar year. If a qualified manufacturer has multiple negative compliant-battery accounts, any negative balance will first be included in the compliant-battery ledger for the same model or class of vehicles for the subsequent calendar year. However, if there is no ledger for the same model or class of vehicles in the subsequent calendar year, the IRS can account for such negative balance in the ledger of a different model or class of vehicles of the qualified manufacturer.
(3) Tracking FEOC-compliant batteries. The compliant-battery ledger for a calendar year must be updated to track the qualified manufacturer's available FEOC-compliant batteries, by reducing the balance in the ledger as the qualified manufacturer submits periodic written reports reporting the vehicle identification numbers of new clean vehicles as eligible for the credit under section 30D, at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). If the balance in the compliant-battery ledger of the qualified manufacturer for a calendar year is zero or less than zero, the qualified manufacturer may not submit additional periodic written reports with respect to section 30D until the number of available FEOC-compliant batteries is increased as described in paragraph (d)(2)(iii)(A) of this section.
(4) Reconciliation of battery estimates. After the end of any calendar year for which a compliant-battery ledger is established, the IRS may require a qualified manufacturer to provide attestations, certifications, and documentation to support the accuracy of the number of the qualified manufacturer's FEOC-compliant batteries for such calendar year, including with respect to any changes described in paragraph (d)(2)(iii) of this section, at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(e) Rule for 2024 —(1) In general. For new clean vehicles that are placed in service after December 31, 2023, and prior to January 1, 2025, the qualified manufacturer must determine whether the battery components contained in the vehicles satisfy the requirements of section 30D(d)(7)(B), and whether batteries contained in the vehicles are FEOC-compliant under the rules of paragraphs (b) and (c) of this section. The qualified manufacturer must make an attestation with respect to such determinations at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). However, for any new clean vehicles for which the qualified manufacturer provides a periodic written report before June 5, 2024, provided that the qualified manufacturer has determined that its supply chains for each battery component with respect such vehicles contain only FEOC-compliant battery components:
(i) For purposes of paragraphs (c)(2) and (3) of this section, the determination of which battery cells or clean vehicle batteries, as applicable, contain FEOC-compliant battery components may be made without physical tracking;
(ii) For purposes of paragraph (c)(2) of this section, the determination of which clean vehicle batteries contain FEOC-compliant battery cells may be made without physical tracking (and without the use of a serial number or other identification system); and
(iii) For purposes of paragraph (c)(1) of this section, the determination of which vehicles contain FEOC-compliant batteries may be made without physical tracking (and without the use of a serial number or other identification system).
(2) Determination. The determination that a qualified manufacturer's supply chains of each battery component contain only FEOC-compliant battery components may be made with respect to specific models or classes of vehicles.
(f) Inaccurate attestations, certifications, or documentation —(1) In general. If the IRS determines, with analytical assistance from the DOE and after review of the attestations, certification, and documentation described in paragraph (d) of this section, that a qualified manufacturer has provided attestations, certifications, or documentation that contain inaccurate information, the IRS may take appropriate action, as described in paragraphs (f)(2) and (3) of this section. Such action would affect vehicles and qualified manufacturers on a prospective basis.
(2) Inadvertence —(i) Inaccurate information may be cured by qualified manufacturer. If the IRS determines that the qualified manufacturer's attestations, certifications, or documentation for a specific new clean vehicle contain inaccurate information due to inadvertence, the qualified manufacturer may, within a reasonable period of time after discovery of the inaccurate information, cure the errors, including by a decrease in the compliant-battery ledger as described in paragraph (d)(2)(iii) of this section. If the qualified manufacturer has multiple compliant-battery ledgers, the IRS may determine which ledger is to be decreased.
(ii) Consequences if errors not cured. If the qualified manufacturer does not cure the errors, the IRS may take any of the following actions:
(A) In the case of a new clean vehicle that has not been placed in service but for which the qualified manufacturer has submitted a periodic written report certifying compliance with the requirements of section 30D(d), the IRS may determine that such vehicle is no longer considered a new clean vehicle eligible for the section 30D credit.
(B) In the case of a new clean vehicle that has not been placed in service and for which the qualified manufacturer has not submitted a periodic written report certifying compliance with the requirements of section 30D(d), the qualified manufacturer may not submit such periodic written report.
(C) In the case of a new clean vehicle that has been placed in service, the IRS may require a decrease in the qualified manufacturer's compliant-battery ledger as described in paragraph (d)(2)(iii) of this section. If the qualified manufacturer has multiple compliant-battery ledgers, the IRS may determine which ledger is to be decreased.
(3) Intentional disregard or fraud. If the IRS determines that a qualified manufacturer intentionally disregarded attestation, certification, or documentation requirements, or reported information fraudulently or with intentional disregard, the IRS may take any of the actions described in paragraph (f)(3)(i) or (ii) of this section.
(i) All vehicles ineligible for credit. The IRS may determine that all vehicles manufactured by the qualified manufacturer that have not been placed in service are no longer considered new clean vehicles eligible for the section 30D credit.
(ii) Termination of written agreement. The IRS may terminate the written agreement between the IRS and the manufacturer, thereby terminating the manufacturer's status as a qualified manufacturer. In such instance, the manufacturer would be required to submit a new written agreement to reestablish qualified manufacturer status at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(g) Rules inapplicable to new qualified fuel cell motor vehicles. The requirements of section 30D(d)(7) and this section do not apply to new qualified fuel cell motor vehicles.
(h) Examples. The following examples illustrate the rules under paragraphs (b) through (e) of this section:
(1) Example 1: In general —(i) Facts. M is a manufacturer of new clean vehicles and batteries. M also manufactures and assembles battery cells at its own battery cell production facility. M manufactures a line of new clean vehicles that it anticipates will be placed in service in calendar year 2025. Each vehicle contains one clean vehicle battery, and each clean vehicle battery contains 1,000 battery cells. All battery cells are produced at the same battery cell production facility. The battery cells are not manufactured or assembled by a FEOC. Each battery cell contains 10 units of battery component A. M has procured or is under contract to procure 10,000,000 units of battery component A for the battery cell production facility, of which 6,000,000 units are from supplier 1 and 4,000,000 units are from supplier 2.
(ii) Analysis —(A) Under paragraph (b) of this section, M must conduct due diligence on all battery components and applicable critical minerals (and associated constituent materials) that are contained in the clean vehicle batteries to determine whether such components or minerals are FEOC-compliant.
(B) Under paragraph (c)(4) of this section, M must first determine whether the battery components and applicable critical minerals (and associated constituent materials) are FEOC-compliant. From its due diligence, M determines that, of the 10,000,000 units of battery component A, the 6,000,000 units from supplier 1 are FEOC-compliant while the 4,000,000 units from supplier 2 are not FEOC-compliant. M determines that all other battery components and applicable critical minerals (and associated constituent materials) of the battery cells are FEOC-compliant, that the battery cell is not manufactured or assembled by a FEOC, and that all battery components (excluding components of the battery cell) of the clean vehicle batteries are FEOC-compliant.
(C) Under paragraph (c)(3) of this section, M must determine which battery cells are FEOC-compliant through the physical tracking of the 6,000,000 units of FEOC-compliant battery component A to determine which 600,000 (6,000,000/10) battery cells are FEOC-compliant. Under paragraph (c)(2) of this section, M must use a serial number or other identification system to track the 600,000 FEOC-compliant battery cells to 600 (600,000/1,000) specific clean vehicle batteries.
(D) Under paragraph (d)(1) of this section, a compliant-battery ledger must be established for calendar year 2025. For purposes of paragraph (d)(2)(i) of this section, M determines that it will manufacture 600 batteries for calendar year 2025 that are FEOC-compliant. Under paragraph (d)(2)(ii) of this section, M attests to the 600 FEOC-compliant batteries and provides the basis for the determination, including attestations, certifications, and documentation demonstrating compliance with paragraphs (b) and (c) of this section. Once the IRS, with analytical assistance from the DOE, approves the number, a compliant-battery ledger is established with a balance of 600 FEOC-compliant batteries.
(E) M manufactures 100 vehicles that it anticipates will be placed in service in 2025, for which it provides periodic written reports providing the vehicle identification numbers of the vehicles and indicating that such vehicles qualify for the section 30D credit. Under paragraph (d)(3) of this section, the compliant-battery ledger is updated to track the number of FEOC-compliant batteries. The number of FEOC-compliant batteries contained in the compliant-battery ledger is reduced from 600 to 500. Assuming all of the other requirements of section 30D and the regulations thereunder are met, the 100 vehicles are new clean vehicles for purposes of section 30D.
(2) Example 2: Rules for third-party suppliers —(i) Facts. The facts are the same as in paragraph (h)(1)(i) of this section (facts of Example 1 ), except that M contracts with a battery manufacturer, BM, for the provision of clean vehicle batteries, and BM contracts with a battery cell supplier, BCS, that operates a battery cell production facility, for the provision of battery cells.
(ii) Analysis. Under paragraph (c)(5) of this section, BCS may make the determination in paragraphs (c)(2) through (4) of this section, provided that M, BM, and BCS perform due diligence as described in paragraph (b) of this section. In addition, BM and BCS must provide M with information sufficient to establish a basis for the determinations under paragraphs (c)(2) through (4) of this section, including information related to due diligence. Finally, BM and BCS must be contractually required to provide the required information to M, and must also be required to inform the qualified manufacturer of any change in supply chains that affects the determinations of FEOC compliance under paragraphs (c)(2) and (4) of this section. The contractual requirement may be satisfied if BM and BCS each have the contractual obligation to M. Alternatively, it may be satisfied if BCS has a contractual obligation to BM and BM, in turn, has a contractual obligation to M.
(3) Example 3: Applicable critical minerals —(i) Facts. The facts are the same as in paragraph (h)(1)(i) of this section (facts of Example 1 ). In addition, each battery cell contains 20 kilograms (kg) of applicable critical mineral Z (ACM-Z) contained in a constituent material. M has procured or is under contract to procure 20,000,000 kg of ACM-Z for the battery cell production facility, of which 4,000,000 kg are from supplier 3 and 16,000,000 kg are from supplier 4.
(ii) Analysis. The analysis is the same as in paragraph (h)(1)(ii) of this section (analysis of Example 1 ). In addition, from its due diligence, M determines that of the 20,000,000 kg of ACM-Z, the 4,000,000 kg from supplier 3 is FEOC-compliant while the 16,000,000 kg from supplier 4 is not FEOC-compliant. Under paragraph (c)(3) of this section, M may determine which battery cells are FEOC-compliant through the physical tracking of the 4,000,000 kg of FEOC-compliant ACM-Z to 200,000 (4,000,000/20) of the battery cells that also contain battery component A, in order to determine which 200,000 battery cells are FEOC-compliant. Alternatively, M may determine which 200,000 battery cells are FEOC-compliant through an allocation of ACM-Z (but not battery component A) to battery cells, without physical tracking, under paragraph (c)(3)(ii) of this section. Under paragraph (c)(2) of this section, M must use a serial number or other identification system to track the 200,000 FEOC-compliant battery cells to 200 (200,000/1,000) specific clean vehicle batteries.
(4) Example 4: Comprehensive example —(i) Facts. M is a manufacturer of new clean vehicles and batteries. M also manufactures or assembles battery cells at its own battery cell production facility. M manufactures a line of new clean vehicles. Each vehicle contains one battery. All battery cells are produced at the same battery cell production facility. The battery cells are not manufactured or assembled by a FEOC. Each battery contains 1,000 NMC 811 battery cells. M anticipates manufacturing 1,000,000 such battery cells for a line of new clean vehicles that it anticipates will be placed in service in calendar year 2025.
(A) Each battery cell contains 1 cathode electrode, 1 anode electrode, 1 separator, and 1 liquid electrolyte. Thus, M procures 1,000,000 units of each battery component for the battery cell production facility.
(B) In addition, each NMC 811 cathode incorporates cathode active material (a constituent material) produced using 2.5 kg of applicable critical minerals, consisting of 0.5 kg of lithium hydroxide, 1.6 kg of nickel sulfate, 0.2 kg of cobalt sulfate, and 0.2 kg of manganese sulfate. Thus, M procures 2,500 metric tons (2.5 kg × 1,000,000/1,000) of applicable critical minerals for the battery cell production facility, resulting in purchase agreements for 500 metric tons of lithium, 1,600 metric tons of nickel, 200 metric tons of cobalt, and 200 metric tons of manganese.
(ii) Analysis —(A) Under paragraph (b) of this section, M must conduct due diligence on all battery components and applicable critical minerals (and associated constituent materials) that are contained in the clean vehicle batteries to determine whether such components or minerals are FEOC-compliant.
(B) Under paragraph (c)(4) of this section, M must first determine whether the battery components and applicable critical minerals (and associated constituent materials) are FEOC-compliant. From its due diligence M determines that, of the cathode electrodes, 600,000 are not manufactured by a FEOC and are therefore FEOC-compliant; 400,000 are manufactured by a FEOC and are therefore non-compliant. Because each battery cell contains 1 cathode electrode, a maximum of 600,000 battery cells would be FEOC-compliant. Of the critical minerals that M has procured, M determines that 250 metric tons of lithium hydroxide, 1,200 metric tons of nickel sulfate, and all of the cobalt sulfate and manganese sulfate are FEOC-compliant. M determines that all other battery components and applicable critical minerals of the battery cells are FEOC-compliant.
(C) Under paragraph (c)(3) of this section, M must determine which battery cells are FEOC-compliant through the physical tracking of battery components. M may determine which battery cells are FEOC-compliant through the physical tracking of applicable critical minerals. Alternatively, M may determine which battery cells are FEOC-compliant through an allocation of applicable critical minerals (and associated constituent materials) but not battery components.
(D) Under an allocation-based determination, M has procured 500 metric tons of lithium hydroxide incorporated into a constituent material for the battery cell production facility, of which 50% (250/500 metric tons) is FEOC-compliant. M has procured 1,600 metric tons of nickel sulfate incorporated into a constituent material for the battery cell production facility, of which 75% (1,200/1,600 metric tons) is FEOC-compliant. Because the lithium hydroxide is the least compliant applicable critical mineral or component, M allocates the FEOC-compliant lithium hydroxide mass to 50% or 500,000 (50% × 1,000,000) of the total battery cells, and to battery cells that contain FEOC-compliant cathode electrodes and have been allocated FEOC-compliant nickel sulfate. Under paragraph (c)(3)(ii)(E) of this section, the quantity of FEOC-compliant battery cells is limited by the applicable critical mineral (lithium hydroxide) that has the lowest percentage (50%) of FEOC-compliant supply.
(E) Under paragraph (c)(2) of this section, M must use a serial number or other identification system to track the 500,000 FEOC-compliant battery cells to 500 (500,000/1,000) specific clean vehicle batteries.
(F) Under paragraph (d)(1) of this section, a compliant-battery ledger must be established for calendar year 2025. For purposes of paragraph (d)(2)(i) of this section, M determines that it will manufacture 500 batteries for calendar year 2025 that are FEOC-compliant, allocating its FEOC-compliant applicable critical minerals to the cells containing FEOC-compliant battery components. Under paragraph (d)(2)(ii) of this section, M attests to the 500 FEOC-compliant batteries and provides the basis for the determination, including attestations, certifications, and documentation demonstrating compliance with paragraphs (b) and (c) of this section. Once the IRS, with analytical assistance from the DOE, has approved the number, a compliant-battery ledger is established with a balance of 500 FEOC-compliant batteries.
(i) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions will continue in effect.
(j) Applicability date. This section applies to new clean vehicles placed in service after December 31, 2023, in taxable years ending after December 31, 2023.
§ 1.31-1   Credit for tax withheld on wages.
(a) The tax deducted and withheld at the source upon wages under chapter 24 of the Internal Revenue Code of 1954 (or in the case of amounts withheld in 1954, under subchapter D, chapter 9 of the Internal Revenue Code of 1939) is allowable as a credit against the tax imposed by Subtitle A of the Internal Revenue Code of 1954, upon the recipient of the income. If the tax has actually been withheld at the source, credit or refund shall be made to the recipient of the income even though such tax has not been paid over to the Government by the employer. For the purpose of the credit, the recipient of the income is the person subject to tax imposed under Subtitle A upon the wages from which the tax was withheld. For instance, if a husband and wife domiciled in a State recognized as a community property State for Federal tax purposes make separate returns, each reporting for income tax purposes one- half of the wages received by the husband, each spouse is entitled to one-half of the credit allowable for the tax withheld at source with respect to such wages.
(b) The tax withheld during any calendar year shall be allowed as a credit against the tax imposed by Subtitle A for the taxable year of the recipient of the income which begins in that calendar year. If such recipient has more than one taxable year beginning in that calendar year, the credit shall be allowed against the tax for the last taxable year so beginning.
§ 1.31-2   Credit for “special refunds” of employee social security tax.
(a) In general. (1) In the case of an employee receiving wages from more than one employer during the calendar year, amounts may be deducted and withheld as employee social security tax with respect to more than $3,600 of wages received during the calendar year 1954, and with respect to more than $4,200 of wages received during a calendar year after 1954. For example, employee social security tax may be deducted and withheld on $5,000 of wages received by an employee during a particular calendar year if the employee is paid wages in such year in the amount of $3,000 by one employer and in the amount of $2,000 by another employer. Section 6413(c) (as amended by section 202 of the Social Security Amendments of 1954 (68 Stat. 1089)), permits, under certain conditions, a so-called “special refund” of the amount of employee social security tax deducted and withheld with respect to wages paid to an employee in a calendar year after 1954 in excess of $4,200 ($3,600 for the calendar year 1954) by reason of the employee receiving wages from more than one employer during the calendar year. For provisions relating to the imposition of the employee tax and the limitation on wages, see with respect to the calendar year 1954, sections 1400 and 1426(a)(1) of the Internal Revenue Code of 1939 and, with respect to calendar years after 1954, sections 3101 and 3121(a)(1) of the Internal Revenue Code of 1954, as amended by sections 208(b) and 204(a), respectively, of the Social Security Amendments of 1954 (68 Stat. 1094, 1091).
(2) An employee who is entitled to a special refund of employee tax with respect to wages received during a calendar year and who is also required to file an income tax return for such calendar year (or for his last taxable year beginning in such calendar year) may obtain the benefits of such special refund only by claiming credit for such special refund in the same manner as if such special refund were an amount deducted and withheld as income tax at the source. For provisions for claiming special refunds for 1955 and subsequent years in the case of employees not required to file income tax returns, see section 6413(c) and the regulations thereunder. For provisions relating to such refunds for 1954, see 26 CFR (1939) 408.802 (regulations 128).
(3) The amount of the special refund allowed as a credit shall be considered as an amount deducted and withheld as income tax at the source under chapter 24 of the Internal Revenue Code of 1954 (or, in the case of a special refund for 1954, subchapter D, chapter 9 of the Internal Revenue Code of 1939). If the amount of such special refund when added to amounts deducted and withheld as income tax exceeds the taxes imposed by subtitle A of the Internal Revenue Code of 1954, the amount of the excess constitutes an overpayment of income tax under Subtitle A, and interest on such overpayment is allowed to the extent provided under section 6611 upon an overpayment of income tax resulting from a credit for income tax withheld at source. See section 6401(b).
(b) Federal and State employees and employees of certain foreign corporations. The provisions of this section shall apply to the amount of a special refund allowable to an employee of a Federal agency or a wholly owned instrumentality of the United States, to the amount of a special refund allowable to an employee of any State or political subdivision thereof (or any instrumentality of any one or more of the foregoing), and to the amount of a special refund allowable to employees of certain foreign corporations. See, with respect to such special refunds for 1954, section 1401(d)(4) of the Internal Revenue Code of 1939, and with respect to such special refunds for 1955 and subsequent years, section 6413(c)(2) of the Internal Revenue Code of 1954, as amended by section 202 of the Social Security amendments of 1954.
§ 1.32-2   Earned income credit for taxable years beginning after December 31, 1978.
(a) [Reserved]
(b) Limitations. (1) [Reserved]
(2) Married individuals. No credit is allowed by section 32 in the case of an eligible individual who is married (within the meaning of section 7703 and the regulations thereunder) unless the individual and spouse file a single return jointly (a joint return) for the taxable year (see section 6013 and the regulations thereunder relating to joint returns of income tax by husband and wife). The requirements of the preceding sentence do not apply to an eligible individual who is not considered as married under section 7703(b) and the regulations thereunder (relating to certain married individuals living apart).
(3) Length of taxable year. No credit is allowed by section 32 in the case of a taxable year covering a period of less than 12 months. However, the rule of the preceding sentence does not apply to a taxable year closed by reason of the death of the eligible individual.
(c) Definitions. (1) [Reserved]
(2) Earned income. For purposes of this section, earned income is computed without regard to any community property laws which may otherwise be applicable. Earned income is reduced by any net loss in earnings from self-employment. Earned income does not include amounts received as a pension, an annuity, unemployment compensation, or workmen's compensation, or an amount to which section 871(a) and the regulations thereunder apply (relating to income of nonresident alien individuals not connected with United States business).
(d) [Reserved]
(e) Coordination of credit with advance payments —(1) Recapture of excess advance payments. If any advance payment of earned income credit under section 3507 is made to an individual by an employer during any calendar year, then the total amount of these advance payments to the individual in that calendar year is treated as an additional amount of tax imposed (by chapter 1 of the Code) upon the individual on the tax return for the individual's last taxable year beginning in that calendar year.
(2) Reconciliation of payments advanced and credit allowed. Any additional amount of tax under paragraph (e)(1) of this section is not treated as a tax imposed by chapter 1 of the Internal Revenue Code for purposes of determining the amount of any credit (other than the earned income credit) allowable under part IV, subchapter A, chapter 1 of the Internal Revenue Code.
§ 1.32-3   Eligibility requirements after denial of the earned income credit.
(a) In general. A taxpayer who has been denied the earned income credit (EIC), in whole or in part, as a result of the deficiency procedures under subchapter B of chapter 63 (deficiency procedures) is ineligible to file a return claiming the EIC subsequent to the denial until the taxpayer demonstrates eligibility for the EIC in accordance with paragraph (c) of this section. If a taxpayer demonstrates eligibility for a taxable year in accordance with paragraph (c) of this section, the taxpayer need not comply with those requirements for any subsequent taxable year unless the Service again denies the EIC as a result of the deficiency procedures.
(b) Denial of the EIC as a result of the deficiency procedures. For purposes of this section, denial of the EIC as a result of the deficiency procedures occurs when a tax on account of the EIC is assessed as a deficiency (other than as a mathematical or clerical error under section 6213(b)(1)).
(c) Demonstration of eligibility. In the case of a taxpayer to whom paragraph (a) of this section applies, and except as otherwise provided by the Commissioner in the instructions for Form 8862, “Information To Claim Earned Income Credit After Disallowance,” no claim for the EIC filed subsequent to the denial is allowed unless the taxpayer properly completes Form 8862, demonstrating eligibility for the EIC, and otherwise is eligible for the EIC. If any item of information on Form 8862 is incorrect or inconsistent with any item on the return, the taxpayer will be treated as not demonstrating eligibility for the EIC. The taxpayer must follow the instructions for Form 8862 to determine the income tax return to which Form 8862 must be attached. If the taxpayer attaches Form 8862 to an incorrect tax return, the taxpayer will not be relieved of the requirement that the taxpayer attach Form 8862 to the correct tax return and will, therefore, not be treated as meeting the taxpayer's obligation under paragraph (a) of this section.
(d) Failure to demonstrate eligibility. If a taxpayer to whom paragraph (a) of this section applies fails to satisfy the requirements of paragraph (c) of this section with respect to a particular taxable year, the IRS can deny the EIC as a mathematical or clerical error under section 6213(g)(2)(K).
(e) Special rule where one spouse denied EIC. The eligibility requirements set forth in this section apply to taxpayers filing a joint return where one spouse was denied the EIC for a taxable year prior to marriage and has not established eligibility as either an unmarried or married taxpayer for a subsequent taxable year.
(f) Effective date. This section applies to returns claiming the EIC for taxable years beginning after December 31, 1997, where the EIC was denied for a taxable year beginning after December 31, 1996.
§ 1.34-1   Special rule for owners of certain business entities.
Amounts payable under sections 6420, 6421, and 6427 to a business entity that is treated as separate from its owner under § 1.1361-4(a)(8) (relating to certain qualified subchapter S subsidiaries) or § 301.7701-2(c)(2)(v) of this chapter (relating to certain wholly-owned entities) are, for purposes of section 34, treated as payable to the owner of that entity.
§ 1.35-1   Partially tax-exempt interest received by individuals.
(a) The credit against tax under section 35 shall be allowed only to individuals and if the requirements of both paragraphs (1) and (2) of section 35(a) are met. Where the alternative tax on capital gains is imposed under section 1201(b), the taxable income for such taxable year is the taxable income as defined in section 63, which includes 50 percent of the excess of net long-term capital gain over net short-term capital loss.
(b) For the treatment of partially tax-exempt interest in the case of amounts not allocable to any beneficiary of an estate or trust, see section 642(a)(1), and for treatment of amounts allocable to a beneficiary, see sections 652 and 662. For treatment of partially tax-exempt interest received by a partnership, see section 702(a)(7). For treatment of such interest received by a common trust fund, see section 584(c)(2).
(c) The application of section 35 may be illustrated by the following example:
§ 1.35-2   Taxpayers not entitled to credit.
For taxable years beginning after December 31, 1957, no credit shall be allowed under section 35 to a nonresident alien individual with respect to whom a tax is imposed for such taxable year under section 871(a).
§ 1.36B-0   Table of contents.
This section lists the captions contained in §§ 1.36B-1 through 1.36B-6.
(A) Plans other than health reimbursement arrangements (HRAs) or other account-based group health plans described in paragraph (c)(3)(i)(B) of this section.
(B) HRAs and other account-based group health plans integrated with individual health insurance coverage.
(5) Affordable HRA or other account-based group health plan.
(i) In general.
(ii) Required HRA contribution.
(iii) Monthly amounts.
(A) Monthly lowest cost silver plan premium.
(B) Monthly HRA amount.
(iv) Employee safe harbor.
(v) Amounts used for affordability determination.
(vi) Affordability for part-year period.
(vii) Related individual not allowed as a personal exemption deduction.
(viii) Post-employment coverage.
(ix) Examples.
(A) In general.
(B) Individuals enrolled by a taxpayer and claimed by another taxpayer.
(C) Responsibility for advance credit payments for an individual not reported on any taxpayer's return.
(a) In general.
(1) Employees.
(2) Related individuals
(i) In general.
(ii) Plans providing MV to employees.
(b) MV standard population.
(c) MV percentage.
(1) In general.
(2) Wellness program incentives.
(i) In general.
(ii) Example.
(3) Employer contributions to health savings accounts.
(4) Employer contributions to health reimbursement arrangements.
(5) Expected spending adjustments for health savings accounts and health reimbursement arrangements.
(d) Methods for determining MV.
(e) Scope of essential health benefits and adjustment for benefits not included in MV Calculator.
(f) Actuarial certification.
(1) In general.
(2) Membership in American Academy of Actuaries.
(3) Actuarial analysis.
(4) Use of MV Calculator.
(g) Effective/applicability date.
(1) In general.
(2) Exceptions.
§ 1.36B-1   Premium tax credit definitions.
(a) In general. Section 36B allows a refundable premium tax credit for taxable years ending after December 31, 2013. The definitions in this section apply to this section and §§ 1.36B-2 through 1.36B-5.
(b) Affordable Care Act. The term Affordable Care Act refers to the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)), and the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), as amended by the Medicare and Medicaid Extenders Act of 2010, Public Law 111-309 (124 Stat. 3285 (2010)), the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, Public Law 112-9 (125 Stat. 36 (2011)), the Department of Defense and Full-Year Continuing Appropriations Act, 2011, Public Law 112-10 (125 Stat. 38 (2011)), and the 3% Withholding Repeal and Job Creation Act, Public Law 112-56 (125 Stat. 711 (2011)).
(c) Qualified health plan. The term qualified health plan has the same meaning as in section 1301(a) of the Affordable Care Act (42 U.S.C. 18021(a)) but does not include a catastrophic plan described in section 1302(e) of the Affordable Care Act (42 U.S.C. 18022(e)).
(d) Family and family size—(1) In general. A taxpayer's family means the individuals for whom a taxpayer properly claims a deduction for a personal exemption under section 151 for the taxable year. Family size means the number of individuals in the family. Family and family size may include individuals who are not subject to or are exempt from the penalty under section 5000A for failing to maintain minimum essential coverage.
(2) Special rule for tax years to which section 151(d)(5) applies. For taxable years to which section 151(d)(5) applies, a taxpayer's family means the taxpayer, including both spouses in the case of a joint return, except for individuals who qualify as a dependent of another taxpayer under section 152, and any other individual for whom the taxpayer is allowed a personal exemption deduction and whom the taxpayer properly reports on the taxpayer's income tax return for the taxable year. For purposes of this paragraph (d)(2), an individual is reported on the taxpayer's income tax return if the individual's name and taxpayer identification number (TIN) are listed on the taxpayer's Form 1040 series return. See § 601.602 of this chapter.
(e) Household income —(1) In general. Household income means the sum of—
(i) A taxpayer's modified adjusted gross income (including the modified adjusted gross income of a child for whom an election under section 1(g)(7) is made for the taxable year);
(ii) The aggregate modified adjusted gross income of all other individuals who—
(A) Are included in the taxpayer's family under paragraph (d) of this section; and
(B) Are required to file a return of tax imposed by section 1 for the taxable year.
(2) Modified adjusted gross income. Modified adjusted gross income means adjusted gross income (within the meaning of section 62) increased by—
(i) Amounts excluded from gross income under section 911;
(ii) Tax-exempt interest the taxpayer receives or accrues during the taxable year; and
(iii) Social security benefits (within the meaning of section 86(d)) not included in gross income under section 86.
(f) Dependent. Dependent has the same meaning as in section 152.
(g) Lawfully present. Lawfully present has the same meaning as in 45 CFR 155.20.
(h) Federal poverty line. The Federal poverty line means the most recently published poverty guidelines (updated periodically in the Federal Register by the Secretary of Health and Human Services under the authority of 42 U.S.C. 9902(2)) as of the first day of the regular enrollment period for coverage by a qualified health plan offered through an Exchange for a calendar year. Thus, the Federal poverty line for computing the premium tax credit for a taxable year is the Federal poverty line in effect on the first day of the initial or annual open enrollment period preceding that taxable year. See 45 CFR 155.410. If a taxpayer's primary residence changes during a taxable year from one state to a state with different Federal poverty guidelines or married taxpayers reside in separate states with different Federal poverty guidelines (for example, Alaska or Hawaii and another state), the Federal poverty line that applies for purposes of section 36B and the associated regulations is the higher Federal poverty guideline (resulting in a lower percentage of the Federal poverty line for the taxpayers' household income and family size).
(i) [Reserved]
(j) Advance credit payment. Advance credit payment means an advance payment of the premium tax credit as provided in section 1412 of the Affordable Care Act (42 U.S.C. 18082).
(k) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
(l) Self-only coverage. Self-only coverage means health insurance that covers one individual and provides coverage for the essential health benefits as defined in section 1302(b)(1) of the Affordable Care Act (42 U.S.C. 18022).
(m) Family coverage. Family coverage means health insurance that covers more than one individual and provides coverage for the essential health benefits as defined in section 1302(b)(1) of the Affordable Care Act (42 U.S.C. 18022).
(n) Rating area. The term rating area has the same meaning as used in section 2701(a)(2) of the Public Health Service Act (42 U.S.C. 300gg(a)(2)) and 45 CFR 147.102(b).
(o) Applicability dates. (1) Except for paragraphs (d)(2), (l), and (m) of this section, this section applies to taxable years ending after December 31, 2013.
(2) Paragraph (d)(2) of this section applies to taxable years ending on or after December 31, 2020.
(3) Paragraphs (l) and (m) of this section apply to taxable years beginning after December 31, 2018. Paragraphs (l) and (m) of § 1.36B-1 as contained in 26 CFR part 1 edition revised as of April 1, 2016, apply to taxable years ending after December 31, 2013, and beginning before January 1, 2019.
§ 1.36B-2   Eligibility for premium tax credit.
(a) In general. An applicable taxpayer (within the meaning of paragraph (b) of this section) is allowed a premium assistance amount only for any month that one or more members of the applicable taxpayer's family (the applicable taxpayer or the applicable taxpayer's spouse or dependent)—
(1) Is enrolled in one or more qualified health plans through an Exchange; and
(2) Is not eligible for minimum essential coverage (within the meaning of paragraph (c) of this section) other than coverage described in section 5000A(f)(1)(C) (relating to coverage in the individual market).
(b) Applicable taxpayer —(1) In general. Except as otherwise provided in this paragraph (b), an applicable taxpayer is a taxpayer whose household income is at least 100 percent but not more than 400 percent of the Federal poverty line for the taxpayer's family size for the taxable year.
(2) Married taxpayers must file joint return —(i) In general. Except as provided in paragraph (b)(2)(ii) of this section, a taxpayer who is married (within the meaning of section 7703) at the close of the taxable year is an applicable taxpayer only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.
(ii) Victims of domestic abuse and abandonment. Except as provided in paragraph (b)(2)(v) of this section, a married taxpayer satisfies the joint filing requirement of paragraph (b)(2)(i) of this section if the taxpayer files a tax return using a filing status of married filing separately and the taxpayer—
(A) Is living apart from the taxpayer's spouse at the time the taxpayer files the tax return;
(B) Is unable to file a joint return because the taxpayer is a victim of domestic abuse, as described in paragraph (b)(2)(iii) of this section, or spousal abandonment, as described in paragraph (b)(2)(iv) of this section; and
(C) Certifies on the return, in accordance with the relevant instructions, that the taxpayer meets the criteria of this paragraph (b)(2)(ii).
(iii) Domestic abuse. For purposes of paragraph (b)(2)(ii) of this section, domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate, and intimidate, or to undermine the victim's ability to reason independently. All the facts and circumstances are considered in determining whether an individual is abused, including the effects of alcohol or drug abuse by the victim's spouse. Depending on the facts and circumstances, abuse of the victim's child or another family member living in the household may constitute abuse of the victim.
(iv) Abandonment. For purposes of paragraph (b)(2)(ii) of this section, a taxpayer is a victim of spousal abandonment for a taxable year if, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence.
(v) Three-year rule. Paragraph (b)(2)(ii) of this section does not apply if the taxpayer met the requirements of paragraph (b)(2)(ii) of this section for each of the three preceding taxable years.
(3) Dependents. An individual is not an applicable taxpayer if another taxpayer may claim a deduction under section 151 for the individual for a taxable year beginning in the calendar year in which the individual's taxable year begins.
(4) Individuals not lawfully present or incarcerated. An individual who is not lawfully present in the United States or is incarcerated (other than incarceration pending disposition of charges) is not eligible to enroll in a qualified health plan through an Exchange. However, the individual may be an applicable taxpayer if a family member is eligible to enroll in a qualified health plan. See sections 1312(f)(1)(B) and 1312(f)(3) of the Affordable Care Act (42 U.S.C. 18032(f)(1)(B) and (f)(3)) and § 1.36B-3(b)(2).
(5) Individuals lawfully present. If a taxpayer's household income is less than 100 percent of the Federal poverty line for the taxpayer's family size and the taxpayer or a member of the taxpayer's family is an alien lawfully present in the United States, the taxpayer is treated as an applicable taxpayer if—
(i) The lawfully present taxpayer or family member is not eligible for the Medicaid program; and
(ii) The taxpayer would be an applicable taxpayer if the taxpayer's household income for the taxable year was between 100 and 400 percent of the Federal poverty line for the taxpayer's family size.
(6) Special rule for taxpayers with household income below 100 percent of the Federal poverty line for the taxable year —(i) In general. A taxpayer (other than a taxpayer described in paragraph (b)(5) of this section) whose household income for a taxable year is less than 100 percent of the Federal poverty line for the taxpayer's family size is treated as an applicable taxpayer for the taxable year if—
(A) The taxpayer or a family member enrolls in a qualified health plan through an Exchange for one or more months during the taxable year;
(B) An Exchange estimates at the time of enrollment that the taxpayer's household income will be at least 100 percent but not more than 400 percent of the Federal poverty line for the taxable year;
(C) Advance credit payments are authorized and paid for one or more months during the taxable year; and
(D) The taxpayer would be an applicable taxpayer if the taxpayer's household income for the taxable year was at least 100 but not more than 400 percent of the Federal poverty line for the taxpayer's family size.
(ii) Exceptions. This paragraph (b)(6) does not apply for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange for the year of coverage. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows the information provided to the Exchange is inaccurate.
(iii) Advance credit payments are authorized and paid for one or more months during the taxable year; and
(iv) The taxpayer would be an applicable taxpayer if the taxpayer's household income for the taxable year was between 100 and 400 percent of the Federal poverty line for the taxpayer's family size.
(7) Computation of premium assistance amounts for taxpayers with household income below 100 percent of the Federal poverty line. If a taxpayer is treated as an applicable taxpayer under paragraph (b)(5) or (b)(6) of this section, the taxpayer's actual household income for the taxable year is used to compute the premium assistance amounts under § 1.36B-3(d).
(c) Minimum essential coverage —(1) In general. Minimum essential coverage is defined in section 5000A(f) and regulations issued under that section. As described in section 5000A(f), government-sponsored programs, eligible employer-sponsored plans, grandfathered health plans, and certain other health benefits coverage are minimum essential coverage.
(2) Government-sponsored minimum essential coverage —(i) In general. An individual is eligible for government-sponsored minimum essential coverage if the individual meets the criteria for coverage under a government-sponsored program described in section 5000A(f)(1)(A) as of the first day of the first full month the individual may receive benefits under the program, subject to the limitation in paragraph (c)(2)(ii) of this section. The Commissioner may define eligibility for specific government-sponsored programs further in additional published guidance, see § 601.601(d)(2) of this chapter.
(ii) Obligation to complete administrative requirements to obtain coverage. An individual who meets the criteria for eligibility for government-sponsored minimum essential coverage must complete the requirements necessary to receive benefits. An individual who fails by the last day of the third full calendar month following the event that establishes eligibility under paragraph (c)(2)(i) of this section to complete the requirements to obtain government-sponsored minimum essential coverage (other than a veteran's health care program) is treated as eligible for government-sponsored minimum essential coverage as of the first day of the fourth calendar month following the event that establishes eligibility.
(iii) Special rule for coverage for veterans and other individuals under chapter 17 or 18 of title 38, U.S.C. An individual is eligible for minimum essential coverage under a health care program under chapter 17 or 18 of title 38, U.S.C. only if the individual is enrolled in a health care program under chapter 17 or 18 of title 38, U.S.C. identified as minimum essential coverage in regulations issued under section 5000A.
(iv) Retroactive effect of eligibility determination. If an individual receiving advance credit payments is determined to be eligible for government-sponsored minimum essential coverage that is effective retroactively (such as Medicaid), the individual is treated as eligible for minimum essential coverage under that program no earlier than the first day of the first calendar month beginning after the approval.
(v) Determination of Medicaid or Children's Health Insurance Program (CHIP) ineligibility. An individual is treated as not eligible for Medicaid, CHIP, or a similar program such as a Basic Health Program, for a period of coverage under a qualified health plan if, when the individual enrolls in the qualified health plan, an Exchange conducts an eligibility determination or, if applicable, eligibility assessment (within the meaning of 45 CFR 155.302(b)) for Medicaid, CHIP, or a similar program and determines or assesses the individual to be not eligible for coverage under the program. This paragraph (c)(2)(v) does not apply for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange for the year of coverage. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows that information provided to the Exchange is inaccurate.
(vi) Examples. The following examples illustrate the provisions of this paragraph (c)(2):
(3) Employer-sponsored minimum essential coverage —(i)(A) Plans other than health reimbursement arrangements (HRAs) or other account-based group health plans described in paragraph (c)(3)(i)(B) of this section. For purposes of section 36B, an employee who may enroll in an eligible employer-sponsored plan (as defined in section 5000A(f)(2) and the regulations under that section) that is minimum essential coverage, and an individual who may enroll in the plan because of a relationship to the employee (a related individual), are eligible for minimum essential coverage under the plan for any month only if the plan is affordable and provides minimum value. Except for the Nonappropriated Fund Health Benefits Program of the Department of Defense, established under section 349 of the National Defense Authorization Act for Fiscal Year 1995 (Public Law 103-337; 10 U.S.C. 1587 note), government-sponsored minimum essential coverage is not an eligible employer-sponsored plan. The Nonappropriated Fund Health Benefits Program of the Department of Defense is considered eligible employer-sponsored coverage, but not government-sponsored coverage, for purposes of determining if an individual is eligible for minimum essential coverage under this section.
(B) HRAs and other account-based group health plans integrated with individual health insurance coverage. An employee who is offered an HRA or other account-based group health plan that would be integrated with individual health insurance coverage (or Medicare Part A and B or Medicare Part C), within the meaning of §§ 54.9802-4 and 54.9815-2711(d)(4) of this chapter, if the employee enrolls in individual health insurance coverage (or Medicare Part A and B or Medicare Part C), and an individual who is offered the HRA or other account-based group health plan because of a relationship to the employee (a related HRA individual), are eligible for minimum essential coverage under an eligible employer-sponsored plan for any month for which the HRA or other account-based group health plan is offered if the HRA or other account-based group health plan is affordable for the month under paragraph (c)(5) of this section or if the employee does not opt out of and waive future reimbursements from the HRA or other account-based group health plan. An HRA or other account-based group health plan described in this paragraph (c)(3)(i)(B) that is affordable for a month under paragraph (c)(5) of this section is treated as providing minimum value for the month. For purposes of paragraphs (c)(3) and (5) of this section, the definitions under § 54.9815-2711(d)(6) of this chapter apply.
(ii) Plan year. For purposes of this paragraph (c)(3), a plan year is an eligible employer-sponsored plan's regular 12-month coverage period (or the remainder of a 12-month coverage period for a new employee or an individual who enrolls during a special enrollment period). The plan year for an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is the plan's 12-month coverage period (or the remainder of the 12-month coverage period for a newly eligible individual or an individual who enrolls during a special enrollment period).
(iii) Eligibility for months during a plan year —(A) Failure to enroll in plan. An employee or related individual may be eligible for minimum essential coverage under an eligible employer-sponsored plan for a month during a plan year if the employee or related individual could have enrolled in the plan for that month during an open or special enrollment period for the plan year. If an enrollment period relates to coverage for not only the upcoming plan year (or the current plan year in the case of an enrollment period other than an open enrollment period), but also coverage in one or more succeeding plan years, this paragraph (c)(3)(iii)(A) applies only to eligibility for the coverage in the upcoming plan year (or the current plan year in the case of an enrollment period other than an open enrollment period).
(B) Waiting periods. An employee or related individual is not eligible for minimum essential coverage under an eligible employer-sponsored plan during a required waiting period before the coverage becomes effective.
(C) Example. The following example illustrates the provisions of this paragraph (c)(3)(iii):
(ii) B could have enrolled in X's plan during the August 1 to September 15 enrollment period. Therefore, unless X's plan is not affordable for B or does not provide minimum value, B is eligible for minimum essential coverage under X's plan for the months that B is enrolled in the qualified health plan during X's plan year (January through September 2015).
(iv) Post-employment coverage. A former employee (including a retiree), or an individual related (within the meaning of paragraph (c)(3)(i) of this section) to a former employee, who may enroll in eligible employer-sponsored coverage or in continuation coverage required under Federal law or a State law that provides comparable continuation coverage is eligible for minimum essential coverage under this coverage only for months that the former employee or related individual is enrolled in the coverage.
(v) Affordable coverage —(A) In general —( 1 ) Affordability for employee. Except as provided in paragraph (c)(3)(v)(A)( 3 ) of this section, an eligible employer-sponsored plan is affordable for an employee if the portion of the annual premium the employee must pay, whether by salary reduction or otherwise (required contribution), for self-only coverage does not exceed the required contribution percentage (as defined in paragraph (c)(3)(v)(C) of this section) of the applicable taxpayer's household income for the taxable year. See paragraph (c)(5) of this section for rules for when an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for an employee for a month.
( 2 ) Affordability for related individual. Except as provided in paragraph (c)(3)(v)(A)( 3 ) of this section, an eligible employer-sponsored plan is affordable for a related individual if the employee's required contribution for family coverage under the plan does not exceed the required contribution percentage, as defined in paragraph (c)(3)(v)(C) of this section, of the applicable taxpayer's household income for the taxable year. For purposes of this paragraph (c)(3)(v)(A)( 2 ), an employee's required contribution for family coverage is the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee's family, as defined in § 1.36B-1(d), who are offered coverage under the eligible employer-sponsored plan.
( 3 ) Employee safe harbor. An eligible employer-sponsored plan is not affordable for an employee or a related individual for a plan year if, when the employee or a related individual enrolls in a qualified health plan for a period coinciding with the plan year (in whole or in part), an Exchange determines that the eligible employer-sponsored plan is not affordable for that plan year. This paragraph (c)(3)(v)(A)( 3 ) does not apply to a determination made as part of the redetermination process described in 45 CFR 155.335 unless the individual receiving an Exchange redetermination notification affirmatively responds and provides current information about affordability. This paragraph (c)(3)(v)(A)( 3 ) does not apply for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange concerning the portion of the annual premium for coverage for the employee or related individual under the plan. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows that the information provided to the Exchange is inaccurate. See paragraph (c)(5) of this section for an employee safe harbor that applies when an Exchange determines that an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is not affordable for an employee or a related HRA individual for the period of enrollment in a qualified health plan.
( 4 ) Wellness program incentives. Nondiscriminatory wellness program incentives offered by an eligible employer-sponsored plan that affect premiums are treated as earned in determining an employee's required contribution for purposes of affordability of an eligible employer-sponsored plan to the extent the incentives relate exclusively to tobacco use. Wellness program incentives that do not relate to tobacco use or that include a component unrelated to tobacco use are treated as not earned for this purpose. For purposes of this section, the term wellness program incentive has the same meaning as the term reward in § 54.9802-1(f)(1)(i) of this chapter.
( 5 ) Employer contributions to HRAs integrated with eligible employer-sponsored plans. Amounts newly made available for the current plan year under an HRA that an employee may use to pay premiums, or may use to pay cost-sharing or benefits not covered by the primary plan in addition to premiums, reduce the employee's required contribution if the HRA would be integrated, within the meaning of § 54.9815-2711(d)(2) of this chapter, with an eligible employer-sponsored plan for an employee enrolled in the plan. The eligible employer-sponsored plan and the HRA must be offered by the same employer. Employer contributions to an HRA described in this paragraph (c)(3)(v)(A)( 5 ) reduce an employee's required contribution only to the extent the amount of the annual contribution is required under the terms of the plan or otherwise determinable within a reasonable time before the employee must decide whether to enroll in the eligible employer-sponsored plan.
( 6 ) Employer contributions to cafeteria plans. Amounts made available for the current plan year under a cafeteria plan, within the meaning of section 125, reduce an employee's or a related individual's required contribution if—
( i ) The employee may not opt to receive the amount as a taxable benefit;
( ii ) The employee may use the amount to pay for minimum essential coverage; and
( iii ) The employee may use the amount exclusively to pay for medical care, within the meaning of section 213.
( 7 ) Opt-out arrangements. [Reserved]
( 8 ) Multiple offers of coverage. An individual who has offers of coverage under eligible employer-sponsored plans from multiple employers, either as an employee or a related individual, has an offer of affordable coverage if at least one of the offers of coverage is affordable under paragraph (c)(3)(v)(A)( 1 ) or ( 2 ) of this section.
(B) Affordability for part-year period. Affordability under paragraph (c)(3)(v)(A) of this section is determined separately for each employment period that is less than a full calendar year or for the portions of an employer's plan year that fall in different taxable years of an applicable taxpayer (a part-year period). Coverage under an eligible employer-sponsored plan is affordable for a part-year period if the annualized required contribution for self-only coverage, in the case of an employee, or family coverage, in the case of a related individual, under the plan for the part-year period does not exceed the required contribution percentage of the applicable taxpayer's household income for the taxable year. The employee's annualized required contribution is the employee's required contribution for the part-year period times a fraction, the numerator of which is 12 and the denominator of which is the number of months in the part-year period during the applicable taxpayer's taxable year. Only full calendar months are included in the computation under this paragraph (c)(3)(v)(B).
(C) Required contribution percentage. The required contribution percentage is 9.5 percent. For plan years beginning in a calendar year after 2014, the percentage will be adjusted by the ratio of premium growth to income growth for the preceding calendar year and may be further adjusted to reflect changes to the data used to compute the ratio of premium growth to income growth for the 2014 calendar year or the data sources used to compute the ratio of premium growth to income growth. Premium growth and income growth will be determined under published guidance, see § 601.601(d)(2) of this chapter. In addition, the percentage may be adjusted for plan years beginning in a calendar year after 2018 to reflect rates of premium growth relative to growth in the consumer price index.
(D) Examples. The following examples illustrate the provisions of this paragraph (c)(3)(v). Unless stated otherwise, in each example the taxpayer is single and has no dependents, the employer's plan is an eligible employer-sponsored plan and provides minimum value, the employee is not eligible for other minimum essential coverage, and the taxpayer, related individual, and employer-sponsored plan have a calendar taxable year:
( 1 ) Example 1: Basic determination of affordability. For all of 2023, taxpayer C works for an employer, X, that offers its employees and their spouses a health insurance plan under which, to enroll in self-only coverage, C must contribute an amount for 2023 that does not exceed the required contribution percentage of C's 2023 household income. Because C's required contribution for self-only coverage does not exceed the required contribution percentage of C's household income, under paragraph (c)(3)(v)(A)( 1 ) of this section, X's plan is affordable for C, and C is eligible for minimum essential coverage for all months in 2023.
( 2 ) Example 2: Basic determination of affordability for a related individual. ( i ) The facts are the same as in paragraph (c)(3)(v)(D)( 1 ) of this section (Example 1), except that C is married to J, they file a joint return, and to enroll C and J, X's plan requires C to contribute an amount for coverage for C and J for 2023 that exceeds the required contribution percentage of C's and J's household income. J does not work for an employer that offers employer-sponsored coverage.
( ii ) J is a member of C's family as defined in § 1.36B-1(d). Because C's required contribution for coverage of C and J exceeds the required contribution percentage of C's and J's household income, under paragraph (c)(3)(v)(A)( 2 ) of this section, X's plan is unaffordable for J. Accordingly, J is not eligible for minimum essential coverage for 2023. However, under paragraph (c)(3)(v)(A)( 1 ) of this section, X's plan is affordable for C, and C is eligible for minimum essential coverage for all months in 2023.
( 3 ) Example 3: Multiple offers of coverage. The facts are the same as in paragraph (c)(3)(v)(D)( 2 ) of this section (Example 2), except that J works all year for an employer that offers employer-sponsored coverage to employees. J's required contribution for the cost of self-only coverage from J's employer does not exceed the required contribution percentage of C's and J's household income. Although the coverage offered by C's employer for C and J is unaffordable for J, the coverage offered by J's employer is affordable for J. Consequently, under paragraphs (c)(3)(v)(A)( 1 ) and ( 8 ) of this section, J is eligible for minimum essential coverage for all months in 2023.
( 4 ) Example 4: Cost of covering individuals not part of taxpayer's family. ( i ) D and E are married, file a joint return, and have two children, F and G, under age 26. F is a dependent of D and E, but G is not. D works all year for an employer that offers employer-sponsored coverage to employees, their spouses, and their children under age 26. E, F, and G do not work for employers offering coverage. D's required contribution for self-only coverage under D's employer's coverage does not exceed the required contribution percentage of D's and E's household income. D's required contribution for coverage of D, E, F, and G exceeds the required contribution percentage of D's and E's household income, but D's required contribution for coverage of D, E, and F does not exceed the required contribution percentage of the household income.
( ii ) E and F are members of D's family as defined in § 1.36B-1(d). G is not a member of D's family under § 1.36B-1(d), because G is not D's dependent. Under paragraph (c)(3)(v)(A)( 1 ) of this section, D's employer's coverage is affordable for D because D's required contribution for self-only coverage does not exceed the required contribution percentage of D's and E's household income. D's employer's coverage also is affordable for E and F, because, under paragraph (c)(3)(v)(A)( 2 ) of this section, D's required contribution for coverage of D, E, and F does not exceed the required contribution percentage of D's and E's household income. Although D's cost to cover D, E, F, and G exceeds the required contribution percentage of D's and E's household income, under paragraph (c)(3)(v)(A)( 2 ) of this section, the cost to cover G is not considered in determining whether D's employer's coverage is affordable for E and F, regardless of whether G actually enrolls in the plan, because G is not in D's family. D, E, and F are eligible for minimum essential coverage for all months in 2023. Under paragraph (c)(4)(i) of this section, G is considered eligible for the coverage offered by D's employer only if G enrolls in the coverage.
( 5 ) Example 5: More than one family member with an employer offering coverage. ( i ) K and L are married, file a joint return, and have one dependent child, M. K works all year for an employer that offers coverage to employees, spouses, and children under age 26. L works all year for an employer that offers coverage to employees only. K's required contribution for self-only coverage under K's employer's coverage does not exceed the required contribution percentage of K's and L's household income. Likewise, L's required contribution for self-only coverage under L's employer's coverage does not exceed the required contribution percentage of K's and L's household income. However, K's required contribution for coverage of K, L, and M exceeds the required contribution percentage of K's and L's household income.
( ii ) L and M are members of K's family as defined in § 1.36B-1(d). Under paragraph (c)(3)(v)(A)( 1 ) of this section, K's employer's coverage is affordable for K because K's required contribution for self-only coverage does not exceed the required contribution percentage of K's and L's household income. Similarly, L's employer's coverage is affordable for L, because L's required contribution for self-only coverage does not exceed the required contribution percentage of K's and L's household income. Thus, K and L are eligible for minimum essential coverage for all months in 2023. However, under paragraph (c)(3)(v)(A)( 2 ) of this section, K's employer's coverage is unaffordable for M, because K's required contribution for coverage of K, L, and M exceeds the required contribution percentage of K's and L's household income. Accordingly, M is not eligible for minimum essential coverage for 2023.
( 6 ) Example 6: Multiple offers of coverage for a related individual. ( i ) The facts are the same as in paragraph (c)(3)(v)(D)( 5 ) of this section (Example 5), except that L works all year for an employer that offers coverage to employees, spouses, and children under age 26. L's required contribution for coverage of K, L, and M does not exceed the required contribution percentage of K's and L's household income.
( ii ) Although M is not eligible for affordable employer coverage under K's employer's coverage, paragraph (c)(3)(v)(A)( 8 ) of this section dictates that L's employer coverage must be evaluated to determine whether L's employer coverage is affordable for M. Under paragraph (c)(3)(v)(A)( 2 ) of this section, L's employer's coverage is affordable for M, because L's required contribution for K, L, and M does not exceed the required contribution percentage of K's and L's household income. Accordingly, M is eligible for minimum essential coverage for all months in 2023.
( 7 ) Example 7: Determination of unaffordability at enrollment. ( i ) Taxpayer D is an employee of Employer X. In November 2013 the Exchange for D's rating area projects that D's 2014 household income will be $37,000. It also verifies that D's required contribution for self-only coverage under X's health insurance plan will be $3,700 (10 percent of household income). Consequently, the Exchange determines that X's plan is unaffordable. D enrolls in a qualified health plan and not in X's plan. In December 2014, X pays D a $2,500 bonus. Thus, D's actual 2014 household income is $39,500 and D's required contribution for coverage under X's plan is 9.4 percent of D's household income.
( ii ) Based on D's actual 2014 household income, D's required contribution does not exceed 9.5 percent of household income and X's health plan is affordable for D. However, when D enrolled in a qualified health plan for 2014, the Exchange determined that X's plan was not affordable for D for 2014. Consequently, under paragraph (c)(3)(v)(A)( 3 ) of this section, X's plan is not affordable for D and D is not eligible for minimum essential coverage under X's plan for 2014.
( 8 ) Example 8: Determination of unaffordability for plan year. The facts are the same as in paragraph (c)(3)(v)(D)( 7 ) of this section (Example 7), except that X's employee health insurance plan year is September 1 to August 31.

 The Exchange for D's rating area determines in August 2014 that X's plan is unaffordable for D based on D's projected household income for 2014. D enrolls in a qualified health plan as of September 1, 2014. Under paragraph (c)(3)(v)(A)( 3 ) of this section, X's plan is not affordable for D and D is not eligible for minimum essential coverage under X's plan for the coverage months September to December 2014 and January through August 2015.
( 9 ) Example 9: No affordability information affirmatively provided for annual redetermination. ( i ) The facts are the same as in paragraph (c)(3)(v)(D)( 7 ) of this section (Example 7), except the Exchange redetermines D's eligibility for advance credit payments for 2015. D does not affirmatively provide the Exchange with current information regarding affordability and the Exchange determines that D's coverage is not affordable for 2015 and approves advance credit payments based on information from the previous enrollment period. In 2015, D's required contribution for coverage under X's plan is 9.4 percent of D's household income.
( ii ) Because D does not respond to the Exchange notification and the Exchange makes an affordability determination based on information from an earlier year, the employee safe harbor in paragraph (c)(3)(v)(A)( 3 ) of this section does not apply. D's required contribution for 2015 does not exceed 9.5 percent of D's household income. Thus, X's plan is affordable for D for 2015 and D is eligible for minimum essential coverage for all months in 2015.
( 10 ) Example 10: Determination of unaffordability for part of plan year (part-year period). ( i ) Taxpayer E is an employee of Employer X beginning in May 2015. X's employee health insurance plan year is September 1 to August 31. E's required contribution for self-only coverage for May through August is $150 per month ($1,800 for the full plan year). The Exchange for E's rating area projects E's household income for purposes of eligibility for advance credit payments as $18,000. E's actual household income for the 2015 taxable year is $20,000.
( ii ) Under paragraph (c)(3)(v)(B) of this section, whether coverage under X's plan is affordable for E is determined for the remainder of X's plan year (May through August). E's required contribution for a full plan year ($1,800) exceeds 9.5 percent of E's household income (1,800/18,000 = 10 percent). Therefore, the Exchange determines that X's coverage is unaffordable for May through August. Although E's actual household income for 2015 is $20,000 (and E's required contribution of $1,800 does not exceed 9.5 percent of E's household income), under paragraph (c)(3)(v)(A)( 3 ) of this section, X's plan is unaffordable for E for the part of the plan year May through August 2015. Consequently, E is not eligible for minimum essential coverage under X's plan for the period May through August 2015.
( 11 ) Example 11: Affordability determined for part of a taxable year (part-year period). ( i ) Taxpayer F is an employee of Employer X. X's employee health insurance plan year is September 1 to August 31. F's required contribution for self-only coverage for the period September 2014 through August 2015 is $150 per month or $1,800 for the plan year. F does not enroll in X's plan during X's open season but enrolls in a qualified health plan for September through December 2014. F does not request advance credit payments and does not ask the Exchange for his rating area to determine whether X's coverage is affordable for F. F's household income in 2014 is $18,000.
( ii ) Because F is a calendar year taxpayer and Employer X's plan is not a calendar year plan, F must determine the affordability of X's coverage for the part-year period in 2014 (September-December) under paragraph (c)(3)(v)(B) of this section. F determines the affordability of X's plan for the September through December 2014 period by comparing the annual premiums ($1,800) to F's 2014 household income. F's required contribution of $1,800 is 10 percent of F's 2014 household income. Because F's required contribution exceeds 9.5 percent of F's 2014 household income, X's plan is not affordable for F for the part-year period September through December 2014 and F is not eligible for minimum essential coverage under X's plan for that period.
( iii ) F enrolls in Exchange coverage for 2015 and does not ask the Exchange to approve advance credit payments or determine whether X's coverage is affordable. F's 2015 household income is $20,000.
( iv ) F must determine if X's plan is affordable for the part-year period January 2015 through August 2015. F's annual required contribution ($1,800) is 9 percent of F's 2015 household income. Because F's required contribution does not exceed 9.5 percent of F's 2015 household income, X's plan is affordable for F for the part-year period January through August 2015 and F is eligible for minimum essential coverage for that period.
( 12 ) Example 12: Coverage unaffordable at year end. Taxpayer G is employed by Employer X. In November 2014, the Exchange for G's rating area determines that G is eligible for affordable employer-sponsored coverage for 2015. G nonetheless enrolls in a qualified health plan for 2015 but does not receive advance credit payments. G's 2015 household income is less than expected and G's required contribution for employer-sponsored coverage for 2015 exceeds 9.5 percent of G's actual 2015 household income. Under paragraph (c)(3)(v)(A)( 1 ) of this section, G is not eligible for minimum essential coverage under X's plan for 2015.
( 13 ) Wellness program incentives: ( i ) Employer X offers an eligible employer-sponsored plan with a nondiscriminatory wellness program that reduces premiums by $300 for employees who do not use tobacco products or who complete a smoking cessation course. Premiums are reduced by $200 if an employee completes cholesterol screening within the first six months of the plan year. Employee B does not use tobacco and the cost of his premiums is $3,700. Employee C uses tobacco and the cost of her premiums is $4,000.
( ii ) Under paragraph (c)(3)(v)(A)( 4 ) of this section, only the incentives related to tobacco use are counted toward the premium amount used to determine the affordability of X's plan. C is treated as having earned the $300 incentive for attending a smoking cessation course regardless of whether C actually attends the course. Thus, the required contribution for determining affordability for both Employee B and Employee C is $3,700. The $200 incentive for completing cholesterol screening is treated as not earned and does not reduce their required contribution.
(vi) Minimum value. See § 1.36B-6 for rules for determining whether an eligible employer-sponsored plan provides minimum value. An HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section that is affordable for a month under paragraph (c)(5) of this section is treated as providing minimum value for the month.
(vii) Enrollment in eligible employer-sponsored plan —(A) In general. Except as provided in paragraph (c)(3)(vii)(B) of this section, the requirements of affordability and minimum value do not apply for months that an individual is enrolled in an eligible employer-sponsored plan.
(B) Automatic enrollment. An employee or related individual is treated as not enrolled in an eligible employer-sponsored plan for a month in a plan year or other period for which the employee or related individual is automatically enrolled if the employee or related individual terminates the coverage before the later of the first day of the second full calendar month of that plan year or other period or the last day of any permissible opt-out period provided by the employer-sponsored plan or in regulations to be issued by the Department of Labor, for that plan year or other period.
(C) Examples. The following examples illustrate the provisions of this paragraph (c)(3)(vii):
(4) Special eligibility rules —(i) Related individual. An individual who may enroll in minimum essential coverage because of a relationship to another person eligible for the coverage, but is not included in the family, as defined in § 1.36B-1(d), of the other eligible person, is treated as eligible for such minimum essential coverage only for months that the related individual is enrolled in the coverage.
(ii) Exchange unable to discontinue advance credit payments —(A) In general. If an individual who is enrolled in a qualified health plan for which advance credit payments are made informs the Exchange that the individual is or will soon be eligible for other minimum essential coverage and that advance credit payments should be discontinued, but the Exchange does not discontinue advance credit payments for the first calendar month beginning after the month the individual informs the Exchange, the individual is treated as eligible for the other minimum essential coverage no earlier than the first day of the second calendar month beginning after the first month the individual may enroll in the other minimum essential coverage.
(B) Medicaid or CHIP. If a determination is made that an individual who is enrolled in a qualified health plan for which advance credit payments are made is eligible for Medicaid or CHIP but the advance credit payments are not discontinued for the first calendar month beginning after the eligibility determination, the individual is treated as eligible for the Medicaid or CHIP no earlier than the first day of the second calendar month beginning after the eligibility determination.
(5) Affordable HRA or other account-based group health plan —(i) In general. Except as otherwise provided in this paragraph (c)(5), an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for a month if the employee's required HRA contribution (as defined in paragraph (c)(5)(ii) of this section) for the month does not exceed 1/12 of the product of the employee's household income for the taxable year and the required contribution percentage (as defined in paragraph (c)(3)(v)(C) of this section).
(ii) Required HRA contribution. An employee's required HRA contribution is the excess of—
(A) The monthly premium for the lowest cost silver plan for self-only coverage of the employee offered in the Exchange for the rating area in which the employee resides, over
(B) The monthly self-only HRA or other account-based group health plan amount (or the monthly maximum amount available to the employee under the HRA or other account-based group health plan if the HRA or other account-based group health plan provides for reimbursements up to a single dollar amount regardless of whether an employee has self-only or other-than-self-only coverage).
(iii) Monthly amounts —(A) Monthly lowest cost silver plan premium. For purposes of paragraph (c)(5)(ii)(A) of this section, the premium for the lowest cost silver plan is determined without regard to any wellness program incentive that affects premiums unless the wellness program incentive relates exclusively to tobacco use, in which case the incentive is treated as earned. If the premium differs for tobacco users and non-tobacco users, the premium for the lowest cost silver plan is the premium that applies to non-tobacco users. For the purpose of this paragraph (c)(5)(iii)(A), the term wellness program incentive has the same meaning as the term reward in 26 CFR 54.9802-1(f)(1)(i). A silver-level qualified health plan that is used for purposes of determining a taxpayer's lowest cost silver plan for self-only coverage under paragraph (c)(5)(ii)(A) of this section does not cease to be the taxpayer's lowest cost silver plan for self-only coverage solely because the plan terminates or closes to enrollment during the taxable year.
(B) Monthly HRA amount. For purposes of paragraph (c)(5)(ii)(B) of this section, the monthly self-only HRA or other account-based group health plan amount is the self-only HRA or other account-based group health plan amount newly made available under the HRA for the plan year, divided by the number of months in the plan year the HRA or other account-based group health plan is available to the employee. The monthly maximum amount available to the employee under the HRA or other account-based group health plan is the maximum amount newly made available for the plan year to the employee under the plan, divided by the number of months in the plan year the HRA or other account-based group health plan is available to the employee.
(iv) Employee safe harbor. An HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is not affordable for a month for an employee or a related HRA individual if, when the employee or related HRA individual enrolls in a qualified health plan for a period coinciding with the period the HRA or other account-based group health plan is available to the employee or related HRA individual (in whole or in part), an Exchange determines that the HRA or other account-based group health plan is not affordable for the period of enrollment in the qualified health plan. This paragraph (c)(5)(iv) does not apply to a determination made as part of the redetermination process described in 45 CFR 155.335 unless the individual receiving an Exchange redetermination notification affirmatively responds and provides current information about affordability. This paragraph (c)(5)(iv) does not apply for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange concerning the relevant HRA or other account-based group health plan amount offered by the employee's employer. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows that the information provided to the Exchange is inaccurate.
(v) Amounts used for affordability determination. Only amounts that are newly made available for the plan year of the HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section and determinable within a reasonable time before the beginning of the plan year of the HRA or other account-based health plan are considered in determining whether an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable. Amounts made available for a prior plan year that carry over to the current plan year are not taken into account for purposes of this paragraph (c)(5). Similarly, amounts made available to account for amounts remaining in a different HRA or other account-based group health plan the employer previously provided to the employee and under which the employee is no longer covered are not taken into account for purposes of this paragraph (c)(5).
(vi) Affordability for part-year period. Affordability under this paragraph (c)(5) is determined separately for each employment period that is less than a full calendar year or for the portions of the plan year of an employer's HRA or other account-based group health plan that fall in different taxable years of an applicable taxpayer. An HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for a part-year period if the employee's annualized required HRA contribution for the part-year period does not exceed the required contribution percentage of the applicable taxpayer's household income for the taxable year. The employee's annualized required HRA contribution is the employee's required HRA contribution for the part-year period times a fraction, the numerator of which is 12 and the denominator of which is the number of months in the part-year period during the applicable taxpayer's taxable year. Only full calendar months are included in the computation under this paragraph (c)(5)(vi).
(vii) Related individual not allowed as a personal exemption deduction. A related HRA individual is treated as ineligible for minimum essential coverage under an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section for months that the employee opted out of and waived future reimbursements from the HRA or other account-based group health plan and the employee is not allowed a personal exemption deduction under section 151 for the related HRA individual.
(viii) Post-employment coverage. An individual who is offered an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section, for months after an employee terminates employment with the employer offering the HRA or other account-based group health plan, is eligible for minimum essential coverage under the HRA or other account-based group health plan for months after termination of employment only if the employee does not forfeit or opt out of and waive future reimbursements from the HRA or other account-based group health plan for months after termination of employment.
(ix) Examples. The following examples illustrate the provisions of this paragraph (c)(5). The required contribution percentage is defined in paragraph (c)(3)(v)(C) of this section and is updated annually. Because the required contribution percentage for 2020 has not yet been determined, the examples assume a required contribution percentage for 2020 of 9.78 percent.
(A) Example 1: Determination of affordability —( 1 ) Facts. In 2020 Taxpayer A is single, has no dependents, and has household income of $28,000. A is an employee of Employer X for all of 2020. X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that reimburses $2,400 of medical care expenses for single employees with no children (the self-only HRA amount) and $4,000 for employees with a spouse or children for the medical expenses of the employees and their family members. A enrolls in a qualified health plan through the Exchange in the rating area in which A resides and remains enrolled for all of 2020. The monthly premium for the lowest cost silver plan for self-only coverage of A that is offered in the Exchange for the rating area in which A resides is $500.
( 2 ) Conclusion. A's required HRA contribution, as defined in paragraph (c)(5)(ii) of this section, is $300, the excess of $500 (the monthly premium for the lowest cost silver plan for self-only coverage of A) over $200 (1/12 of the self-only HRA amount provided by Employer X to its employees). In addition, 1/12 of the product of 9.78 percent and A's household income is $228 ($28,000 × .0978 = $2,738; $2,738/12 = $228). Because A's required HRA contribution of $300 exceeds $228 (1/12 of the product of 9.78 percent and A's household income), the HRA is unaffordable for A for each month of 2020 under paragraph (c)(5) of this section. If A opts out of and waives future reimbursements from the HRA, A is not eligible for minimum essential coverage under the HRA for each month of 2020 under paragraph (c)(3)(i)(B) of this section.
(B) Example 2: Determination of affordability for a related HRA individual —( 1 ) Facts. In 2020 Taxpayer B is married and has one child who is a dependent of B for 2020. B has household income of $28,000. B is an employee of Employer X for all of 2020. X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that reimburses $3,600 of medical care expenses for single employees with no children (the self-only HRA amount) and $5,000 for employees with a spouse or children for the medical expenses of the employees and their family members. B, B's spouse, and B's child enroll in a qualified health plan through the Exchange in the rating area in which B resides and they remain enrolled for all of 2020. No advance credit payments are made for their coverage. The monthly premium for the lowest cost silver plan for self-only coverage of B that is offered in the Exchange for the rating area in which B resides is $500.
( 2 ) Conclusion. B's required HRA contribution, as defined in paragraph (c)(5)(ii) of this section, is $200, the excess of $500 (the monthly premium for the lowest cost silver plan for self-only coverage for B) over $300 (1/12 of the self-only HRA amount provided by Employer X to its employees). In addition, 1/12 of the product of 9.78 percent and B's household income for 2020 is $228 ($28,000 × .0978 = $2,738; $2,738/12 = $228). Because B's required HRA contribution of $200 does not exceed $228 (1/12 of the product of 9.78 percent and B's household income for 2020), the HRA is affordable for B under paragraph (c)(5) of this section, and B is eligible for minimum essential coverage under an eligible employer-sponsored plan for each month of 2020 under paragraph (c)(3)(i)(B) of this section. In addition, B's spouse and child are also eligible for minimum essential coverage under an eligible employer-sponsored plan for each month of 2020 under paragraph (c)(3)(i)(B) of this section.
(C) Example 3: Exchange determines that HRA is unaffordable —( 1 ) Facts. The facts are the same as in paragraph (c)(5)(ix)(B) of this section ( Example 2 ), except that B, when enrolling in Exchange coverage for B's family, received a determination by the Exchange that the HRA was unaffordable, because B believed B's household income would be lower than it turned out to be. Consequently, advance credit payments were made for their 2020 coverage.
( 2 ) Conclusion. Under paragraph (c)(5)(iv) of this section, the HRA is considered unaffordable for B, B's spouse, and B's child for each month of 2020 provided that B did not, with intentional or reckless disregard for the facts, provide incorrect information to the Exchange concerning the HRA.
(D) Example 4: Affordability determined for part of a taxable year (part-year period) —( 1 ) Facts. Taxpayer C is an employee of Employer X. C's household income for 2020 is $28,000. X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that reimburses medical care expenses of $3,600 for single employees without children (the self-only HRA amount) and $5,000 to employees with a spouse or children for the medical expenses of the employees and their family members. X's HRA plan year is September 1 to August 31 and C is first eligible to participate in the HRA for the period beginning September 1, 2020. C enrolls in a qualified health plan through the Exchange in the rating area in which C resides for all of 2020. The monthly premium for the lowest cost silver plan for self-only coverage of C that is offered in the Exchange for the rating area in which C resides for 2020 is $500.
( 2 ) Conclusion. Under paragraph (c)(3)(vi) of this section, the affordability of the HRA is determined separately for the period September 1 through December 31, 2020, and for the period January 1 through August 31, 2021. C's required HRA contribution, as defined in paragraph (c)(5)(ii) of this section, for the period September 1 through December 31, 2020, is $200, the excess of $500 (the monthly premium for the lowest cost silver plan for self-only coverage for C) over $300 (1/12 of the self-only HRA amount provided by X to its employees). In addition, 1/12 of the product of 9.78 percent and C's household income is $228 ($28,000 × .0978 = $2,738; $2,738/12 = $228). Because C's required HRA contribution of $200 does not exceed $228, the HRA is affordable for C for each month in the period September 1 through December 31, 2020, under paragraph (c)(5) of this section. Affordability for the period January 1 through August 31, 2021, is determined using C's 2021 household income and required HRA contribution.
(E) Example 5: Carryover amounts ignored in determining affordability —( 1 ) Facts. Taxpayer D is an employee of Employer X for all of 2020 and 2021. D is single. For each of 2020 and 2021, X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that provides reimbursement for medical care expenses of $2,400 to single employees with no children (the self-only HRA amount) and $4,000 to employees with a spouse or children for the medical expenses of the employees and their family members. Under the terms of the HRA, amounts that an employee does not use in a calendar year may be carried over and used in the next calendar year. In 2020, D used only $1,500 of her $2,400 maximum reimbursement and the unused $900 is carried over and may be used by D in 2021.
( 2 ) Conclusion. Under paragraph (c)(5)(v) of this section, only the $2,400 self-only HRA amount offered to D for 2021 is considered in determining whether D's HRA is affordable for D. The $900 carryover amount is not considered in determining the affordability of the HRA.
(d) Applicability date. Paragraphs (b)(2) and (c)(3)(v)(C) of this section apply to taxable years beginning after December 31, 2013.
(e) Applicability dates. (1) Except as provided in paragraphs (e)(2) through (6) of this section, this section applies to taxable years ending after December 31, 2013.
(2) Paragraph (b)(6)(ii), the last three sentences of paragraph (c)(2)(v), paragraph (c)(3)(i), paragraph (c)(3)(iii)(A), the last three sentences of paragraph (c)(3)(v)(A)( 3 ), and paragraph (c)(4) of this section apply to taxable years beginning after December 31, 2016. Paragraphs (b)(6), (c)(3)(i), (c)(3)(iii)(A), and (c)(4) of § 1.36B-2 as contained in 26 CFR part I edition revised as of April 1, 2016, apply to taxable years ending after December 31, 2013, and beginning before January 1, 2017.
(3) Paragraphs (c)(3)(i)(B) and (c)(5) of this section, and the last sentences of paragraphs (c)(3)(ii), (c)(3)(v)(A)( 1 ) through ( 3 ), and (c)(3)(vi) of this section apply to taxable years beginning on or after January 1, 2020.
(4) Paragraph (c)(4)(i) of this section applies to taxable years ending on or after December 31, 2020.
(5) The first two sentences of paragraph (c)(3)(v)(A)( 2 ), paragraph (c)(3)(v)(A)( 8 ), the second sentence of paragraph (c)(3)(v)(B), paragraphs (c)(3)(v)(D)( 1 ) through ( 6 ), and the first sentences of paragraphs (c)(3)(v)(D)( 8 ) and ( 9 ) of this section apply to taxable years beginning after December 31, 2022.
(6) The first sentence of paragraph (c)(2)(v) of this section applies to taxable years beginning on or after January 1, 2025. The first sentence of paragraph (c)(2)(v) of this section, as contained in 26 CFR part 1 edition revised as of April 1, 2024, applies to taxable years ending after December 31, 2013, and beginning before January 1, 2025.
§ 1.36B-3   Computing the premium assistance credit amount.
(a) In general. A taxpayer's premium assistance credit amount for a taxable year is the sum of the premium assistance amounts determined under paragraph (d) of this section for all coverage months for individuals in the taxpayer's family.
(b) Definitions. For purposes of this section—
(1) The cost of a qualified health plan is the premium the plan charges; and
(2) The term coverage family means, in each month, the members of a taxpayer's family for whom the month is a coverage month.
(c) Coverage month —(1) In general. A month is a coverage month for an individual if—
(i) As of the first day of the month, the individual is enrolled in a qualified health plan through an Exchange;
(ii) The taxpayer pays the taxpayer's share of the premium for the individual's coverage under the plan for the month by the unextended due date for filing the taxpayer's income tax return for that taxable year, the full premium for the month is paid by advance credit payments, or the amount of the premium paid (including by advance credit payments) for the month is sufficient to avoid termination of the individual's coverage for that month under one of the scenarios described in paragraph (c)(4) of this section; and
(iii) The individual is not eligible for the full calendar month for minimum essential coverage (within the meaning of § 1.36B-2(c)) other than coverage described in section 5000A(f)(1)(C) (relating to coverage in the individual market).
(2) Certain individuals enrolled during a month. If an individual enrolls in a qualified health plan and the enrollment is effective on the date of the individual's birth, adoption, or placement for adoption or in foster care, or on the effective date of a court order, the individual is treated as enrolled as of the first day of that month for purposes of this paragraph (c).
(3) Premiums paid for a taxpayer. Premiums another person pays for coverage of the taxpayer, taxpayer's spouse, or dependent are treated as paid by the taxpayer.
(4) Scenarios for payments sufficient to avoid coverage termination. The scenarios under which the amount of the premium paid (including by advance credit payments) for the month is sufficient to avoid termination of an individual's coverage for that month under paragraph (c)(1)(ii) of this section are the following:
(i) The first month of a grace period described in 45 CFR 156.270(d) for the individual.
(ii) A month for which a premium payment threshold under 45 CFR 155.400(g) has been met and for which month the issuer of the individual's qualified health plan provides coverage.
(iii) A month for which a State department of insurance has, during a declared emergency, issued an order prohibiting the issuer of the individual's qualified health plan from terminating the individual's coverage for the month irrespective of whether the full premium for the month is paid.
(5) Appeals of coverage eligibility. A taxpayer who is eligible for advance credit payments pursuant to an eligibility appeal decision implemented under 45 CFR 155.545(c)(1)(ii) for coverage of a member of the taxpayer's coverage family who, based on the appeal decision, retroactively enrolls in a qualified health plan is considered to have met the requirement in paragraph (c)(1)(ii) of this section for a month if the taxpayer pays the taxpayer's share of the premiums for coverage under the plan for the month on or before the 120th day following the date of the appeals decision.
(6) Examples. The following examples illustrate the provisions of this paragraph (c):
(ii) Under paragraph (c)(1) of this section, January through May 2014 are coverage months for M. June through December 2014 are not coverage months because M is eligible for minimum essential coverage for those months. Thus, under paragraph (a) of this section, M's premium assistance credit amount for 2014 is the sum of the premium assistance amounts for the months January through May.
(ii) Under paragraph (c)(1) of this section, January through December of 2014 are coverage months for N and August through December are coverage months for N and S. N's premium assistance credit amount for 2014 is the sum of the premium assistance amounts for these coverage months.
(ii) Because P claims T as a dependent, P (and not O) may claim a premium tax credit for coverage for T. See § 1.36B-2(a). Under paragraph (c)(2) of this section, the premiums that O pays for coverage for T are treated as paid by P. Thus, the months when T is covered by a qualified health plan and not eligible for other minimum essential coverage are coverage months under paragraph (c)(1) of this section in computing P's premium tax credit under paragraph (a) of this section.
(d) Premium assistance amount —(1) Premium assistance amount. The premium assistance amount for a coverage month is the lesser of—
(i) The enrollment premiums, which are the premiums for the month for one or more qualified health plans in which a taxpayer or a member of the taxpayer's family enrolls, reduced by any amounts—
(A) Refunded in the same taxable year as the premium liability is incurred; or
(B) Unpaid as of the unextended due date for filing the taxpayer's income tax return for the taxable year that includes the month; or
(ii) The excess of the adjusted monthly premium for the applicable benchmark plan (benchmark plan premium) over 1/12 of the product of a taxpayer's household income and the applicable percentage for the taxable year (the taxpayer's contribution amount).
(2) Examples. The following examples illustrate the rules of paragraph (d)(1) of this section.
(ii) The issuer of R's qualified health plan is notified that R died on September 20. The issuer terminates coverage as of that date and refunds the remaining portion of the September enrollment premiums ($150) for R's coverage.
(iii) R's premium assistance amount for each coverage month from January through August is $420 (the lesser of $450 and $420). Under paragraph (d)(1) of this section, R's premium assistance amount for September is the lesser of the enrollment premiums for the month, reduced by any amounts that were refunded ($300 ($450-$150)) or the difference between the benchmark plan premium and the contribution amount for the month ($420). R's premium assistance amount for September is $300, the lesser of $420 and $300.
(e) Adjusted monthly premium. The adjusted monthly premium is the premium an issuer would charge for the applicable benchmark plan to cover all members of the taxpayer's coverage family, adjusted only for the age of each member of the coverage family as allowed under section 2701 of the Public Health Service Act (42 U.S.C. 300gg). The adjusted monthly premium is determined without regard to any premium discount or rebate under the wellness discount demonstration project under section 2705(d) of the Public Health Service Act (42 U.S.C. 300gg-4(d)) and may not include any adjustments for tobacco use. The adjusted monthly premium for a coverage month is determined as of the first day of the month.
(f) Applicable benchmark plan —(1) In general. Except as otherwise provided in this paragraph (f), the applicable benchmark plan for each coverage month is the second-lowest-cost silver plan (as described in section 1302(d)(1)(B) of the Affordable Care Act (42 U.S.C. 18022(d)(1)(B))) offered to the taxpayer's coverage family through the Exchange for the rating area where the taxpayer resides for—
(i) Self-only coverage for a taxpayer—
(A) Who computes tax under section 1(c) (unmarried individuals other than surviving spouses and heads of household) and is not allowed a deduction under section 151 for a dependent for the taxable year;
(B) Who purchases only self-only coverage for one individual; or
(C) Whose coverage family includes only one individual; and
(ii) Family coverage for all other taxpayers.
(2) Family coverage. The applicable benchmark plan for family coverage is the second lowest-cost silver plan that would cover the members of the taxpayer's coverage family (such as a plan covering two adults if the members of a taxpayer's coverage family are two adults).
(3) Silver-level plan not covering pediatric dental benefits. If one or more silver-level qualified health plans offered through an Exchange do not cover pediatric dental benefits, the premium for the applicable benchmark plan is determined based on the second lowest-cost option among—
(i) The silver-level qualified health plans that are offered by the Exchange to the members of the coverage family and that provide pediatric dental benefits; and
(ii) The silver-level qualified health plans that are offered by the Exchange to the members of the coverage family that do not provide pediatric dental benefits in conjunction with the second lowest-cost portion of the premium for a stand-alone dental plan (within the meaning of section 1311(d)(2)(B)(ii) of the Affordable Care Act (42 U.S.C. 18031(d)(2)(B)(ii)) offered by the Exchange to the members of the coverage family that is properly allocable to pediatric dental benefits determined under guidance issued by the Secretary of Health and Human Services.
(4) Family members residing in different locations. If members of a taxpayer's coverage family reside in different locations, the taxpayer's benchmark plan premium is the sum of the premiums for the applicable benchmark plans for each group of coverage family members residing in different locations, based on the plans offered to the group through the Exchange where the group resides. If all members of a taxpayer's coverage family reside in a single location that is different from where the taxpayer resides, the taxpayer's benchmark plan premium is the premium for the applicable benchmark plan for the coverage family, based on the plans offered through the Exchange to the taxpayer's coverage family for the rating area where the coverage family resides.
(5) Single or multiple policies needed to cover the family —(i) Policy covering a taxpayer's family. If a silver-level plan or a stand-alone dental plan offers coverage to all members of a taxpayer's coverage family who reside in the same location under a single policy, the premium (or allocable portion thereof, in the case of a stand-alone dental plan) taken into account for the plan for purposes of determining the applicable benchmark plan under paragraphs (f)(1), (f)(2), and (f)(3) of this section is the premium for this single policy.
(ii) Policy not covering a taxpayer's family. If a silver-level qualified health plan or a stand-alone dental plan would require multiple policies to cover all members of a taxpayer's coverage family who reside in the same location (for example, because of the relationships within the family), the premium (or allocable portion thereof, in the case of a standalone dental plan) taken into account for the plan for purposes of determining the applicable benchmark plan under paragraphs (f)(1), (f)(2), and (f)(3) of this section is the sum of the premiums (or allocable portion thereof, in the case of a stand-alone dental plan) for self-only policies under the plan for each member of the coverage family who resides in the same location.
(6) Plan not available for enrollment. A silver-level qualified health plan or a stand-alone dental plan that is not open to enrollment by a taxpayer or family member at the time the taxpayer or family member enrolls in a qualified health plan is disregarded in determining the applicable benchmark plan.
(7) Benchmark plan terminates or closes to enrollment during the year. A silver-level qualified health plan or a stand-alone dental plan that is used for purposes of determining the applicable benchmark plan under this paragraph (f) for a taxpayer does not cease to be the applicable benchmark plan for a taxable year solely because the plan or a lower cost plan terminates or closes to enrollment during the taxable year.
(8) Only one silver-level plan offered to the coverage family. If there is only one silver-level qualified health plan or one stand-alone dental plan offered through an Exchange that would cover all members of a taxpayer's coverage family who reside in the same location (whether under one policy or multiple policies), that plan is used for purposes of determining the taxpayer's applicable benchmark plan.
(9) Examples. The following examples illustrate the rules of this paragraph (f). Unless otherwise stated, in each example the plans are open to enrollment to a taxpayer or family member at the time of enrollment and are offered through the Exchange for the rating area where the taxpayer resides:
(ii) Under paragraph (f)(4) of this section, because the members of N's coverage family reside in different locations, the monthly premium for N's applicable benchmark plan is the sum of $1,000, the monthly premiums for the applicable benchmark plan for N, O, and P, who reside together, and $220, the monthly applicable benchmark plan premium for Q, who resides in a different location than N, O, and P. Consequently, the premium for N's applicable benchmark plan is $1,220.
(ii) Under paragraph (f)(5) of this section, Issuer C's silver-level plan that covers R, S, and T under one policy ($1,200 monthly premium) and Issuer A's and Issuer B's silver-level plans that do not cover R, S and T under one policy are considered in determining R's and S's applicable benchmark plan. In addition, under paragraph (f)(5)(ii) of this section, in determining R's and S's applicable benchmark plan, the premium taken into account for Issuer A's plan is $1,450 (the aggregate premiums for self-only policies covering R ($400), S ($450), and T ($600) and the premium taken into account for Issuer B's plan is $1,000 (the aggregate premiums for self-only policies covering R ($250), S ($300), and T ($450). Consequently, R's and S's applicable benchmark plan is the Issuer C silver-level plan covering R's and S's coverage family and the premium for their applicable benchmark plan is $1,200.
(ii) Under paragraph (f)(5)(ii) of this section, because multiple policies are required to cover U and V, the members of U's coverage family who reside together in Location 1, the premium taken into account in determining U's benchmark plan is $1,000, the sum of the premiums for the second-lowest aggregate cost of self-only policies covering U ($400) and V ($600) offered by the Exchange to U and V for the rating area in which U and V reside. Under paragraph (f)(5)(i) of this section, because all silver-level plans offered by the Exchange in which W and X reside cover W and X under a single policy, the premium for W and X's coverage that is taken into account in determining U's benchmark plan is $500, the second-lowest cost silver policy covering W and X that is offered by the Exchange for the rating area in which W and X reside. Under paragraph (f)(4) of this section, because the members of U's coverage family reside in different locations, U's monthly benchmark plan premium is $1,500, the sum of the premiums for the applicable benchmark plans for each group of family members residing in different locations ($1,000 for U and V, who reside in Location 1, plus $500 for W and X, who reside in Location 2).
(ii) Under paragraphs (f)(1), (f)(2), (f)(3), and (f)(7) of this section, the silver-level plan that BB and CC use to determine their applicable benchmark plan for all coverage months during the year is Plan 2. The applicable benchmark plan that DD uses to determine DD's applicable benchmark plan is Plan 3, because Plan 2 is not open to enrollment through the Exchange when the DD family enrolls.
(g) Applicable percentage —(1) In general. The applicable percentage multiplied by a taxpayer's household income determines the taxpayer's annual required share of premiums for the benchmark plan. The required share is divided by 12 and this monthly amount is subtracted from the adjusted monthly premium for the applicable benchmark plan when computing the premium assistance amount. The applicable percentage is computed by first determining the percentage that the taxpayer's household income bears to the Federal poverty line for the taxpayer's family size. The resulting Federal poverty line percentage is then compared to the income categories described in the table in paragraph (g)(2) of this section. An applicable percentage within an income category increases on a sliding scale in a linear manner and is rounded to the nearest one-hundredth of one percent. For taxable years beginning after December 31, 2014, the applicable percentages in the table will be adjusted by the ratio of premium growth to income growth for the preceding calendar year and may be further adjusted to reflect changes to the data used to compute the ratio of premium growth to income growth for the 2014 calendar year or the data sources used to compute the ratio of premium growth to income growth. Premium growth and income growth will be determined in accordance with published guidance, see § 601.601(d)(2) of this chapter. In addition, the applicable percentages in the table may be adjusted for taxable years beginning after December 31, 2018, to reflect rates of premium growth relative to growth in the consumer price index.
(2) Applicable percentage table.
(3) Examples. The following examples illustrate the rules of this paragraph (g):
(ii) Determine the excess of B's Federal poverty line percentage (210) over the initial household income percentage in B's range (200), which is 10. Determine the difference between the initial household income percentage in the taxpayer's range (200) and the ending household income percentage in the taxpayer's range (250), which is 50. Divide the first amount by the second amount:
(iv) Multiply the amount in the first calculation (.20) by the amount in the second calculation (1.75) and add the product (.35) to the initial premium percentage in B's range (6.3), resulting in B's applicable percentage of 6.65:
(h) Plan covering more than one family —(1) In general. If a qualified health plan covers more than one family under a single policy, each applicable taxpayer covered by the plan may claim a premium tax credit, if otherwise allowable. Each taxpayer computes the credit using that taxpayer's applicable percentage, household income, and the benchmark plan that applies to the taxpayer under paragraph (f) of this section. In determining whether the amount computed under paragraph (d)(1)(i) of this section (the premiums for the qualified health plan in which the taxpayer enrolls) is less than the amount computed under paragraph (d)(1)(ii) of this section (the benchmark plan premium minus the product of household income and the applicable percentage), the premiums paid are allocated to each taxpayer in proportion to the premiums for each taxpayer's applicable benchmark plan.
(2) Example. The following example illustrates the rules of this paragraph (h):
(ii) Under paragraph (h)(1) of this section, both A and B may claim premium tax credits. A computes her credit using her household income, a family size of three, and a benchmark plan premium of $12,000. B computes his credit using his household income, a family size of one, and a benchmark plan premium of $6,000.
(iii) In determining whether the amount in paragraph (d)(1)(i) of this section (the premiums for the qualified health plan A and B purchase) is less than the amount in paragraph (d)(1)(ii) of this section (the benchmark plan premium minus the product of household income and the applicable percentage), the $15,000 premiums paid are allocated to A and B in proportion to the premiums for their applicable benchmark plans. Thus, the portion of the premium allocated to A is $10,000 ($15,000 × $12,000/$18,000) and the portion allocated to B is $5,000 ($15,000 × $6,000/$18,000).
(i) [Reserved]
(j) Additional benefits —(1) In general. If a qualified health plan offers benefits in addition to the essential health benefits a qualified health plan must provide under section 1302 of the Affordable Care Act (42 U.S.C. 18022), or a State requires a qualified health plan to cover benefits in addition to these essential health benefits, the portion of the premium for the plan properly allocable to the additional benefits is excluded from the monthly premiums under paragraph (d)(1)(i) or (ii) of this section. Premiums are allocated to additional benefits before determining the applicable benchmark plan under paragraph (f) of this section.
(2) Method of allocation. The portion of the premium properly allocable to additional benefits is determined under guidance issued by the Secretary of Health and Human Services. See section 36B(b)(3)(D).
(3) Examples. The following examples illustrate the rules of this paragraph (j):
(ii) Under this paragraph (j), B's enrollment premiums and the benchmark plan premium are reduced by the portion of the premium that is allocable to the additional benefits provided under that plan. Therefore, B's monthly enrollment premiums are reduced to $335 ($370 − $35) and B's benchmark plan premium is reduced to $400 ($440 − $40). B's premium assistance amount for a coverage month is $335, the lesser of $335 (B's enrollment premiums, reduced by the portion of the premium allocable to additional benefits) and $340 (B's benchmark plan premium, reduced by the portion of the premium allocable to additional benefits ($400), minus B's $60 contribution amount).
(k) Pediatric dental coverage —(1) In general. For purposes of determining the amount of the monthly premium a taxpayer pays for coverage under paragraph (d)(1)(i) of this section, if an individual enrolls in both a qualified health plan and a plan described in section 1311(d)(2)(B)(ii) of the Affordable Care Act (42 U.S.C. 13031(d)(2)(B)(ii)) (a stand-alone dental plan), the portion of the premium for the stand-alone dental plan that is properly allocable to pediatric dental benefits that are essential benefits required to be provided by a qualified health plan is treated as a premium payable for the individual's qualified health plan.
(2) Method of allocation. The portion of the premium for a stand-alone dental plan properly allocable to pediatric dental benefits is determined under guidance issued by the Secretary of Health and Human Services.
(3) Example. The following example illustrates the rules of this paragraph (k):
(ii) Under this paragraph (k), the amount C pays for premiums (Amount 1) for purposes of computing the premium assistance amount is increased by the portion of the premium for the stand-alone dental plan allocable to pediatric dental benefits that are essential health benefits. Thus, the amount of the premiums for the plan in which C enrolls is treated as $620 for purposes of computing the amount of the premium tax credit. C's premium assistance amount for each coverage month is $605 (Amount 2), the lesser of Amount 1 (increased by the premiums allocable to pediatric dental benefits) and Amount 2.
(l) Families including individuals not lawfully present —(1) In general. If one or more individuals for whom a taxpayer is allowed a deduction under section 151 are not lawfully present (within the meaning of § 1.36B-1(g)), the percentage a taxpayer's household income bears to the Federal poverty line for the taxpayer's family size for purposes of determining the applicable percentage under paragraph (g) of this section is determined by excluding individuals who are not lawfully present from family size and by determining household income in accordance with paragraph (l)(2) of this section.
(2) Revised household income computation —(i) Statutory method. For purposes of paragraph (l)(1) of this section, household income is equal to the product of the taxpayer's household income (determined without regard to this paragraph (l)(2)) and a fraction—
(A) The numerator of which is the Federal poverty line for the taxpayer's family size determined by excluding individuals who are not lawfully present; and
(B) The denominator of which is the Federal poverty line for the taxpayer's family size determined by including individuals who are not lawfully present.
(ii) Comparable method. The Commissioner may describe a comparable method in additional published guidance, see § 601.601(d)(2) of this chapter.
(m) Applicability date. Paragraph (g)(1) of this section applies to taxable years beginning after December 31, 2013.
(n) Applicability dates. (1) Except as provided in paragraphs (n)(2) through (4) of this section, this section applies to taxable years ending after December 31, 2013.
(2) Paragraphs (d)(1) (except for paragraph (d)(1)(i)) and (2) of this section apply to taxable years beginning after December 31, 2016. Paragraph (f) of this section applies to taxable years beginning after December 31, 2018. Paragraphs (d)(1) and (2) of § 1.36B-3, as contained in 26 CFR part 1 edition revised as of April 1, 2016, apply to taxable years ending after December 31, 2013, and beginning before January 1, 2017. Paragraph (f) of § 1.36B-3, as contained in 26 CFR part 1 edition revised as of April 1, 2016, applies to taxable years ending after December 31, 2013, and beginning before January 1, 2019.
(3) Paragraphs (c)(4) through (6) of this section apply to taxable years beginning on or after January 1, 2025. Paragraph (c)(4) of this section, as contained in 26 CFR part 1 edition revised as of April 1, 2024, applies to taxable years beginning after December 31, 2016, and beginning before January 1, 2025. Paragraph (c)(5) of this section, as contained in 26 CFR part 1 edition revised as of April 1, 2024, applies to taxable years ending after December 31, 2013, and beginning before January 1, 2025.
(4) Paragraph (d)(1)(i) of this section applies to taxable years beginning on or after January 1, 2025. Paragraph (d)(1)(i) of § 1.36B-3, as contained in 26 CFR part 1 edition revised as of April 1, 2016, applies to taxable years ending after December 31, 2013, and beginning before January 1, 2017. Paragraph (d)(1)(i) of § 1.36B-3, as contained in 26 CFR part 1 edition revised as of April 1, 2022, applies to taxable years beginning after December 31, 2016, and beginning before January 1, 2023. Paragraph (d)(1)(i) of § 1.36B-3, as contained in 26 CFR part 1 edition revised as of April 1, 2024, applies to taxable years beginning after December 31, 2022, and beginning before January 1, 2025.