Treasury and IRS Propose Stricter Eligibility Checks for Health Insurance Tax Credits

The U.S. Treasury Department and the Internal Revenue Service proposed tighter rules Wednesday for determining who can receive federal tax credits that help pay for health insurance purchased through Affordable Care Act marketplaces. The regulations address eligibility based on immigration status, the information health insurance marketplaces must verify and the treatment of subsidies paid in advance.

The October 14 proposal would implement provisions of a tax law enacted in July 2025. Some of those statutory changes already apply in 2026, while narrower subsidy eligibility for certain lawfully present immigrants begins in 2027 and broader verification requirements are set for 2028. The new regulations are not yet final, and the different effective dates are important for people reviewing their coverage and tax obligations.

Premium tax credits help qualifying households pay premiums for plans bought through a health insurance Exchange, commonly called the Marketplace. Enrollees may receive estimated assistance throughout the year as advance payments made to their insurance company, rather than waiting to claim the full credit when filing a tax return. In its October 14 announcement, Treasury framed the proposal as an effort to prevent ineligible claims. The regulation itself sets out the legal and administrative changes intended to put the existing law into practice.

Eligibility rules narrow for some lawfully present immigrants

Starting with the 2027 tax year, the law generally limits premium tax credit eligibility to U.S. citizens, U.S. nationals and lawfully present noncitizens who meet a narrower federal definition of an eligible immigrant. A person’s ability to buy a Marketplace policy is not necessarily the same as that person’s eligibility to receive federal financial assistance toward its cost. That distinction can leave some lawful residents able to enroll in coverage but ineligible for the credit that would otherwise reduce their premiums.

Federal Marketplace guidance identifies lawful permanent residents, Cuban or Haitian entrants, and migrants covered by the Compacts of Free Association as among the noncitizen groups potentially eligible for savings beginning January 1, 2027. Other lawfully present categories can still qualify to buy Marketplace insurance without qualifying for the same savings. Those applying for assistance must also satisfy the usual financial and other eligibility conditions, so qualifying immigration status alone does not guarantee a credit.

For households whose members have different immigration classifications, the proposed regulation also addresses how subsidies are calculated. Beginning in 2027, premiums attributable to family members who are not eligible under the new definition would be excluded from specified premium tax credit calculations. The proposal includes allocation rules for cases in which more than one tax family shares an insurance policy, making the treatment of individual household members material to the final tax calculation.

A separate restriction has an earlier start. For tax years beginning after December 31, 2025, the 2025 law ended a special provision that previously allowed certain lawfully present immigrants with household income below 100% of the federal poverty level to receive premium tax credits when their immigration status made them ineligible for Medicaid. The proposed regulation removes the outdated provision from Treasury’s existing rules. It does not mean every person with income below that threshold faces the same eligibility circumstances, but it closes that particular statutory exception. The statute separately excludes certain plans joined during special enrollment periods based only on expected income, without another qualifying event, from the definition used to calculate premium tax credits.

Verification would become a condition of the credit in 2028

The later phase would more directly connect the amount of tax assistance to checks performed by health insurance Exchanges. For tax years beginning after 2027, an Exchange would have to verify an applicant’s residence and U.S. citizenship, nationality or lawful-presence status for a month to count toward premium tax credit eligibility. Where advance credits are paid, additional checks would cover expected household income, family size, eligibility for other minimum essential health coverage and qualifying immigration status when relevant.

These requirements go beyond simply collecting an application. Under the proposed regulation filed for public inspection, a month of enrollment could fail to count as an eligible coverage month if the Exchange cannot verify the required facts. The verification standard would also matter when someone seeks the tax credit on a return without having received advance payments during the year. For households dependent on the subsidy, the outcome of the checks could determine whether the federal credit is available for the coverage in question.

The proposal contemplates some flexibility for changes in family circumstances. Treasury could waive certain verification requirements for specified special enrollment periods involving gaining or losing a dependent, divorce-related changes in dependent status or a death in the household. That would not amount to a blanket waiver of eligibility rules, and the agencies have yet to finalize the operating procedures Exchanges would follow.

There is also a connection to tax filing compliance. The 2028 framework addresses instances in which an Exchange fails to apply prior-year requirements for reconciling advance credits with the tax credit actually claimed. Treasury’s tax regulations establish when a month qualifies for the credit, while the Department of Health and Human Services is expected to propose parallel rules on how federal and state marketplaces perform the underlying verification. The practical documentation process therefore remains partly dependent on additional rulemaking.

Changes already in effect increase repayment exposure

Some of the financial consequences are closer at hand. For tax years beginning in 2026, the 2025 law removed the previous income-based caps that limited how much certain taxpayers had to repay when their advance premium tax credit payments exceeded the credit they ultimately qualified for. The proposed regulation would update existing Treasury rules to reflect that change. The IRS has separately confirmed that, for years after 2025, the full excess amount must be added to the taxpayer’s liability.

The reconciliation occurs when an individual files a federal income tax return, generally using Form 8962 and information supplied by the Marketplace on Form 1095-A. If actual household income or family circumstances differ from the estimates used during enrollment, the final credit may be smaller than the amount already sent to the insurer. An enrollee in that position may owe more at filing time or receive a smaller refund, even though the advance payments originally reduced the monthly insurance bill.

That makes accurate information during the coverage year more consequential. Changes to income, marriage, dependents or access to other insurance can affect the eventual credit, and reporting them to the Marketplace helps align future advance payments with the household’s updated circumstances. The proposal also calls for revised Form 1095-A reporting of premiums allocated to certain ineligible family members, so the information used for the annual tax calculation reflects the narrower eligibility rules.

Another provision addresses people denied Medicaid because they did not meet applicable community-engagement requirements. Under the statutory approach described in the proposal, such a person may still be treated as eligible for Medicaid for premium tax credit purposes if failure to satisfy those requirements is the sole reason Medicaid was unavailable. As a result, the person would not automatically qualify for a Marketplace subsidy simply because Medicaid coverage was denied. A subsequent change that makes the person ineligible for Medicaid for a different reason could alter that result.

Comment period will test how the rules operate

The proposed regulation is scheduled for Federal Register publication on October 15, followed by a public-comment period of 45 days from publication. Treasury has scheduled a telephone hearing for December 8, 2026, although the hearing may be canceled if no qualifying requests to speak are submitted. Public input can address both the legal text and the administrative effects before the agencies adopt any final regulations.

In its economic analysis, Treasury and the IRS estimate that the proposal could affect roughly 15.6 million people enrolled in Exchange coverage, including about 13.5 million potentially eligible for premium tax credits. Those are the agencies’ estimates of the population affected by the regulatory framework, not a forecast that all those enrollees would lose assistance. The document also identifies 22 state-based Exchanges whose eligibility, verification and reporting systems could be affected, with further assessment of the operational costs expected in HHS rulemaking.

Treasury says stronger checks are needed to protect federal subsidies against improper claims, but the proposal does not establish how many eligible households might encounter delays or additional documentation requirements under the finished system. That will depend in part on how Exchanges implement verification and how any exceptions are handled. The next scheduled milestones are publication of the proposal, receipt of comments and the December hearing, with the tax-credit eligibility and verification provisions taking effect on their respective statutory timetables.