The IRS and Treasury have proposed regulations to align premium tax credit rules with the One Big Beautiful Bill Act, introducing stricter eligibility and verification requirements, new immigration-based restrictions and the elimination of repayment caps for excess advance payments from the 2026 tax year.
The US Internal Revenue Service (IRS) and the Department of the Treasury have issued proposed regulations that update the guidelines for the premium tax credit under the Internal Revenue Code, incorporating recent legislative changes from the One, Big, Beautiful Bill Act.
The proposed regulations under REG-101576-26 formally update and align Treasury Regulation section 1.36B with statutory amendments enacted under Public Law 119-21, commonly known as the One Big Beautiful Bill Act (OBBBA). These provisions establish stricter eligibility criteria, overhaul advance credit verification and prior-year reconciliation procedures, enforce new immigration-based exclusions, and eliminate repayment caps for excess advance payments.
Elimination of excess APTC repayment caps
For tax years beginning after 31 December 2025, OBBBA Section 71305 repeals IRC Section 36B(f)(2)(B), the cap that limited how much excess APTC taxpayers under 400% FPL had to repay. Anyone whose advance payments exceed their allowable PTC now adds the full excess to their income tax liability, whatever their income. The Treasury and the IRS project about 3.7 million returns in 2028 will include excess APTC repayments.
Enhanced exchange verification requirements
Starting with tax years after 31 December 2027, new IRC Section 36B(c)(5) makes Exchange verification a condition for a month to count as a coverage month.
For every enrollee, even one not requesting APTC, the Exchange must verify residence and citizenship, national, or lawful-presence status, or the month fails. Where APTC is paid, the Exchange must also verify household income, family size, no other minimum essential coverage, and eligible-alien status if relevant.
Separately, for plan years after 31 December 2025, plans bought through an SEP based only on an income change are not QHPs, and Exchanges must run pre-enrollment verification starting no later than 1 August of the prior year.
A waiver covers SEPs triggered by family-size changes such as birth, adoption, foster placement, marriage, divorce, legal separation, or death. Treasury says it spares roughly 50,000 families with newborns a year from about USD 22 million in delayed APTC.
Prior-year advance credit reconciliation compliance
Under IRC Section 36B(c)(6), effective for tax years after 31 December 2027, a month with APTC payments is not a coverage month if the Exchange fails to follow the reconciliation enforcement procedures in 45 CFR 155.305(f)(4)(iii). In practice, Exchanges must confirm that the tax filer (and spouse, if married) filed a federal return and reconciled APTC for the prior year before continuing advance payments.
Immigration-based restrictions & computation rules
Two changes hit lawfully present immigrants. First, for tax years after 31 December 2025, Section 71302(a) repeals IRC Section 36B(c)(1)(B), so lawfully present aliens below 100% FPL who are barred from Medicaid because of their status lose PTC eligibility.
Second, for tax years after 31 December 2026, Section 71301 limits the PTC to “eligible aliens.” Taxpayers must cut both their actual premiums and their benchmark plan premiums by the share tied to family members who are lawfully present but not eligible aliens.
Proposed Treas. Reg. § 1.36B-3(h)(2) supplies allocation formulas for cases where several tax families share one policy that includes non-eligible individuals. Exchanges must also strip those premiums from the figures on Form 1095-A, so filers don’t make errors on Form 8962.
Interaction with Medicaid community engagement requirements
Section 71119(a) of OBBBA requires state Medicaid programs to impose a community engagement requirement, generally 80 hours a month of work, education, or volunteering. Proposed Treas. Reg. § 1.36B-2(c)(2)(ii)(B) ties this to the PTC: someone denied Medicaid solely for missing the requirement is treated as eligible for Medicaid coverage, which disqualifies them from the PTC.
If they later lose Medicaid eligibility for a different reason, such as higher income, the deemed-coverage rule stops and the PTC becomes available for later months. The safe harbour does not protect an Exchange determination built on information the taxpayer gave with intentional or reckless disregard for the facts.
Regulatory applicability dates vs. statutory effective dates
Several proposed regulatory amendments carry applicability dates on or after 15 October 2026, tied to the NPRM’s publication under IRC Section 7805(b)(1)(B). Treasury states that the statutory effective dates override any conflicting existing regulations from their own start dates: 31 December 2025 for the repayment cap repeal, 31 December 2026 for the eligible alien rules, and 31 December 2027 for verification and prior-year reconciliation.
