Treasury and the IRS on October 14 proposed regulations that would limit the Obamacare premium tax credit to U.S. citizens, U.S. nationals and certain lawfully present noncitizens beginning in 2027. The credit is the refundable tax credit that lowers monthly premiums for people who buy marketplace coverage, so a change in who qualifies, or in how that is checked, reaches households that pay for their own plans before Medicare starts. The proposal is not final. The Federal Register notice was scheduled to publish October 15, comments stay open for 45 days after that, and a telephone hearing is set for December 8. Treasury says Health and Human Services is expected to issue parallel rules on exchange procedures.
What Treasury and the IRS propose for the premium tax credit
The proposed regulations carry out changes to the credit made by the 2025 tax and spending law, Public Law 119-21, which Treasury calls the Working Families Tax Cuts. They amend the section 36B rules that govern who may claim the credit, how it is computed and what a household owes when advance payments turn out to be too high. Treasury describes three pieces: a narrower list of people who are eligible, eligibility checks applied to the credit, and new verification criteria for the advance payments that insurers receive to cut monthly premiums.
Treasury Secretary Scott Bessent said in the department’s announcement that “hardworking American taxpayers should not be forced to subsidize health care for people who are ineligible under federal law.” IRS Chief Executive Officer Frank J. Bisignano said the enhanced verification measures “are designed to curb improper claims,” according to the IRS’s release IR-2026-121. CMS Administrator Dr. Mehmet Oz called the rules part of a whole-of-government effort and said Treasury is “shutting down waste and fraud before a single dollar leaves the building.”
A citizen or national who buys a marketplace plan stays in an eligible category under the proposal, so the changes that reach that household are about verification and repayment. The announcement says “certain” lawfully present noncitizens keep eligibility but does not list which categories, and the proposed regulation points to a definition of “eligible alien” in section 36B of the tax code.
The proposed rule’s telephone hearing is set for December 8, and written comments are due 45 days after the October 15 Federal Register notice.
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Verification and repayment changes in the proposal
The proposed rule filed for the Federal Register spreads its changes over several tax years. The eligible-alien and related reporting provisions apply to taxable years beginning after December 31, 2026. Coverage-month verification and a pre-enrollment verification process apply to taxable years beginning after December 31, 2027. Under the pre-enrollment rule, an exchange that does not let applicants verify household income and eligibility with it, beginning not later than August 1, would fail to qualify as a source of qualified health plans.
The repayment side may matter more to households that are already eligible. Advance payments are set from a projected income, and when real income ends up higher, the difference comes due at tax time. The proposal removes the limit on that repayment, so the full excess amount increases a household’s tax liability. The IRS estimate in the proposal is that approximately 3.7 million returns will include a repayment of excess advance payments. The proposal also says an exchange may lower an advance payment right away when an enrollee reports higher income, before the new figure is verified.
The rule also changes what insurers and exchanges report. Premiums shown on Form 1095-A for households receiving advance payments must leave out amounts tied to lawfully present noncitizens who are not eligible aliens. A person denied Medicaid solely for failing the new community engagement requirement is treated as eligible for minimum essential coverage, and months with that status do not count as coverage months for the credit.
The enrollment fraud figures behind the proposal
Treasury’s announcement ties the rules to figures from CMS: the removal of more than 760,000 unverified “phantom” enrollees from the rolls, $2.2 billion in savings and about 1 million Americans who each received $500 after being overcharged. A CMS fact sheet on federal marketplace anti-fraud actions gives the underlying numbers more narrowly. It says about 315,000 enrollments covering over 760,000 individuals were canceled, and that CMS expects to recover about $2.2 billion in advance premium tax credit payments, a recovery figure rather than a savings total.
Most of that fraud work targets agents and brokers. The fact sheet reports more than 200 noncompliant agents and brokers have received termination notices since January 2026, a temporary moratorium on registering brokers for 2027 who lack an active 2026 Exchange Agreement, and new identity checks through Login.gov or ID.me. Those actions concern enrollments made without consumers’ knowledge. Neither Treasury’s announcement nor the CMS fact sheet gives a count of people who would lose the credit under the citizenship and lawful-presence limit.
Comment deadline, December 8 hearing and the HHS rules still to come
Comments on REG-101576-26 can be filed through the Federal eRulemaking Portal at regulations.gov, or by mail to the IRS, and are due 45 days after the Federal Register notice publishes. Electronic comments cannot be edited or withdrawn once submitted, and the IRS makes them public. The telephone hearing is scheduled for December 8, 2026 at 10 a.m. Eastern, and requests to attend are due by 5 p.m. Eastern on December 4. Marketplace enrollees can see their current plan and application through HealthCare.gov, which says Open Enrollment starts November 1.
Treasury says HHS is expected to address changes to exchange procedures and operations in parallel proposed regulations, and those rules would set how the verification steps work at the point of enrollment. The Treasury and IRS proposal covers the tax side only: who may claim the credit, how it is computed and what is repaid. Which rules reach a 2027 plan year depends on both sets of regulations becoming final.
The IRS’s own estimate of 3.7 million returns with a repayment of excess advance payments is the one hard number the proposal attaches to its changes, and it describes households that are already eligible. Treasury dates the citizenship and lawful-presence limit from 2027, and the proposal is open for comment, so the credit in effect for 2026 does not change because of it.
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This article was prepared with AI assistance from cited public sources and reviewed before publication.
