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Notice 2018-84: Personal exemption at “zero,” health plan implications

Personal exemption at “zero,” health plan implications

The IRS today released an advance version of Notice 2018-84 announcing that the Treasury Department and IRS intend to amend existing guidance that is based in part on the personal exemption because the new U.S. tax law reduced the personal exemption deduction to zero for a 10-year period.

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Notice 2018-84 [PDF 36 KB] explains that the rules in the existing regulations for determining the premium tax credit in a qualified health plan (sections 36B and 6011) and the individual shared responsibility provision under a health plan (section 5000A) currently rely on a determination as to whether the taxpayer claimed a personal exemption deduction. However, the new U.S. tax law (Pub. L. No. 115-97, enacted December 22, 2017) reduced the amount of the personal exemption deduction to zero for tax years beginning after December 31, 2017, and before January 1, 2026.

Interim guidance

As the IRS notice explains, because the new tax law reduced the personal exemption amount to zero, taxpayers will no longer claim a personal exemption deduction and this raises questions concerning what it means to claim a personal exemption deduction for purposes of the premium tax credit and the individual shared responsibility provision.

As interim guidance, today’s IRS notice explains that:

  • A taxpayer is considered to have claimed a personal exemption deduction for himself or herself for a tax year if the taxpayer files an income tax return for the year and does not qualify as a dependent of another taxpayer under section 152 (the Code provision providing the personal exemption deduction) for the year.
  • A taxpayer is considered to have claimed a personal exemption deduction for an individual other than the taxpayer if the taxpayer is allowed a personal exemption deduction for the individual (taking into account section 151(d)(5)(B)) and lists the individual’s name and TIN on the Form 1040, U.S. Individual Income Tax Return, or Form 1040NR, U.S. Nonresident Alien Income Tax Return, that the taxpayer files for the year.

The guidance provided in Notice 2018-84 applies to tax years beginning in 2018.

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