IRS proposes premium tax credit rules: full repayment of excess advance payments

Treasury and the IRS proposed regulations on October 14, 2026 (IR-2026-121) that set out how the premium tax credit changes in the 2025 budget law work. The most immediate one is already in the statute: for taxable years beginning after December 31, 2025, anyone whose advance payments of the credit exceed the credit they are allowed repays the full excess with their return. Other changes start with 2027 and 2028. The rules were published in the Federal Register on October 15, 2026 as REG-101576-26, and they are not final.

What would change, and when?

The proposal amends the section 36B regulations to reflect sections 71301 through 71305 of the budget law (Public Law 119-21) and a Medicaid provision. The statute already sets the start dates. The proposal adds that the law supersedes any conflicting existing regulation from the statutory date.

What does full repayment mean on a return?

Marketplace plans can pay part of your premium up front, as advance payments, based on the income you estimated. When you file, you compare those payments with the credit you are allowed for your actual income. If the advance payments were larger, the difference is "excess" and it increases your tax. Before 2026, a limit capped how much of it some taxpayers had to repay. The proposal confirms that limit is gone for taxable years beginning after December 31, 2025.

You can see how a higher or lower income changes the tax bill on your return with the income tax calculator and the tax refund calculator. They do not compute the premium tax credit, so add any repayment on top.

Who would lose eligibility?

Two groups are affected by the immigration rules. A lawfully present alien with household income below 100% of the federal poverty level, who cannot get Medicaid because of immigration status, no longer counts as eligible for the credit for taxable years beginning after December 31, 2025. From 2027, the premiums for any family member who is not a citizen, a US national or an "eligible alien" are removed when the credit is computed, and the family's poverty-level percentage is adjusted to match. The IRS release describes the same limit as restricting the credit to citizens, nationals and certain lawfully present noncitizens.

People who lose Medicaid only because they did not show community engagement (at least 80 hours a month of work, service, a work program or school) are treated as eligible for Medicaid coverage, so those months do not qualify for the credit. States must begin the requirement by January 1, 2027 unless HHS grants a delay, which cannot run past December 31, 2028.

What is the Exchange verification rule?

Starting 2028, a month is a coverage month for the credit only if the Exchange verified the person's eligibility to enroll. When advance payments are made, it must also have verified household income, family size, other health coverage and, for lawfully present aliens, "eligible alien" status. Exchanges must offer a pre-enrollment verification process no later than August 1 of the year before the plan year. The IRS says the changes to Exchange operations will be proposed separately by HHS.

What happens next?

Comments are due November 30, 2026. A telephonic public hearing is scheduled for December 8, 2026, and it is cancelled if nobody sends a speaker outline by the comment deadline. Requests to attend are due by December 4, 2026. TaxWren does not compute the premium tax credit, so no calculator changes. We will update this page if the rules become final.