On December 15, the President signed into law H.R. 4994, the “Medicare and Medicaid Extenders Act of 2010” (Extenders Act). Sec. 208 of the Extenders Act amends Code Sec. 36B , relating to a requirement that taxpayers coordinate their post-2013 premium assistance credit with any advance credits paid to the insurer under Sec. 1412 of the Patient Protection and Affordable Health Care Act (Health Care Act, P.L. 111-148 ). The Senate had passed the measure by unanimous consent on December 8 and the house passed the bill on December 9 by a vote of 409-2.

Background. Sec. 1412 of the Health Care Act provides for advance payments to the insurer of the Code Sec. 36B premium assistance credit allowed after 2013 to eligible low-income individuals. For tax years ending after Dec. 31, 2013, there are specific rules for coordinating a taxpayer's Code Sec. 36B premium assistance credit with the advance credits paid to the insurer. In general, if the advance payments made under Health Care Act Sec. 1412 to a taxpayer for a tax year exceed the credit allowed by Code Sec. 36B , the tax imposed by Chapter 1 of the Code for the tax year will be increased by the amount of that excess. In other words, if the premium assistance received through an advance payment exceeds the amount of credit to which the taxpayer is entitled, the excess advance payment is treated as an increase in tax.

Before the Extenders Act, under Code Sec, 36B(f)(2)(B) a limitation applied to the above-described tax increase where household income is less than 400% of the poverty line. For an “applicable taxpayer” (i.e., a taxpayer eligible to claim the credit) whose household income for the tax year is less than 400% of the applicable poverty line, the amount of the increase couldn't exceed $400. The increase couldn't be more than $250 for unmarried individuals who aren't surviving spouses or heads or household for the tax year.

New law . Under the Extenders Act, the tax increase for a taxpayer whose household income is less than 500% of the poverty line for the size of the family involved for the tax year cannot exceed a dollar amount tied to household income relative to the poverty line. The dollar amount is shown in the list below; the percentages are household income expressed as a percentage of the poverty line:

· $600, if less than 200%.

· $1,000 if at least 200% but less than 250%.

· $1,500 if at least 250% but less than 300%.

· $2,000 if at least 300% but less than 350%.

· $2,500 if at least 350% but less than 400%.

· $3,000 if at least 400% but less than 450%.

· $3,500 if at least 450% but less than 500%. ( Code Sec. 36B(f)(2)(B) , as amended by Extenders Act Sec. 208)

The dollar amounts in the list above are halved for unmarried individuals who aren't surviving spouses or heads or household for the tax year. The provision, which substantially increases the Code Sec. 36B(f) “payback” for lower-income taxpayers, is effective for tax years beginning after Dec. 31, 2013.