Treasury and the IRS Propose Limiting Obamacare Premium Tax Credits to Citizens and Certain Lawfully Present Immigrants Starting in 2027

Families who buy health insurance through the Affordable Care Act marketplaces could see stricter rules on who qualifies for federal help with premiums starting in 2027. The Treasury Department and the IRS have proposed regulations that would limit the premium tax credit to U.S. citizens, U.S. nationals and certain lawfully present noncitizens, and add new verification checks before advance payments flow to insurers.

The plan is a proposal, not a final rule. It was announced by the IRS on Oct. 14, 2026 in release IR-2026-121, and the public can comment on it through Nov. 30.

What the Proposed Rules Would Change

The premium tax credit is a refundable credit that lowers the monthly cost of a marketplace plan. Many enrollees take it in advance, with the government paying part of the premium directly to the insurer each month, then square up on their tax return.

According to the proposed rule published in the Federal Register on Oct. 15 (document 2026-21056, REG-101576-26), the regulations would carry out several changes made by the One, Big, Beautiful Bill Act, Public Law 119-21, signed July 4, 2025. The main proposals include:

• Immigration status: For tax years beginning after Dec. 31, 2026, premiums for family members who are not lawfully present, or who are lawfully present but do not meet the law’s definition of an “eligible alien,” would be left out when the credit is calculated.
• Verification: For tax years beginning after Dec. 31, 2027, a month generally would not count as a coverage month for the credit unless the exchange verified the person’s eligibility to enroll, and, for months with advance payments, related eligibility details.
• Medicaid community engagement: People denied Medicaid solely for failing the program’s new community engagement requirement would be treated as eligible for other coverage, so those months would not qualify for the credit.
• Plans without checks: An exchange plan that lacks a pre-enrollment income and eligibility verification process would not count as a “qualified health plan” for credit purposes.

Who Would Feel It

The Federal Register document estimates that about 15.6 million people are enrolled in exchange coverage, including about 13.5 million potentially eligible for the credit. The citizenship and immigration limits would affect mixed-status households most directly: a household could still enroll, but premiums attributable to a member who does not qualify would no longer be counted toward the credit.

One group lost eligibility earlier under the statute itself. The Federal Register document notes that, for tax years beginning after Dec. 31, 2025, the law removed a rule that had allowed lawfully present immigrants with income below 100% of the federal poverty level, who are barred from Medicaid because of their immigration status, to claim the credit.

The proposal also builds in an exception aimed at new parents. Verification would be waived for enrollments during special enrollment periods triggered by gaining or losing a dependent, or by a death. The agencies estimate that about 50,000 families with newborns would benefit from that waiver.

Separately, the document notes that the 2025 law already ended the long-standing caps on repaying excess advance credits, starting with tax years beginning after Dec. 31, 2025. Households whose income ends up higher than estimated now owe back the full excess when they file. The agencies estimate about 3.7 million returns would show an excess advance payment repayment in 2028.

Rising premiums were already squeezing household budgets before this proposal, as laid out in the nearly $7,500 family premium forecast.

The Fraud Crackdown Behind the Proposal

Treasury and the IRS tied the proposal to an enforcement push at the Centers for Medicare & Medicaid Services. In a Sept. 22, 2026 press release, CMS said it canceled about 315,000 unauthorized enrollments covering more than 760,000 people and expects about $2.2 billion in taxpayer-funded subsidies to be returned.

A companion CMS fact sheet says those cancellations took place Aug. 31. It also reports that, since January 2026, CMS has sent termination notices to more than 200 noncompliant agents and brokers, and that enrollments from newly registered brokers were 2.6 times more likely to have unresolved citizenship or immigration status verification issues than those from earlier registrants.

Treasury Secretary Scott Bessent said in the IRS release that 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.” The release says the Department of Health and Human Services is expected to issue its own parallel proposed rules on exchange procedures.

Comment Deadline and Hearing Dates

The proposal can still change before it becomes final. The Federal Register notice sets these dates:

• Nov. 30, 2026: Deadline for written comments, submitted through regulations.gov under docket IRS-2026-1420 or by mail. Outlines of topics for anyone who wants to speak at the hearing are due the same day.
• Dec. 4, 2026: Deadline to request to attend the hearing by phone.
• Dec. 8, 2026: Telephonic public hearing at 10 a.m. Eastern. The notice says the hearing will be canceled if no outlines are received by Nov. 30.

The filing was placed on public inspection on the morning of Oct. 14, a day before its official publication, and runs 60 pages.

Some changes, such as the end of the repayment caps, come directly from the 2025 law and apply on the schedule Congress set. The regulatory details described above, including how verification and the immigration-status limits would work in practice, would take effect only if Treasury and the IRS finalize them, and the final version could differ from the proposal after the comment period closes.

Get stories like this by email. Sign up for The Parent Diaries Letter.

This article was produced with AI assistance and edited for accuracy against the sources linked above.

Image: MeanieHyaena – CC BY 4.0/Wikimedia Commons