Treasury and the IRS have proposed a rule that would cut off Affordable Care Act premium tax credits for adults who lose Medicaid because they did not meet the new Medicaid work requirement. Under the proposal, those months would not count as months in which a person could get the credit. Written comments on the rule are due November 30, 2026.
The proposal appeared in the Federal Register on October 15 as document 2026-21056, titled Premium Tax Credit. It carries the IRS reference REG-101576-26. Treasury and the IRS announced it the day before, and it is a proposal only, not a final rule.
How the Medicaid work rule would shut off premium credits
The 2025 budget law added a community engagement requirement to Medicaid and said a person who would qualify for Medicaid but for failing that requirement is treated as eligible for minimum essential coverage. The proposed rule carries that into the tax code. The Federal Register text says the months a person was ineligible for Medicaid solely for failing the requirement “would not be coverage months.”
A month that is not a coverage month cannot qualify for the premium tax credit, the subsidy that lowers monthly marketplace premiums. In plain terms, an adult dropped from Medicaid over missed work reporting would also be locked out of marketplace premium help for those months, rather than being able to switch to a subsidized plan.
For anyone on Medicaid in a state that is starting the work requirement, the question is whether they are exempt and whether they can show it. The Federal Register notes that some people are excepted or excluded from the requirement. Under this proposal, a person who loses coverage only for missing the requirement faces the premium-credit lockout, so proving an exemption on time protects both the Medicaid coverage and the marketplace option.
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When the rules would start, and when the lockout would end
The proposed tax rules would apply to tax years beginning after December 31, 2026. The Medicaid side runs on a similar clock. According to the Federal Register, states must put the work requirement in place by January 1, 2027, unless the Department of Health and Human Services grants a good-faith exemption that cannot run past December 31, 2028.
That means the timing can differ by state, and people should check with their state Medicaid agency for the actual start date.
The lockout is not meant to last forever. The Federal Register text says the treatment stops once an Exchange determines the person is no longer ineligible for Medicaid solely because of the work requirement. At that point the usual premium tax credit rules apply again.
The proposal also includes a guardrail. An Exchange determination would be disregarded if it rested on incorrect information that the person provided with intentional or reckless disregard for the facts. In other words, honest mistakes are not the target, but knowingly wrong answers can undo a favorable determination.
What else is in the same proposal
The Medicaid provision is one piece of a larger set of premium credit changes. Treasury’s announcement says the proposed rules restrict the credit to U.S. citizens, U.S. nationals and certain lawfully present noncitizens, beginning in 2027. The release also cites more than 760,000 unverified enrollees removed from marketplace rolls and $2.2 billion in savings. Treasury Secretary Scott Bessent said in the release that “hardworking American taxpayers should not be forced to subsidize health care for people who are ineligible under federal law.”
The IRS news release, numbered IR-2026-121, adds that the rules apply eligibility checks and new verification criteria for advance premium credit payments. IRS CEO Frank Bisignano said the enhanced verification measures are designed to curb improper claims. The release also points to parallel proposed regulations from the Department of Health and Human Services on how Exchanges would handle these determinations, so separate marketplace rules are still to come.
The public inspection version of the rule puts the scale in context. It estimates about 15.6 million people enrolled in marketplace plans, with about 13.5 million potentially eligible for the credit. It also estimates that about 3.7 million tax returns in 2028 would include a repayment of excess advance credits.
How to comment, and the December hearing
Anyone can send comments. The Federal Register notice says comments must be received by November 30, 2026, and can be filed electronically through regulations.gov by citing IRS and REG-101576-26. Paper comments go to the IRS address listed in the notice, and once a comment is filed through the portal it cannot be edited or withdrawn.
A telephonic public hearing is scheduled for December 8, 2026, at 10 a.m. Eastern. Requests to attend are due by 5 p.m. Eastern on December 4, and requests to speak, with an outline, are due by November 30. Nothing in the proposal takes effect until it is finalized.
Facing the Medicaid work rule and worried about losing ACA help too?
Under this proposal, a missed work report could cost twice: Medicaid coverage first, then premium credits for the same months. The people most exposed are those who are exempt but cannot show it, or who miss a reporting date in a state that has already started the requirement.
The SNAP & Medicaid Renewal Organizer covers the new Medicaid work requirement and who is exempt, in Part 6 of its guide, along with the 90-day window after coverage is dropped. It also includes 51 state packs, so the dates and rules match the state that runs the program.
Get the Medicaid work-rule exemption guide and state renewal packs →
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This article was produced with AI assistance and edited for accuracy against the sources linked above.
