Family-glitch fix in detail (post-2022 IRS regulations)

The original IRC § 36B(c)(2)(C)(i) affordability test, enacted as part of the Affordable Care Act in 2010 and implemented in 26 CFR § 1.36B-2(c)(3)(v), made an employee ineligible for Premium Tax Credit if the employee's required contribution for the lowest-cost self-only employer coverage option did not exceed a statutory percentage of household income — 9.5% as originally written, indexed annually thereafter under IRC § 36B(c)(2)(C)(iv). The text spoke only to "self-only coverage" because the drafters assumed family coverage premiums would scale roughly proportionally. They did not. For most employer plans, the self-only premium is heavily subsidized by the employer (often 80-90% of the total cost), while the family premium is much less subsidized (often 50-70%), producing a "family premium" that costs three to four times the self-only premium even though the underlying actuarial coverage value scales much less steeply.

The consequence was the "family glitch": an employee whose self-only coverage cost 6% of household income (affordable under the test) but whose family coverage cost 22% of household income (clearly unaffordable in any economic sense). Under the pre-2022 regulations, the entire family was deemed to have access to "affordable" employer coverage and was therefore ineligible for marketplace PTC. The employee took the self-only coverage; the spouse and children either bought unsubsidized marketplace coverage at full premium, went uninsured, or piled onto the unaffordable employer family plan. The Kaiser Family Foundation estimated the affected population at approximately 5.1 million people, of whom roughly 1 million were expected to gain PTC eligibility under a fix (KFF, "The ACA Family Glitch and Affordability of Employer Coverage," April 2022).

Treasury issued proposed regulations in April 2022 and final regulations in October 2022 (87 Fed. Reg. 61979, October 13, 2022; T.D. 9968) that split the affordability test into two parallel tracks. Under the revised 26 CFR § 1.36B-2(c)(3)(v), the test now operates as follows: for the employee, affordability is tested against the self-only premium contribution as before — if the self-only premium contribution is below the threshold (9.02% for 2025, indexed by Rev. Proc.; verify 2026 figure in Rev. Proc. 2025-25), the employee is ineligible for marketplace PTC. For the spouse and dependents, affordability is tested separately against the family-coverage premium contribution — if the family premium contribution exceeds the threshold, the family members may decline employer coverage and claim marketplace PTC, while the employee remains on employer self-only coverage. The two coverage decisions are decoupled. This was a major regulatory expansion and was promptly criticized by some legal scholars and Republican members of Congress as exceeding Treasury's statutory authority — the underlying statute, IRC § 36B(c)(2)(C)(i), refers only to "self-only coverage" and arguably does not authorize a separate family-coverage track. Treasury's defense relied on IRC § 36B(c)(2)(C)(iv) (the indexing provision, which Treasury read as granting interpretive authority over the affordability test as a whole) and on Chevron deference to administrative interpretation of ambiguous statutes. No court has yet invalidated the regulation as of mid-2026, but the question remains live.

The mechanics of computing family-coverage affordability are spelled out in the revised 26 CFR § 1.36B-2(c)(3)(v) and in IRS Form 8962 instructions (2023 revision and later). The "required contribution" for family coverage is the amount the employee would pay out of pocket for the lowest-cost family coverage option that includes all family members eligible to enroll. This is divided by household income to produce the family-coverage affordability percentage. If that percentage exceeds the applicable threshold (9.02% in 2025; for 2026, the threshold is published in Rev. Proc. 2025-25 — typically near 9% with annual movement), the family members other than the employee are eligible to claim marketplace PTC. The employee, separately, is tested against self-only affordability and may remain ineligible. A common pattern: the employee stays on employer self-only ($90/month employer cost to employee, well below threshold), the spouse and children enroll on marketplace coverage with full PTC (because the $1,400/month employer family premium contribution would consume 22% of household income, far above threshold).

For Form 8962 reporting, the family-coverage affordability test is documented on the Form 8962 Affordability Worksheet (introduced with the 2023 form revision) and the resulting PTC is computed for the family members enrolled in marketplace coverage, excluding the employee whose self-only employer coverage was affordable. The household-income measure used for the affordability test is the same MAGI used for the PTC computation itself under IRC § 36B(d)(2). For households where the spouse has their own W-2 income, the affordability test counts both incomes — the family's combined MAGI is the denominator, not just the employee's. This sometimes produces edge cases where adding a second-earner spouse pushes household MAGI up to a level where the family-coverage premium becomes "affordable" relative to higher income, eliminating the family-glitch eligibility. Modeling these scenarios pre-enrollment matters for two-earner households near the affordability threshold.

Mid-year transitions create their own subtleties. If an employer's family premium changes mid-year (e.g., a new plan year starts in October that increases the family premium substantially), the affordability test is re-run for the new plan year using the new premium. The spouse and dependents may become PTC-eligible on October 1 if the new family premium pushes affordability above threshold. Under 45 CFR § 155.420(d)(7), the loss of employer coverage affordability is a Qualifying Life Event triggering a Special Enrollment Period — the family members can enroll on the marketplace within 60 days. Coordination with the employer's open enrollment is essential: the family must affirmatively decline employer family coverage during open enrollment to be eligible for marketplace PTC for the next plan year, and the marketplace enrollment must be completed during the SEP or the standard November–December open enrollment window.

The family-glitch fix is one of the largest regulatory expansions of ACA eligibility since the original 2014 marketplace launch. The Kaiser Family Foundation estimated the affected population at approximately 5.1 million people in 2022, of whom roughly 1 million were expected to actually gain PTC eligibility (the difference accounts for households whose family coverage was affordable, who were already on Medicaid, or who would not enroll in marketplace coverage even with PTC). The fix produced two-policy household arrangements at scale: employee on employer self-only, spouse and children on marketplace with PTC. For ACA marketplace plan-year 2023 (the first year the fix applied), Healthcare.gov enrollment data showed a meaningful uptick in family-member enrollments that the family-glitch fix likely explains.

The legal authority for the regulation remains contested. The underlying statute IRC § 36B(c)(2)(C)(i) refers only to "self-only coverage" in its operative language. Treasury's 2022 regulation relied on a combination of the indexing provision (§ 36B(c)(2)(C)(iv), which authorizes annual updates to the affordability percentage) and pre-Loper Bright Chevron deference (Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984)). The Supreme Court's 2024 decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369, eliminated Chevron deference in favor of independent judicial interpretation of statutory text. This raises the possibility of future litigation challenging T.D. 9968. As of mid-2026, no challenge has reached final adjudication. Households relying on the family-glitch fix should monitor the regulation's status, though the practical risk of mid-year invalidation is low (any judicial invalidation would almost certainly be prospective).

The two-policy household arrangement creates Form 8962 complexity. The employee's self-only employer coverage is reported on Form 1095-B or 1095-C and is not part of the marketplace 1095-A. The family members' marketplace coverage is on a separate 1095-A. The PTC is computed only for the family members on marketplace coverage — not for the employee. Form 8962 Part I uses household MAGI but applies it only to the marketplace-enrolled family members for the contribution-amount calculation. Tax software handles this with varying reliability; verifying that the Form 8962 result excludes the employee from the marketplace-coverage line is essential, especially for tax year 2023 (the first year the fix applied) where some software vendors had not yet updated their engines.

For ICHRA (Individual Coverage Health Reimbursement Arrangement) arrangements under 26 CFR § 54.9802-4, the affordability test interacts differently. An employer offering an ICHRA may set a contribution amount that the employee uses to purchase marketplace coverage. If the ICHRA contribution makes the marketplace coverage "affordable" (lowest-cost self-only Silver plan minus ICHRA contribution does not exceed the threshold percentage of household income), the employee is ineligible for marketplace PTC. The family-glitch fix does not apply to ICHRA arrangements because the ICHRA is by design a per-individual subsidy, not a family-coverage offer. ICHRA-offered employees and their families should compare the ICHRA-plus-marketplace path against an unsubsidized-marketplace path with full PTC carefully — the ICHRA can be the worse outcome for cliff-proximate households.