UPDATE: The judge will not issue an injunction to stop the IRS from issuing subsidies, meaning Obamacare can move forward as planned. However, the lawsuit will also move forward and depending on the outcome, could limit IRS power to issue Obamacare subsidies.

A federal judge has refused to dismiss a lawsuit challenging the legality of Obamacare subsidies distributed by the IRS to people enrolling in the new healthcare system. The Department of Justice has argued for months the lawsuit should be dismissed. More from the Wall Street Journal:

A federal judge on Tuesday refused to dismiss a lawsuit that seeks to block the Obama administration from offering subsidies to low- and middle-income individuals who buy health insurance though online exchanges run by the federal government.



U.S. District Judge Paul Friedman in Washington, in an oral ruling from the bench, rejected several Justice Department arguments on why the legal challenge should be tossed out of court.



The challengers, four individuals and three employers, argue that the insurance subsidies are barred by the actual language in President Barack Obama’s signature health-care law, the Affordable Care Act.



Under the act, individuals can qualify for subsidies, in the form of tax credits, if they buy health insurance through an exchange “established by the state.” A majority of states, however, chose not to set up their own marketplaces, leaving the federal government to run some or all of the exchanges in 36 states.



The challengers contend that the health law precludes subsidies for consumers who buy insurance through those federally run exchanges instead of state exchanges. They say the Internal Revenue Service contravened the text of the law when it promulgated a regulation last year making clear that the subsidies were available to individuals who bought insurance on either type of exchange.

The judge is expected to rule this afternoon on whether the subsidies must be delayed until the court comes to a solution and final ruling. If an injunction in the law is issued, delaying subsidies, the Obama administration would receive another big blow to the roll out of Obamacare.

Last week as part of the government shutdown and debt ceiling deal, lawmakers passed a requirement for Obamacare applicants to provide income verification before receiving subsidies in order to make sure those who do not qualify don't receive them. Subsidies were originally created for people who do not qualify for coverage through Medicaid, Medicare or their employer.