The premium tax credit (PTC) is a refundable tax credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace.
The PTC can lower your monthly health insurance costs or increase your tax refund when you file your tax return.
In this article, we will explain what the PTC is, how to qualify for it, how to claim it, and what benefits it offers.
What Is the Premium Tax Credit?
The PTC is a tax credit that was created by the Affordable Care Act (ACA) in 2009 to make health insurance more affordable for low-to-moderate income households.
The PTC is based on your household income, family size, and the cost of health insurance in your area.
The PTC can be used in two ways:
- You can choose to receive some or all of the PTC in advance as a reduction of your monthly health insurance premiums. This is called the advance premium tax credit (APTC).
- You can choose to receive the PTC as a lump sum when you file your tax return. This is called the premium tax credit (PTC).
The amount of PTC you are eligible for depends on how your actual income for the year compares to your estimated income when you applied for health insurance through the Marketplace.
If your actual income is lower than your estimated income, you may qualify for a larger PTC than you received in advance and get a refund when you file your tax return.
If your actual income is higher than your estimated income, you may qualify for a smaller PTC than you received in advance and have to repay some or all of the excess when you file your tax return.
How to Qualify for and Claim the Premium Tax Credit?
To qualify for and claim the PTC, you must meet certain requirements related to your income, family size, health insurance coverage, and tax filing status. Here are some of the main requirements:
1. Income Requirements
To be eligible for the PTC, your household income must be between 100% and 400% of the federal poverty level (FPL) for your family size. The FPL varies by state and year, but for 2021, it ranges from $12,880 to $51,520 for a single person and from $26,500 to $106,000 for a family of four in most states. For 2022, these amounts are slightly higher.
However, there are some exceptions to these income limits:
- For tax years 2021 and 2022, the American Rescue Plan Act of 2021 (ARPA) temporarily eliminated the upper-income limit of 400% FPL for the PTC. This means that anyone who purchases health insurance through the Marketplace can qualify for some amount of PTC regardless of their income.
- If you or your spouse received or were approved to receive unemployment compensation for any week in 2021, your household income is considered to be no more than 133% FPL for your family size and you are considered to have met the income requirements for the PTC.
2. Family Size and Household Income
Your family size and household income are determined by how you file your tax return. Generally, your family size includes yourself, your spouse if you are married and filing jointly, and anyone else you claim as a dependent on your tax return. Your household income includes your modified adjusted gross income (MAGI) plus any tax-exempt income such as Social Security benefits or interest from municipal bonds.
Your MAGI is your adjusted gross income (AGI) plus certain deductions that are added back, such as foreign earned income exclusion, student loan interest deduction, IRA deduction, etc. You can find your AGI on line 11 of Form 1040 or line 8b of Form 1040-SR.
3. Health Insurance Coverage
To qualify for the PTC, you must have purchased a qualified health plan (QHP) through the Health Insurance Marketplace during the year. A QHP is a health plan that meets certain standards of coverage and affordability set by the ACA. You can check if your plan is a QHP by looking at your enrollment confirmation or contacting your insurer or the Marketplace.
You cannot claim the PTC if you are enrolled in any of the following types of health insurance:
- Employer-sponsored coverage that is considered affordable and provides minimum value
- Government-sponsored coverage such as Medicare, Medicaid, CHIP, TRICARE, etc.
- Other coverage that is recognized by the Department of Health and Human Services (HHS) as minimum essential coverage
You also cannot claim the PTC if you are claimed as a dependent by another taxpayer or if you are married but file a separate tax return (unless you meet certain criteria for victims of domestic abuse or spousal abandonment).
4. Filling Out Form 8962
To claim the PTC on your tax return, you must fill out Form 8962, Premium Tax Credit (PTC), and attach it to Form 1040 or Form 1040-SR.
On Form 8962, you will need to provide information such as:
- Your annual household income and family size
- The amount of APTC you received during the year
- The second lowest cost silver plan (SLCSP) premium for your coverage family
- The monthly premiums you paid for your QHP
- The amount of PTC you are eligible for based on your actual income
- The difference between the APTC and PTC amounts
Form 8962 will help you calculate whether you are entitled to a refundable credit or whether you have to repay some or all of the excess APTC.
5. Providing Proof of Income and Insurance Coverage
When you apply for health insurance through the Marketplace, you will need to provide proof of your estimated income and insurance coverage for yourself and anyone else in your household who needs coverage.
You can use documents such as pay stubs, W-2 forms, tax returns, Social Security statements, etc.
The Marketplace will verify your information with data sources such as IRS records or employer reports.
If there is any inconsistency between your information and these data sources, you may receive a notice from the Marketplace asking you to provide additional documentation or explanation within a certain time frame.
If you do not respond to this notice or fail to provide sufficient proof of your eligibility for APTC or QHP enrollment, you may lose some or all of your APTC or QHP coverage.
6. Reporting Changes in Circumstances
If there are any changes in your circumstances during the year that may affect your eligibility for APTC or QHP enrollment, such as changes in income, family size, marital status, residence, etc., you must report them to the Marketplace as soon as possible.
Reporting changes in circumstances will help you avoid getting too much or too little APTC during the year and having to repay or miss out on some PTC when you file your tax return.
Benefits of the Premium Tax Credit
The PTC offers several benefits for eligible individuals and families who need help paying for their health insurance premiums. Some of these benefits are:
1. Affordable Health Insurance
The PTC reduces the amount of money that eligible households have to pay out-of-pocket for their health insurance premiums. This makes health insurance more affordable and accessible for low-to-moderate income households who may otherwise not be able to afford it.
2. Encouraging Enrollment in Health Insurance
The PTC encourages more people to enroll in health insurance through the Marketplace by providing financial assistance and reducing their risk of being uninsured. This helps improve their access to preventive care and medical services and reduces their exposure to high medical bills in case of illness or injury.
3. Financial Assistance for Low-to-Moderate Income Families
The PTC provides financial assistance for low-to-moderate income families who may not qualify for other forms of government-sponsored health care programs such as Medicaid or CHIP. The PTC helps them bridge the gap between their income level and their healthcare needs.
4. Tax Savings
The PTC can increase eligible households’ tax refunds or reduce their tax liabilities when they file their tax returns. This can help them save money on their taxes and use it for other purposes.
Frequently Asked Questions
Who Qualifies for the Premium Tax Credit?
To qualify for the PTC, you must meet certain requirements related to your income level, family size, health insurance coverage, and tax filing status. You must also purchase a qualified health plan through the Health Insurance Marketplace during the year.
What Is the Premium Tax Credit Income Limit?
The premium tax credit income limit is the maximum amount of household income that you can have and still qualify for the PTC. The income limit varies by state, year, and family size, but generally ranges from 100% to 400% of the federal poverty level (FPL). However, for tax years 2021 and 2022, the American Rescue Plan Act of 2021 (ARPA) temporarily eliminated the upper-income limit of 400% FPL for the PTC. This means that anyone who purchases health insurance through the Marketplace can qualify for some amount of PTC regardless of their income.
What is an advance premium tax credit?
An advance premium tax credit (APTC) is a payment that the IRS makes directly to your health insurance provider on your behalf to reduce your monthly health insurance premiums. The APTC is based on your estimated income and family size that you provide to the Marketplace when you apply for health insurance. The APTC is a way of receiving some or all of your PTC in advance, instead of waiting until you file your tax return. However, you must reconcile the APTC with the PTC when you file your tax return, using Form 8962, to ensure that you received the correct amount of credit.
When Do You Receive the Premium Tax Credit?
You can choose to receive the PTC in advance or at the end of the year when you file your tax return.
How Is the Premium Tax Credit Calculated?
The PTC is calculated by subtracting a percentage of your household income from the cost of the second lowest-cost silver plan (SLCSP) that covers your family size in your area. The SLCSP is a benchmark plan that is used to determine the amount of PTC you are eligible for. The percentage of your household income that you have to pay for the SLCSP is based on a sliding scale that ranges from 0% to 8.5% depending on your income level.
Will being offered employer-sponsored coverage make me ineligible for tax subsidies?
Being offered employer-sponsored coverage may make you ineligible for tax subsidies if the employer-sponsored coverage is too expensive or does not meet the minimum value standard.
Can I receive a tax subsidy if I’m eligible for Medicaid because of ACA’s Medicaid expansion?
No, you cannot receive a tax subsidy if you are eligible for Medicaid because of ACA’s Medicaid expansion. Medicaid is a government-sponsored health care program that provides free or low-cost coverage to low-income individuals and families. If you qualify for Medicaid based on your income level and state of residence, you are considered to have an offer of minimum essential coverage and are not eligible for the PTC.
How is my eligibility impacted if my state didn’t expand Medicaid?
If your state didn’t expand Medicaid, your eligibility for the PTC may be impacted depending on your income level and family size. As mentioned above, some states have not expanded their Medicaid programs to cover all adults with incomes up to 138% of the FPL as allowed by the ACA. In these states, there may be a gap between the income limit for Medicaid and the income limit for the PTC.
If your income is below 100% of the FPL and you live in a state that didn’t expand Medicaid, you will not be eligible for either Medicaid or the PTC. You are considered to be in the “coverage gap” and may not have access to affordable health insurance.
How did the elimination of federal funding for cost-sharing reductions affect premium tax credits?
The elimination of federal funding for cost-sharing reductions (CSRs) did not affect premium tax credits directly, but it may have affected the amount of PTC you are eligible for indirectly. CSRs are discounts that lower the amount you pay for deductibles, copayments, and coinsurance when you receive health care services. CSRs are only available to people who enroll in a silver plan through the Marketplace and have a household income between 100% and 250% of the FPL.
In 2017, the Trump Administration stopped making payments to insurers to reimburse them for providing CSRs to eligible enrollees. In response, many insurers increased their premiums for silver plans to make up for the loss of federal funding. This resulted in higher SLCSP premiums in many areas, which in turn increased the amount of PTC available to eligible enrollees since the PTC is based on the cost of the SLCSP.
However, some states adopted different strategies to mitigate the impact of the CSR payment termination, such as allowing insurers to apply a surcharge only to on-Marketplace silver plans or spreading the surcharge across all metal levels or all plans. These strategies may have resulted in lower SLCSP premiums in some areas, which in turn may have reduced the amount of PTC available to eligible enrollees.
The Biden administration has proposed restoring federal funding for CSRs as part of its Build Back Better agenda. If this proposal is enacted, it may lower premiums for silver plans and affect the amount of PTC available to eligible enrollees in future years.
What kind of marketplace health plan can someone buy with credit?
Someone who is eligible for the PTC can buy any type of health plan that is offered through the Marketplace, such as bronze, silver, gold, or platinum plans. However, the amount of PTC that someone can use to lower their monthly premiums is based on the cost of the SLCSP in their area, which is usually a silver plan. This means that if someone chooses a plan that is more expensive than the SLCSP, they will have to pay the difference between the plan’s premium and the PTC amount. Conversely, if someone chooses a plan that is less expensive than the SLCSP, they may pay less or nothing out-of-pocket for their monthly premiums.
Additionally, someone who is eligible for the PTC and has a household income between 100% and 250% of the FPL may also qualify for cost-sharing reductions (CSRs) that lower their out-of-pocket costs for deductibles, copayments, and coinsurance when they receive health care services. CSRs are only available to people who enroll in a silver plan through the Marketplace. Therefore, if someone wants to take advantage of both the PTC and the CSRs, they will have to choose a silver plan.
Does the premium tax credit account for differences in the price of plans based on age, location, and other factors?
Yes, the premium tax credit accounts for differences in the price of plans based on age, location, and other factors that affect the cost of health insurance. The PTC is calculated by comparing your household income to the cost of the SLCSP that covers your family size in your area. The SLCSP is a benchmark plan that reflects the average price of health insurance in your local market. The SLCSP premium varies by age, location, tobacco use, and family composition. Therefore, the PTC amount will also vary by these factors.
Do people who receive a premium tax credit ever have to pay more than their expected contribution?
People who receive a premium tax credit may have to pay more than their expected contribution if they choose a plan that is more expensive than the SLCSP in their area. As explained above, the PTC is calculated by subtracting a percentage of your household income from the cost of the SLCSP that covers your family size in your area. The percentage of your household income that you have to pay for the SLCSP is based on a sliding scale that ranges from 0% to 8.5% depending on your income level. This percentage is also called your expected contribution.
Do people need to wait until they file taxes to receive the premium tax credit?
No, people do not need to wait until they file taxes to receive the premium tax credit. They can choose to receive some or all of the PTC in advance as a reduction of their monthly health insurance premiums. This is called the advance premium tax credit (APTC). To receive the APTC, they will need to apply for health insurance through the Marketplace and provide information about their estimated income and family size for the year. The Marketplace will then determine their eligibility and amount of APTC based on this information and the cost of the SLCSP in their area. The APTC will be paid directly to their health insurance provider each month to reduce their monthly premiums.
What if someone has not filed a tax return in the past?
If someone has not filed a tax return in the past, they may still be eligible for the PTC if they meet the other eligibility requirements. However, they will need to file a tax return for the year that they want to claim the PTC and attach Form 8962 to it. They will also need to provide proof of their income and insurance coverage to the Marketplace when they apply for health insurance.
If someone has not filed a tax return for a previous year that they received the APTC, they may lose their eligibility for future APTC payments until they file their past due tax return and reconcile their APTC with their PTC. The IRS may also send them a notice asking them to repay some or all of the excess APTC that they received.
What happens when people who get credit in advance file their taxes?
When people who get credit in advance file their taxes, they have to reconcile their APTC with their PTC using Form 8962. The IRS will compare their actual income and family size for the year with the estimated income and family size that they provided to the Marketplace when they applied for health insurance. If their actual income is lower than their estimated income, they may qualify for a larger PTC than they received in advance and get a refund when they file their tax return. If their actual income is higher than their estimated income, they may qualify for a smaller PTC than they received in advance and have to repay some or all of the excess when they file their tax return.
To reconcile their APTC with their PTC, they will need to use Form 1095-A, Health Insurance Marketplace Statement, which they received from the Marketplace, and Form 8962, Premium Tax Credit, which they will attach to their tax return. Form 1095-A shows the amount of APTC that was paid to their health insurance provider each month and the cost of the SLCSP in their area. Form 8962 shows the calculation of their PTC based on their actual income and family size for the year and the comparison of their PTC with their APTC. Form 8962 also shows the amount of refund or repayment that they are entitled to or liable for.
What happens if people’s income or circumstances change during the year? How does that affect their eligibility for a premium tax credit?
If people’s income or circumstances change during the year, that may affect their eligibility for a premium tax credit or the amount of PTC that they qualify for. For example, if their income increases or decreases significantly, they may become eligible or ineligible for the PTC or qualify for a larger or smaller PTC than they estimated when they applied for health insurance. Similarly, if their family size changes due to marriage, divorce, birth, adoption, death, or other events, they may become eligible or ineligible for the PTC or qualify for a larger or smaller PTC than they estimated when they applied for health insurance.
If people experience any changes in their income or circumstances during the year, they should report them to the Marketplace as soon as possible. The Marketplace will then adjust their eligibility and amount of APTC based on the updated information and send them a revised Form 1095-A. This will help them avoid getting too much or too little APTC during the year and having to repay some or all of the excess or claim additional PTC when they file their tax return.
Can people who don’t have to pay federal income taxes take advantage of the premium tax credit?
People who don’t have to pay federal income taxes can still take advantage of the premium tax credit if they meet the other eligibility requirements. However, they will have to file a tax return for the year that they want to claim the PTC and attach Form 8962 to it. They will also have to provide proof of their income and insurance coverage to the Marketplace when they apply for health insurance.
People who don’t have to pay federal income taxes can choose to receive some or all of the PTC in advance as a reduction of their monthly health insurance premiums. This is called the APTC. To receive the APTC, they will need to apply for health insurance through the Marketplace and provide information about their estimated income and family size for the year. The Marketplace will then determine their eligibility and amount of APTC based on this information and the cost of the SLCSP in their area. The APTC will be paid directly to their health insurance provider each month to reduce their monthly premiums.
However, people who receive the APTC will have to reconcile it with the PTC when they file their tax return using Form 8962. The IRS will compare their actual income and family size for the year with the estimated income and family size that they provided to the Marketplace when they applied for health insurance. If their actual income is lower than their estimated income, they may qualify for a larger PTC than they received in advance and get a refund when they file their tax return. If their actual income is higher than their estimated income, they may qualify for a smaller PTC than they received in advance and have to repay some or all of the excess when they file their tax return.
People who don’t have to pay federal income taxes can also choose to receive the PTC at the end of the year as a refundable credit when they file their tax return. This means that they can get the full amount of the PTC that they qualify for based on their actual income and family size for the year, regardless of how much tax they owe or have paid. To receive the PTC at the end of the year, they will need to file a tax return with Form 8962 and claim the PTC on line 31 of Form 1040 or Form 1040-SR. They will also need to provide proof of their income and insurance coverage to the Marketplace when they apply for health insurance.
