Affordable Care Act (ACA) premium tax credits make health insurance more affordable by reducing the monthly premiums for plans purchased through the Health Insurance Marketplace. These credits are designed to help low- and moderate-income individuals and families access quality coverage, ensuring they don’t pay more than a certain percentage of their income on premiums.
This article explains how premium tax credits work, who qualifies, and how to apply for them through the Marketplace.
What Are ACA Premium Tax Credits?
Premium tax credits are subsidies provided by the federal government to lower the cost of health insurance for eligible individuals and families. The credits can be applied directly to your monthly premium, reducing the amount you pay upfront, or claimed when you file your taxes.
The amount of the credit is based on:
- Your household income.
- The size of your household.
- The cost of health plans in your area.
The goal is to ensure that healthcare premiums are affordable, generally capped at a percentage of your income based on a sliding scale.
Who Qualifies for Premium Tax Credits?
Eligibility for premium tax credits is based on income and other factors:
- Income requirements: Your household income must fall between 100% and 400% of the federal poverty level (FPL).
- For 2024, this is approximately $14,580 to $58,320 for an individual and $30,000 to $120,000 for a family of four.
- Temporary expansions under the American Rescue Plan and Inflation Reduction Act have eliminated the 400% FPL cap through 2025, meaning some higher-income households may also qualify if their premiums exceed a set percentage of income.
- Marketplace enrollment: You must purchase a health plan through the Health Insurance Marketplace to qualify.
- No other coverage: You cannot be eligible for affordable coverage through other sources, such as an employer, Medicare, or Medicaid.
How Do Premium Tax Credits Work?
Premium tax credits are calculated based on the second-lowest-cost Silver plan (benchmark plan) available in your area. The amount of the credit ensures you won’t spend more than a set percentage of your income on premiums for this plan.
- Sliding scale: The percentage you’re required to pay increases with income, starting at about 2% of income for those at the poverty level and capping at 8.5% of income for higher earners.
- Excess premium assistance: If the benchmark plan costs more than the cap, the tax credit covers the difference.
Once your credit amount is determined, you can:
- Apply it to your monthly premiums, reducing what you owe upfront (Advanced Premium Tax Credit, or APTC).
- Claim the full amount as a tax refund when filing your federal income taxes.
How to Apply for Premium Tax Credits
- Create a Marketplace Account: Start by visiting HealthCare.gov or your state’s Marketplace website to create an account.
- Complete an Application: Submit your household information, including income and family size. This will help determine your eligibility for tax credits and other subsidies.
- Review Your Eligibility: Once your application is processed, the Marketplace will notify you if you qualify for premium tax credits and provide an estimate of the amount.
- Choose a Plan: Compare plans and select one that fits your needs and budget. You can apply your tax credit directly to the monthly premium.
Special Considerations
- Income estimates: Be as accurate as possible when estimating your income. If your actual income differs significantly from your estimate, you may have to repay excess credits or receive a refund when you file taxes.
- Reconciliation at tax time: When you file your federal tax return, you’ll reconcile the tax credits you received with your actual income for the year. Use IRS Form 8962 to report this information.
- Changes in circumstances: Report life changes, such as a new job, marriage, or a change in household size, to the Marketplace as soon as possible to avoid issues with your tax credit.
Expanded Access to Premium Tax Credits
The American Rescue Plan and subsequent legislation temporarily increased premium tax credit access through 2025:
- No income cap: Households earning over 400% of the FPL may qualify if premiums exceed 8.5% of their income.
- Enhanced subsidies: Lower-income households can receive larger subsidies, with some plans costing $0 in monthly premiums.
These changes have made Marketplace plans more affordable for millions of Americans, including middle-income earners who previously didn’t qualify.
Premium tax credits are a vital tool for making healthcare more affordable under the ACA. By understanding eligibility requirements, calculating your credit, and applying it correctly, you can significantly reduce your health insurance costs and access the coverage you need.
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