Skip to content

The Premium Tax Credit

The Premium Tax Credit is a new tax credit established by the Affordable Care Act. Starting in 2014, if you get your health insurance coverage through a Health Insurance Marketplace you may be eligible for the premium tax credit. This credit can help make health insurance more affordable to you and your family.

Eligibility Requirements

In general, you may be eligible for the credit if:

  • You enroll in a qualified health plan through the Marketplace for a member of your family (you, your spouse or your dependents),
  • For the same months your enrolled in Marketplace coverage, one or more of the enrolled family members is ineligible for other coverage - such as through an employer or government plan,
  • Your household income is at least 100% and no more than 400% of the Federal poverty line for your family size,
  • If you are married, you file a joint return with your spouse. However, if you are a victim of domestic violence or spousal abandonment, you may be able to file as married filing separate, and
  • You cannot be claimed as a dependent by another person.

For more information about the requirements, visit the Premium Tax Credit page on IRS.gov. You can also read Publications 5120 and 5121, "Facts about the Premium Tax Credit."

Qualified Health Plan

A qualified health plan is a health insurance plan or policy purchased through a Marketplace at the Bronze, Silver, Gold, or Platinum level.

Catastrophic plans don't meet the requirements for qualified health plans under the rules for the premium tax credit. If you enrolled in a Catastrophic plan, you won't qualify for the credit.

Premiums for insurance depend, in part, on where you live. The credit is based on the second lowest cost Silver level plan where the enrolled family member (or members) live who are not eligible for other health coverage.

Household Income Requirements

Your household income must be between 100% and 400% of the federal poverty line for your family size.

Household income is your modified adjusted gross income (MAGI) and the MAGI of your spouse if you file a joint return, plus the MAGI of your dependents who are required to file a federal tax return.

Modified adjusted gross income is the adjusted gross income as reported on Form 1040 plus any foreign earned income exclusion, nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and tax-exempt interest. It does not include Supplemental Security Income (SSI).

KEY TERMS

Applicable Percent

The percent of your income that you are considered able to afford for your and your family's health insurance.

Benchmark Plan

The benchmark plan is the second lowest cost silver plan available in your area that covers the members of your family (you, your spouse and your dependents) who are enrolled in Marketplace coverage and not eligible for other health insurance coverage such as employer-sponsored or government-sponsored coverage.

The premium tax credit is the lesser of:

  • The premiums for the plan in which you and/or your family members enroll,

or

  • The premium for your benchmark plan minus your contribution amount.

Contribution Amount

The contribution amount is the amount you are considered to be able to afford to pay for health insurance. It would be the amount you pay if you enroll in your benchmark plan.

Determined by multiplying your annual household income by your applicable percent.

Family

Generally you (if no one can claim you as a dependent), your spouse (if married and both spouses are on the same return), and anyone else that you are able to claim as a dependent.

Federal Poverty Line

The poverty guidelines published by the Department of Health & Human Services.

Health Insurance Marketplace

One of the state or the federal exchanges where you can shop for and purchase health insurance.

Health Insurance Premium

This is the total cost of the plan you choose on the Exchange before the premium tax credit is applied.

Household Income

Household income is your modified adjusted gross income (MAGI) and the MAGI of your spouse if you file a joint return, plus the MAGI of your dependents who are required to file a federal tax return.

Modified adjusted gross income is the adjusted gross income as reported on Form 1040 plus any:

  • Foreign earned income exclusion,
  • Nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and
  • Tax-exempt interest.

It does not include Supplemental Security Income (SSI).

Silver Plan

Marketplace insurance plans are categorized by metal levels: bronze, silver, gold, and platinum. The metal level is based on how much the insurer pays for services covered under the plan.

A silver plan is a health insurance plan where the insurer pays on average 70% of the cost of covered services.

The premium tax credit is limited by comparing the cost of your coverage to that of the second lowest cost silver plan that covers you and your family.

If you are enrolled in more expensive coverage, you will pay the additional amount. However, if you are enrolled in coverage that costs less, your share of the premium will also be less.

For more information, go to healthcare.gov