What is the Premium Tax Credit?
Published on December 17, 2024
by Aya Takriti, EA
Aya Takriti, an IRS Enrolled Agent with 11 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East. Aya speaks fluent Arabic and English and the odd word of German and Spanish if you catch her on a good day.
Table of Contents
Does the Premium Tax Credit help with health insurance costs?
Yes, it can.
The Premium Tax Credit (PTC) helps lower the cost of health insurance for people who buy their plan through the Health Insurance Marketplace. It works by reducing how much you pay for monthly premiums.
You can get this help upfront to immediately lower your insurance bill (called an Advance Premium Tax Credit, or APTC), or you can claim the credit when you file your taxes.
This program is aimed at making health insurance more affordable, especially for individuals and families with lower to middle incomes.
Who qualifies for the Premium Tax Credit?
To qualify for the Premium Tax Credit, you need to meet a few requirements:
-
Income:
- Your household income must be within a specific range, usually between 100% and 400% of the Federal Poverty Level (FPL) based on your family size. In states that expanded Medicaid, this may start above 138% of the FPL.
-
Health Insurance Plan:
- You must buy your health insurance through the Health Insurance Marketplace. If you have insurance through an employer or a private company, you won’t qualify.
-
Other Insurance Options:
- If your employer offers affordable insurance, you generally can’t use the Premium Tax Credit.
-
Tax Filing:
- If you’re married, you usually have to file a joint tax return to get the credit. There are a few exceptions, like for people in difficult situations such as domestic abuse.
How is the Premium Tax Credit calculated?
The amount of credit you get depends on your household income, family size, and the cost of insurance in your area.
- Your Income: The PTC is based on how much money your household earns compared to the Federal Poverty Level (FPL).
- Income Scale: The lower your income, the more financial help you’ll get. If your income is near the top limit (about 400% of the FPL), your credit will be smaller.
- Plan Cost: The credit is linked to the price of a specific insurance plan in your area called the “benchmark plan.” If you pick a plan that costs more, you’ll pay the difference out of pocket.
What happens if my income changes during the year?
If your income goes up or down during the year, it can change the amount of Premium Tax Credit you’re eligible for.
- If Your Income Increases: You might owe money back to the IRS when you file your taxes, as the credit you received may have been too high.
- If Your Income Decreases: You might qualify for a larger credit, which could result in a refund at tax time.
To avoid surprises, it’s important to let the Health Insurance Marketplace know if your income changes. This way, they can adjust your credit throughout the year to match your new income level.