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:
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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.
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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.
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Other Insurance Options:
- If your employer offers affordable insurance, you generally can’t use the Premium Tax Credit.
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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.
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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.
Can I claim the Premium Tax Credit if I file jointly or separately?
If you’re married and file your taxes jointly with your spouse, you can qualify for the Premium Tax Credit (PTC) as long as you meet the income and other requirements.
But if you’re married and file your taxes separately, you typically won’t be able to claim this credit.
There is one exception. If you are in a situation involving domestic abuse or abandonment, the IRS allows you to file as “Married Filing Separately” and still claim the PTC.
However, if this applies to you, we recommend getting help from a tax expert to make sure you qualify.
What are the limitations of the Premium Tax Credit?
If you received more PTC than you were supposed to, you might need to pay some of it back when you file your taxes. The good news is there are limits on how much you have to repay based on your income.
Here’s an idea of what you might need to pay back:
- If your income is below 200% of the federal poverty line: You’ll only pay back up to US$325 for individuals or US$650 for families.
- If your income is between 200% and 300%: The limit increases to US$800 for individuals or US$1,600 for families.
- If your income is above 400% of the poverty line: You have to repay the full amount of extra credit with no limit.
2024 Federal Poverty Guidelines for the 48 Contiguous States
- Individual: US$15,060
- Family of 2: US$20,440
- Family of 3: US$25,820
- Family of 4: US$31,200
For larger households, add US$5,380 for each additional person.
Examples:
- Individual with Income at 250% of FPL: If you’re single with an income of about US$37,650 (250% of US$15,060), the most you’d repay is US$800.
- Family of 3 with Income at 350% of FPL: A family of three earning around US$90,370 (350% of US$25,820) would repay the full excess credit, as their income exceeds 400% of the FPL.
Can I claim the Premium Tax Credit retroactively?
Yes, you can still claim the Premium Tax Credit (PTC) after the year ends if you didn’t apply for it when you got your health insurance through the Marketplace. This is done when you file your tax return for the year.
To claim it, you’ll need to include Form 8962, Premium Tax Credit with your return. Even if you didn’t get advance payments during the year, you can still claim the credit if you qualify.
Can a non-tax filer still benefit from the premium tax credit?
No, if you don’t file a federal tax return, you can’t qualify for the Premium Tax Credit. Filing a tax return is necessary, even if you don’t usually need to because your income is low.
This is because the IRS uses your tax return to confirm your eligibility for the credit. Without it, you won’t be able to claim the credit or keep any advance payments you may have received for your health insurance.
How do I report the Premium Tax Credit on my tax return?
To report the Premium Tax Credit on your tax return, you’ll need a document called Form 1095-A, which you get from the Health Insurance Marketplace. This form includes details like how much you paid for your insurance and any advance credit payments you received during the year.
With the information from Form 1095-A, you’ll fill out Form 8962, which calculates how much PTC you’re eligible for. If you received too much advance credit, you might have to pay back some of it.
If you didn’t get enough, you can claim the rest when filing your taxes. Once Form 8962 is completed, attach it to your regular tax return (Form 1040).
Make sure to enter everything correctly to avoid delays or issues with the IRS. It’s a good idea to double-check your work or get help if needed.
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