What is the Premium Tax Credit ?
In the United States, the premium tax credit (PTC) is a refundable tax credit. The Internal Revenue Service (IRS) will pay it to qualified households that obtained healthcare insurance through a healthcare exchange (marketplace) during the tax year. To reduce the cost of monthly health insurance premiums, it can be paid upfront straight to a healthcare insurance provider.
The PTC, or premium tax credit, stands for this. The tax credit is one of many Affordable Care Act tax features that the IRS unveiled in 2014 with the goal of providing 18 million lower and middle-income Americans with access to health insurance.
Your monthly premiums for plans through the Health Insurance Marketplace are reduced by the premium tax credit. Your household's income and other criteria will affect how much of a premium tax credit you receive. To help eligible families and individuals with low to moderate incomes get affordable health insurance, the premium tax credit was established. One of the main requirements is that your household's income must be between 100% and 400% of the poverty line.
Because the premium tax credit is calculated on a sliding scale, the more the credit you receive the lower your income. It's refundable, so if your credit exceeds your tax liability when you submit your federal income tax, you may receive a refund. When applying for coverage in the Marketplace, you can get this credit before you file your tax return by estimating your anticipated income for the year. This qualifies as the tax credit for advance premiums. The premium tax credit can also be claimed on your tax return after the fact using your actual income.
Your projected income and household details, which you must include on each Marketplace application you submit, will determine how much credit you receive. You can spend some or all of this credit in advance to save money by lowering your monthly premium payments. When you file your Form 1040 at tax time, you'll need to make up the difference if you used more of your premium tax credit than your final taxable income permits. However, you will receive the difference as a refundable credit on your return if you used less of the premium tax credit than you were entitled to throughout the year. You must fulfill specific requirements and submit a tax return with Form 8962, Premium Tax Benefit, in order to receive this credit (PTC).
The American Rescue Plan Act of 2021 (ARPA) temporarily increased the range of taxpayers who are eligible for the premium tax credit by doing away with the restriction that a taxpayer's household income must exceed 400% of the federal poverty level for tax years 2021 and 2022.
Your household income is deemed to be no higher than 133% of the federal poverty level for your family size if you or your spouse (if filing a joint return) received or were approved to receive unemployment benefits for any week beginning in 2021, and you are deemed to have met the household income requirements for eligibility for a premium tax credit. Keep any supporting records for receiving or getting permission for unemployment benefits with your tax return files.
Understanding the Premium Tax Credit (PTC)
As an advance payment PTC, or APTC, the premium tax credit is typically paid in advance to the insurer issuing the eligible plan. The APTC is deducted monthly from the premiums of eligible plans, i.e., policies made available through the Health Insurance Marketplace, i.e., plans offered through state- and federal-run health exchanges. Some qualified people may choose to forgo receiving an APTC in favour of paying their premiums out of pocket and claiming the PTC on their annual tax return.
For 2022, the monthly premium tax credit amount is equal to the lesser of :
- The monthly contribution made by the taxpayer, the taxpayer's spouse, and any dependents to a qualified plan.
- The excess, if any, of the premium for the second-cheapest silver plan for the same people that is offered on the exchange in the taxpayer's area over an amount equal to 1/12th of the taxpayer's household income for the year, in accordance with the brackets of the relevant federal poverty level (FPL) in the following table:
|
Percentages Applicable to
PTC Calculation for Household Incomes at FPL Ranges |
||
|
Household income percentage of federal poverty
line |
Initial percentage |
Final percentage |
|
Less than 150% |
0.0 |
0.0 |
|
At least 150% but less than 200% |
0.0 |
2.0 |
|
At least 200% but less than 250% |
2.0 |
4.0 |
|
At least 250% but less than 300% |
4.0 |
6.0 |
|
At least 300% but less than 400% |
6.0 |
8.5 |
|
At least 400% and higher |
8.5 |
8.5 |
Regardless of whether you receive an APTC or claim a PTC, you must submit IRS Form 8962 along with your Form 1040. When you file your return, any APTCs you received in 2021 must be compared to the permitted PTC. You often have to pay back the difference if the APTC is greater than the permitted PTC. If the APTC is lower than the PTC, you can claim a credit for the difference, which will lower your tax obligation or result in a refund.
Premium Tax Credits in 2022
The second lowest cost Silver plan (SLCSP) premium that is offered to you on the Marketplace, less a certain percentage of your household income based on your federal poverty level, is normally the maximum health insurance premium that you would pay for a Marketplace insurance plan. The discrepancy between your maximum premium contribution and the gross premium of the plan is then your premium tax credit. The SLCSP is sometimes referred to as the "benchmark plan" at times.
If someone in your home had a Marketplace plan the previous year, the Marketplace will send you a tax return by the end of February that will include information on your SLCSP premium.
Based on your income relative to the poverty level and the tax filing year, this is how much of the SLCSP premium you are accountable for. The percentage of SLCSP premiums you pay directly related to your income level because the premium tax credit operates on a sliding basis.
How Does the Premium Tax Credits Work ?
For the majority of Marketplace policies, premium tax credits lower your premium. Your income and the cost of Marketplace health plans in your area will determine how much of a tax credit you may be eligible to receive.
When you sign up for a Marketplace plan, you can decide whether to receive your premium tax credit when you file your upcoming tax return or in advance to lower your monthly cost. The Marketplace determines your anticipated credit amount based on the application data if you accept it in advance. When you file your taxes, you will receive a refundable credit if you use less of your allowed tax credit.
When you file your income tax return, you must make up the difference if you use more tax credits than you are entitled to based on your household size and total yearly income. If your income is 400% or more above the federal poverty level, you will be responsible for paying the full amount. There are repayment caps dependent on your income and filing status. During tax season, you must submit Form 8962 and attach it to your Form 1040 in order to receive the premium tax credit.
The projected contribution you must make toward the premium for a mid-range (Silver) benchmark plan will be determined by the Marketplace. Depending on your salary in 2022, the anticipated payment will rise on a sliding basis. If your income falls between the poverty line and 150% of the poverty line, you would be expected to contribute nothing to the benchmark plan. And after your income exceeds 400% of the poverty line, you will be expected to contribute 8.5% of your income to the benchmark plan.
You can apply for an advanced premium tax credit based on your anticipated income for the following year, or you can receive premium tax credits at the end of the current year. If you choose to get an advanced credit, the government will send your insurance provider 1/12 of the credit each month, and the remaining balance will be charged to your account.
Key Facts of Premium Tax Credit
- A refundable tax credit known as the premium tax credit (PTC) is intended to assist qualifying individuals and families in paying for approved health plans obtained through the federal or state exchanges.
- Upon enrolling, eligibility for the PTC for an exchange plan is determined. Typically, this is done using the applicant's tax return from two years prior.
- Even though the claimant is not otherwise required to file a tax return, Form 8962 must be submitted with Form 1040, 1040-SR, or 1040-NR in order to receive the PTC.
- Except for individual health reimbursement arrangements (HRAs), those who are qualified for employer-sponsored policies are not permitted to forego coverage and apply for the PTC for another plan unless the employer plan is either too expensive or provides insufficient coverage.
- The cost of the SLCSP less your maximum premium contribution constitutes your premium tax credit.
- When you file, your tax burden is reduced by the amount of any unused credits. You can be required to pay back the entire difference if you used more credit than you were authorized to due to a change in circumstances or another factor.
- Those with income between 100% and 400% of the FPL qualify for premium tax credits and if you earn more than 400% of the FPL, you may still qualify for health insurance discounts.
Who is Eligible for Premium Tax Credit ?
If they and their insurance plans satisfy further requirements, married taxpayers who file a combined return and single taxpayers who submit their own returns are both eligible for the PTC. In general, married people filing separately and people identified as dependents on a return are not eligible for the PTC. For some people who qualify as married living separated under the head of household standards as well as for some victims of domestic violence or spousal abandonment, there are special exclusions that apply.
Individuals and families that purchase coverage through their state's health insurance marketplace and have earnings between 138 percent and 400 percent of the federal poverty line are eligible for the premium tax credit. Lawfully dwelling immigrants with salaries below the poverty level who are ineligible for Medicaid due to their immigration status may also qualify for a premium tax credit.
Individuals must be U.S. citizens or be legally present in the country to qualify for a premium tax credit. If a person qualifies for other "basic essential coverage," such as Medicare, Medicaid, or employer-sponsored coverage that is deemed appropriate and affordable, they are not eligible for a premium tax credit.
Who Qualifies for the Premium Tax Credit ?
To be qualify for the premium tax credit, you must fulfill each of the following requirements :
- You must use the Marketplace to get health insurance.
- You are ineligible for health insurance coverage provided by other entities, such as the government or your job.
- You must earn between a particular amount and another amount.
- You cannot be listed as a dependent on someone else's tax return.
- If you are married, you must submit a combined tax return.
- Depending on the size of your family, your household's income falls between 100% and 400% below the federal poverty level.
- Your health insurance premiums were fully paid.
Report any changes in family size and income to the Marketplace to ensure you receive the correct tax credit. These changes may have an impact on your eligibility. The federal poverty line is used to calculate the income ranges that make you eligible for the premium tax credit.
The annual federal poverty levels are published by the U.S. Department of Health and Human Services, and they differ depending on whether you live in one of the 48 contiguous states, the District of Columbia, Hawaii, or Alaska. The range is between 100% and 400% of the federal poverty level for your family size during the current tax year.
See Qualifying for the Premium Tax Credit for further details on these eligibility requirements.
If you are qualified for advance payments of the premium tax credit, commonly known as advance credit payments or APTC, the Marketplace will decide this when you enroll. In order to reduce your out-of-pocket expenses for your health insurance premiums, advance credit payments are sums sent to your insurance provider on your behalf.
Income above 400% FPL :
You may now be eligible for premium tax credits that cut your monthly premium for a 2022 Marketplace health insurance plan if your income is over 400% FPL.
To reduce your monthly payment, you can use all, some, or none of your premium tax credit.
- When you submit your federal income tax return, you must make up the difference if you used more of the tax credit's advance payments than you were entitled to based on your final yearly income.
- You will receive the difference as a refundable credit when you submit your taxes if you use less of the premium tax credit than you are entitled to.
Change in Circumstances
It is crucial to notify the Marketplace as soon as your circumstances change if you get advance payments of the premium tax credit.
Your premium tax credit may alter in amount if your household, income, or family size change. These adjustments may reduce your tax refund or increase your tax liability. You will be more likely to receive the appropriate kind and amount of financial aid if you promptly report these changes.
See the Changes in Circumstances section of the page for Claiming the Credit and Reconciling Advance Credit Payments for more details.
Which Health Plans Qualify for Premium Tax Credit ?
You cannot claim the PTC unless you meet the personal status and income standards and are insured by a qualified plan. Plans available on federal and state health insurance marketplaces are referred to as qualified plans. In most cases, the plan is not a qualified plan and you, your spouse, or your dependent(s), as appropriate, are not eligible for the PTC if you, your dependent(s), or your spouse are eligible for coverage under a plan that provides minimum essential coverage (MEC) from a source other than an exchange.
The majority of employer-sponsored plans, regardless of whether you enroll, as well as Medicaid, the Children's Health Insurance Program (CHIP), and comparable government-sponsored health insurance are considered to offer MEC. You are not qualified for the PTC if you accept an individual health reimbursement agreement (HRA) that your company offers. However, if the HRA does not meet the PTC requirements for affordability and you choose not to use that coverage, you may still be eligible for the PTC if other conditions are satisfied. You may still be eligible for the PTC for other qualified plan coverage even if your company offers retiree or COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage and you decide not to join.
Although an employee may be qualified for employer-sponsored health insurance in some circumstances, the employee may still be entitled to claim the PTC. If an employer-sponsored plan is found to be either unaffordable for an employee or to provide less than minimum value—for instance, by only covering a small portion of healthcare costs—then the employee can choose not to participate in the plan and still be eligible for the PTC with regard to the premiums for a qualified plan obtained through a recognized exchange. A plan is often deemed expensive if the annual cost for self-only coverage for the employee exceeds a statutorily specified portion of the employee's household income. The percentage for affordability in 2021 was 9.83%; the percentage for 2022 is set at 9.61%.
How to Calculate Premium Tax Credit ?
The purpose of the premium tax credit is to keep the price of health insurance (based on the Silver plan) between 2% and 9.6% for households with an annual income between 100% and 400% of the Federal Poverty Level (FPL). Based on your estimated household income and other information you provide in your application, including :
- The annual predicted total income for your household (projected annual income or PAI).
- the total number of people who purchase private health insurance in your tax family.
- The second-cheapest silver plan available in your area's premium price.
- The maximum amount of household income that can be used to pay for the premiums for the benchmark plan. For the plan years 2021 and 2022, it is limited to a maximum of 8.5% under the American Rescue Plan.
How Much is the Premium Tax Credit ?
Taxpayers whose household incomes are below particular percentages of the FPL must pay back a maximum amount of excess APTC. Maximum repayment amounts are $600 for households earning less than 200% of the FPL, $1,500 for those earning between 200% and 300% of the FPL, and $2,500 for those earning between 300% and 400% of the FPL.
The U.S. Department of Health and Human Services (HHS) determines your eligibility and APTC amount upon enrollment in a qualified plan, often based on your tax return from two years prior. People who qualify for the APTC may also qualify for reduced cost sharing, such as lower deductibles and copays. You must notify the exchange as soon as possible if your situation changes after enrolment.
How to Claim the Premium Tax Credit ?
You must submit IRS Form 8962 together with your federal income tax return for that year if you want to claim a premium tax credit on your tax return.
On Form 8962, you claim the premium tax credit and reconcile it with the total of the advance credit payments you made for the year. Even though you aren't often obligated to submit returns, you must do so in order to reconcile the credit with the amount of your advance credit payments. If you file your return without reconciling your advance credit payments, it could prevent you from receiving future advance credit payments and postpone your refund.
See Premium Tax Credit, Claiming the Credit and Reconciling Advance Credit Payments for more details on how to file a return to claim and reconcile the credit.
The simplest approach to submit a complete and correct tax return is electronically. Free volunteer assistance, IRS Free File, commercial software and professional assistance, are all available for electronic filing.
Important Papers and Forms
If you or one of your dependents got coverage via a Marketplace, your Marketplace will give Form 1095-A. Visit the Health Insurance Marketplace Statement page for more details.
See questions and answers for details on how Forms 1095-B and Form 1095-C, which have nothing to do with the Marketplace, will influence your tax return if you also receive them.
To claim the credit or reconcile advance credit payments on Form 8962, Premium Tax Credit, use the data on Form 1095-A.
Form 1040, Along with your Form 1040, Form 1040-SR, or Form 1040-NR, submit Form 8962.
For further information on the premium tax credit, see Publication 974.
FAQ's
Can I still get the premium tax credit if I don't have any outstanding taxes for 2022?
If you match the eligibility requirements, you are still eligible to earn this refundable credit. Both a Form 1040 and a Form 8962 must be submitted. You can apply for the credit and get a refund of any remaining advance premium tax that was applied to your 2022 premiums for a health insurance exchange-offered plan.
Can I get a tax credit for my employer's group health plan premiums?
No, the credit cannot be used to the cost of employer-sponsored group health insurance premiums. You may choose a plan on the local health exchange, qualify for the premium tax credit, and forgo employer coverage in future years if your employer plan doesn't meet the legal requirements for affordability and minimum essential coverage (MEC). Of course, you'll need to meet the necessary income and other eligibility requirements. However, the majority of firms design their group health insurance programs to meet both the MEC and affordability requirements.
If I am not qualified for the credit, am I still able to receive other tax benefits for my health premiums?
In addition to other medical costs, health insurance premiums and co-pays are admissible as deductible medical expenses with some restrictions. Only if you itemize deductions and only to the extent that your medical expenses total more than 7.5% of your adjusted gross income, may you deduct medical expenses.
What if someone has never submitted a tax return before?
If otherwise qualified, individuals who did not file a tax return in earlier years may still be eligible for a premium tax credit; but, in order to continue to be eligible, they must file a return for any years in which they receive advance payments of the premium tax credit.
Is advance enrollment in the premium tax credit required?
No, the majority of people want to obtain the credit before filing their taxes because they need help paying their monthly health insurance premiums in full. However, if they so want, they can wait and receive the credit at that time. Additionally, people have the option of accepting a smaller advance payment than that determined by their anticipated annual income in order to receive any outstanding tax credits.
How soon will I get my premium tax credit?
In contrast to other tax credits, the premium tax credit can be given upfront and is frequently given all year long. Each month, the IRS gives money to your health insurer so you don't have to pay as much out of pocket. The policyholder's tax return from the following spring reconciles the premium tax credit. In contrast, policyholders have the option of purchasing a health plan outright through their state's exchange and then deducting the entire premium tax credit from their taxes. The cost of coverage without the advance premium tax credit is typically beyond of reach for those who do end up qualifying for the premium tax credit, therefore few individuals actually do that.
Who qualifies as a family member for the premium tax credit?
Your "family" for the purposes of the premium tax credit consists of you, your spouse (if you're filing jointly), and all additional people you list as dependents. The amount of people who make up your "family" is your "family size."
How much help do people get under Premium Tax Credit?
In order to calculate the premium tax credit, the market will first establish the "benchmark plan," or the second-cheapest silver plan that is available to each family member. The credit is calculated as the entire cost of the benchmark plan (or plans) less the projected contribution for coverage from the individual or family. The cost of the insurance is anticipated to be covered in part by the person's or family's income. A sliding scale is used to determine the percentage. People with lesser earnings are thought to contribute less than those with greater salaries. This Marketplace Subsidy Calculator allows you to calculate your eligibility based on different family sizes and income ranges.
How is the premium tax credit amount calculated?
The amount of the premium tax credit is typically equal to the premium for the second-cheapest silver plan offered via the Marketplace that covers the members in your coverage family, less a predetermined portion of your household income. The credit, however, cannot exceed the premiums for the Marketplace plan or policies that you or your family members enroll in (called your enrollment premiums). The members of your family who have signed up for coverage through the Marketplace and are not qualified for non-Marketplace coverage like Medicare, Medicaid, or reasonably priced employer-sponsored coverage make up your coverage family.