A premium tax credit can lower the monthly cost of your health insurance. It’s only available to those who purchase insurance through a state or federal health insurance marketplace, and you must meet income and family size criteria to qualify. You’ll find out if you’re eligible when you apply for a Marketplace health plan.
If you own a small business with fewer than 25 employees, you may also qualify for government subsidies, which can help pay for your employees’ health insurance.
Reading: How does insurance tax credit work
what is a health insurance tax credit?
A premium tax credit, also called a premium subsidy, lowers the cost of your health insurance. The discount can be applied to your insurance bill each month, or you can receive the credit as a refund on your federal income taxes.
The credit, implemented under the Affordable Care Act (ACA), is designed to help eligible families or individuals with low-to-moderate incomes pay for health insurance. Premium tax credits are only available if you enroll in a qualified insurance plan through the federal or state marketplace.
A key exclusion is that those who sign up for catastrophic coverage do not qualify for health insurance tax credits.
Health insurance tax credit amounts are set by the federal government, so they are the same across the country.
How do I know if I qualify for a tax credit?
When you apply for coverage through a health insurance marketplace, also called an exchange, the system will determine your eligibility for tax credits based on your income and household size.
if your income is below the federal poverty level (fpl), you may be eligible to enroll in medicaid. Most states have now expanded Medicaid eligibility to incomes at or below 138% of the Federal Poverty Level (FPL), providing more health insurance options for those with low incomes.
The so-called “subsidy gap” at 400% of the federal poverty level was eliminated in 2021 as part of the American bailout law. those earning more than the 400% threshold gained access to subsidies that cap health insurance costs at 8.5% of their income.
This benefit was extended through the end of 2025 as part of a wide-ranging federal law called the Inflation Reduction Act.
You can preview your tax credit eligibility by using our Affordable Care Act Subsidy Calculator. If you qualify, the monthly premium cap shows how much you’d spend on the second cheapest silver plan on the market.
The dollar amount you can receive depends on two factors: your family size and your income. As the number of family members you claim as dependents increases, your income may also increase while you remain eligible for the credit. For 2023 health plans, if you have a family of three, then your household can earn up to $92,120 and still be eligible. by comparison, your household income may only be $73,240 or less for a family of two.
what are the income limits for the health insurance subsidy?
Each year, the department of health and human services (hhs) determines income guidelines. Below are the eligible income ranges based on household size. It is important to note that you would use the prior year’s Federal Poverty Level to determine eligibility and claim the current year’s health care tax credits. When you file your return for tax year 2023, you’ll compare your household income to the 2022 fpl figures shown below.
If you earn more than these maximum amounts, you may still qualify for subsidies based on how your income compares to the cost of health insurance. For example, someone who has high health insurance rates due to her age or location could see those monthly costs reduced to 8.5% of her income through discounts.
How does the health insurance tax credit work?
You can get health care tax credits in two ways:
The two methods would qualify you for the same number of credits, but differ in eligibility requirements and when you receive the grant. here’s how advance premium tax credits can lower your monthly bills.
You can claim the Advance Premium Tax Credit (APTC) when you apply for health insurance through the Marketplace. With this program, the government sends advance payments directly to the health insurance company each month. the insurer then credits that money to the cost of your health insurance premiums, lowering your out-of-pocket costs each month.
On the other hand, if you’re not eligible for advance premium payments, then a tax refund is available. When filing your taxes, you would subtract the full amount of the tax credit from all the taxes you owe. But during the plan year, you would pay more per month for health insurance, since you would be responsible for your share of the premium along with the amount that would have been covered by tax credits.
so, if you expect to have a low disposable income, taking the advance premium tax credit may be more beneficial if you qualify.
Anyone who receives a health insurance tax credit must file Form 8962 (Premium Tax Credit) with their tax return. To complete Form 8962, you will use information from Form 1095-A (Health Insurance Marketplace Statement), which is a statement sent to you about the cost of your health insurance policy and the subsidies it He received. Your final health insurance tax credits are based on the qualified income reported on your 1040 individual tax return.
what if my family size or income changes during the year?
Life-changing events can affect your eligibility for the tax credit by increasing or decreasing the amount you can claim. Events that may affect your premium tax credits may include:
Since the Marketplace determines your tax credit, it’s important to report changes right away so your health plan eligibility can be updated. And if you’re currently using the Advance Premium Tax Credit, then it’s particularly important to report any life changes to the Marketplace as soon as possible.
If you wait to report such changes, there may be discrepancies between what you paid and what you should pay. In this case, if you used more advance premium tax credits than you’re allowed, you may have to pay money back when you file your federal income tax return. on the other hand, if you used less than allowed, you can get an additional refund. this is known as “reconciling” your advance premium tax credits.
health coverage tax credit (hctc) versus premium tax credit (ptc)
health coverage tax credits (hctcs) expired on december 1st. January 31, 2021 hctcs lowered health insurance costs for eligible beneficiaries, paying 72.5% of qualified health insurance premiums.
premium tax credits (ptc) are tax credits that beneficiaries can use to lower their monthly health insurance premium when they enroll through the health insurance marketplace. Those earning between 100% and 400% of the fpl qualify for ptcs, and those earning over 400% may still qualify.
what is the small business health care tax credit?
Small business owners are generally not required to offer health insurance if they have fewer than 50 full-time employees. therefore, the small business health care tax credit, which was created under the aca, encouraged small business owners to offer health insurance to their employees.
If a small business or tax-exempt business (for example, a charity) meets a number of requirements, it is eligible to receive the federal tax credit for two consecutive tax years.
You and your business would be eligible for the credit if you meet all of the following requirements:
If you qualify, the federal government gives you a subsidy to help pay your share of employee premiums. the size of your workforce determines the amount of credit you can receive. For example, if your business has fewer than 10 full-time employees, you may receive the maximum credit possible. a larger business with 24 employees would qualify for a lower tax credit.
The credit covers up to 50% of the costs you pay for your employee premiums (35% for nonprofits). For example, suppose a business qualifies for the full small business tax credit and chooses to pay 100% of its employees’ premiums, costing the business $70,000 per year. that company’s tax return would be credited $35,000 at the end of the year.
Qualifying small businesses can claim this tax credit by filing Form 8941 with their taxes.
Self-Employed Health Care Tax Credit
If you are self-employed, eligibility for the health insurance tax credit is based on the same FPL guidelines described for families in the table above. Because self-employed individuals typically purchase a plan from the Marketplace, they will meet the first eligibility criteria for health insurance tax credits.
But determining the amount of tax credits you should receive is more complex if you are self-employed. Essentially, the self-employment health insurance deduction affects your adjusted gross income (AGI). Your adjusted gross income has a direct impact on the premium tax credit you receive, which also affects your eligible deduction.
The IRS has issued returns to reconcile this issue and allows a shortened version of the calculation if you file your taxes on your own. however, that simplified calculation generally produces a tax credit that is less than the amount for which you are eligible. If you are self-employed, to receive the maximum tax credit, we recommend consulting a tax professional or tax preparation company that uses software that can fix this problem.