If I get an Obamacare premium subsidy in the Marketplace, is the subsidy considered income?

If you qualified for health insurance subsidies through the Marketplace, you may be wondering whether those subsidies count as income when you file your taxes. They don’t.

Premium tax credits and cost-sharing reductions lower the amount you pay towards your monthly premiums and out-of-pocket costs but the subsidies – both premium tax credits and cost-sharing reductions – are not considered income and are not taxed.

Like any tax credit, the premium tax credit reduces the amount of income tax a person owes.¹

And the premium tax credit is a refundable tax credit, which means people can receive it as a tax refund (funds payment from the IRS) even if they don't owe any income tax.² Cost-sharing reductions have no impact on a person's taxes, as they are not reconciled on tax returns.³

Reconciliation of premium tax credits

The Marketplace keeps track of the amount of premium subsidy (advance premium tax credit, or APTC) that is sent to your health insurer each month. The amount of the subsidy will be reported to you and to the IRS (using form 1095-A) early in the following year.⁴

This is for reconciliation purposes though, not taxation: If your income ends up different than you projected when you enrolled, you may have to pay back a portion of the advance subsidy that was overpaid on your behalf (i.e., excess APTC), or you could receive an additional tax credit when you file your taxes. (Note that starting with the 2026 plan/tax year, there is no longer a cap on how much excess APTC has to be repaid to the IRS.)

Although most people opt to have their premium subsidies paid directly to their insurer each month,⁵ you can also choose to pay the entire premium for your health insurance coverage and receive your subsidy as a lump sum refund when you file your taxes, as long as you purchased your coverage through the exchange.

(Off-exchange coverage is not eligible for premium tax credits, up front or on your tax return). Either way, the subsidy is a tax credit. So it simply reduces your income tax burden, and is not considered income.¹

Cost-sharing reductions and tax implications

Cost-sharing reductions (also known as CSR or cost-sharing subsidies) are also not considered income. And, unlike premium subsidies, there's no additional reporting or reconciliation involved with cost-sharing reductions.³

Until 2017, the federal government reimbursed insurers directly to cover the cost of CSR. The Trump administration halted that funding in October 2017, but eligible enrollees continue to receive CSR benefits.

Insurers in most states have simply added the cost of CSR to Silver plan premiums, but virtually everyone who is eligible for CSR is also eligible for premium subsidies, which grow to offset the higher premiums. So in a roundabout way, the federal government is still covering most of the cost of CSR, in the form of larger premium subsidies.⁶

From the enrollee's perspective, CSR are available throughout the year and nothing further has to be done. CSR benefits are not reported to the IRS, and unlike premium subsidies, they do not have to be repaid if the enrollee's income ends up being higher than anticipated during the year.³

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written hundreds of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.