Premium tax credits – often referred to as premium subsidies – are part of the Affordable Care Act, designed to make individual market health coverage affordable.
- The premium tax credit is a tax credit that offsets some or all of the amount that people would otherwise have to pay themselves in order to purchase individual/family health coverage.
- The premium tax credit is only available to use with health insurance purchased through the exchange in your state0 (in other words, you forfeit the premium tax credit if you shop off-exchange, even if you’d otherwise be eligible to claim it).
- Unlike other tax credits, the premium tax credit can be (and usually is) provided upfront, throughout the year. The IRS sends it to your health insurer each month, so that you don’t have to pay as much yourself. The premium tax credit is then reconciled on the person’s tax return the following spring. Alternatively, people can choose to pay full price for a health plan in their state’s exchange, and then claim the entire premium tax credit on their tax return (but very few people do that, as the cost of coverage without the advance premium tax credit is generally out-of-reach for people who do end up qualifying for the premium tax credit)
- Premium tax credit eligibility depends on income (an ACA-specific calculation of modified adjusted gross income). It’s available to people with income between 100 percent and 400 percent of the poverty level, although the lower bound in most states, is actually 138 percent of the federal poverty level, due to Medicaid expansion (if a person is eligible for Medicaid, they are not eligible for a premium tax credit).