Looking for ways to save on healthcare? Premium tax credits can help bring down the cost of your monthly health insurance premiums. But, if you’re new to navigating health insurance, you might be unfamiliar with health insurance tax credits.
In this blog, we’ll cover everything you need to know about this important government subsidy that can bring down the cost of your health insurance. You’ll learn who qualifies for premium tax credits, how to apply, and how to use the premium tax credit.
Premium tax credits are federal subsidies that can bring down the cost of monthly premiums for lower-income individuals. You can either receive the credit in advance, benefiting from immediate discounts on your premiums throughout the year, or collect it at the end of the year as a credit on your tax return.
In 2014, the Affordable Care Act (ACA) set up these subsidies to make quality healthcare more affordable. Both individuals and families can apply for these subsidies. However, there are eligibility requirements, and the subsidy can only be used on certain types of plans. We’ll go over those details later in the blog.
When you enroll in an ACA plan on the Health Insurance Marketplace, you can apply for the premium tax credit. Only Marketplace plans are eligible for the tax credit, so if you choose to purchase a plan directly through the insurance company — or any plan not listed on the Marketplace — you will not receive a tax credit for health insurance.
After gathering some basic information, the marketplace will calculate the correct tax credit amount for your household. Those with the lowest incomes receive the highest subsidies, while those with higher incomes receive smaller (or zero) subsidies. You can either receive your subsidy throughout the year, or at the end, as a premium tax credit, meaning it would bring down the amount of taxes you owe.
You have two options when it comes to how you receive your tax credit. Should you opt for the standard premium tax credit, you will be responsible for paying your full health insurance premiums throughout the year. Then, when you file your federal income tax return at the end of the year, you can apply the credit to bring down your total tax obligation.
However, many individuals cannot afford to pay their full premiums throughout the year and instead opt for the advanced premium tax credit (APTC). Should you elect the APTC, the government will divide your total tax credit by 12, sending that resulting figure directly to your insurer on a monthly basis, bringing down your monthly premium bill.
To receive the premium tax credit, you’ll need to meet certain criteria. If you meet the below requirements, you might qualify for subsidies:
You do not need to have been enrolled in an ACA plan for the full calendar year to receive the health insurance premium tax credit. So long as someone in your household was enrolled for a minimum of one month in an ACA plan, you could be eligible for the premium tax credit.
Some states have expanded access to the premium tax credit, providing coverage to residents, regardless of immigration status. Here is a list of states with expanded access to the premium tax credit.
Generally, households with an income that falls between 100 and 400% of the federal poverty line are eligible for the premium tax credit. However, keep in mind that the federal poverty limit increases with your household size because you need to spread your income out to support more people.
Below are the household sizes and their associated poverty line for 2025 in the lower 48, as well as D.C. to demonstrate how the sliding scale works:
Household size and poverty limits for 2025 in the lower 48 and D.C. are:
You can find more information, and an extended chart, at Aspe.hhs.gov.
Life happens, and your household might look different from one year to the next. However, when life events impact your household income, it’s important to report those changes to the Marketplace right away to ensure you’re receiving the correct premium tax credit.
Here are some events that you should report as soon as possible:
Keep in mind that your premium tax credit is based on your household income, relative to the size of your household, and relative to the poverty limit. So any change in income or household can lead to you receiving a larger or smaller premium tax credit. Reporting these changes as soon as possible can prevent surprises during tax season, such as having to pay back some of your advance premium tax credits.
Knowing what disqualifies you from the healthcare tax credit is just as important as knowing what qualifies you. If you meet any of the following criteria, you won’t be able to receive the tax credit:
If you’re unsure whether or not you qualify for the premium tax credit, speak with a health insurance broker or tax professional.
Helpful tools like KFF’s premium tax credit calculator can give you an accurate (or very close to accurate) figure. You’ll simply provide some basic information about where you live, your household, and your income. If you don’t know what your exact income will be for the upcoming year, just take your best guess (you can always update this number with the Marketplace if it changes throughout the year). The calculator will generate an appropriate premium tax credit, based on the information you provide.
If you believe you might be eligible for the premium tax credit, there are a few steps involved in applying. To make things easy, we’ve listed them below.
The marketplace will apply your subsidy to your chosen plan. Keep in mind that you can only apply for coverage on the Healthcare Marketplace during Open Enrollment unless you experience a qualifying life event that results in a Special Enrollment Period.
If you receive a premium tax credit, you’ll report that to your tax professional when it’s time to do your taxes. Even if you estimate your income accurately and report changes on time, your numbers might be slightly off. If this occurs, you could discover that the premium tax credit you received was not reflective of your actual household income.
The process of comparing the tax credits you received to the tax credits you should have received, based on your final income for the year, is called reconciling. Here are a few things that might happen when you reconcile your premium tax credit:
Nobody likes tax surprises, which is why it’s especially important to report life changes, including those to your income or household size, as soon as possible. That way, the marketplace can adjust your advance payments right away, helping you avoid unexpected costs during tax season.
When you’re ready to file your taxes, you’ll need the following forms to reconcile your premium tax credit: a health insurance marketplace statement (form 1095-A) and a Premium Tax Credit Form 8962. Here’s a bit more info about those forms:
You don’t need to attach form 1095-A to your tax return — that form is simply for your records.
We get it: there’s a lot to take care of during tax season, and some tasks fall through the cracks. However, failing to reconcile your premium tax credit on your taxes can have some unwanted consequences such as:
Let your tax professional know if you received advance premium tax credits throughout the year so they can help you complete the reconciliation.
After the Marketplace has calculated your premium tax credit, there are a handful of ways you can utilize it to increase your healthcare savings. Knowing how to optimize your tax credit can help you better manage your healthcare costs throughout the year.
The marketplace uses a benchmark Silver plan to determine your tax credit. However, you’re not required to enroll in a Silver plan. You can choose the plan that best fits your goals — for your wellness and your wallet. If you’re in terrific health and don’t anticipate many doctor’s visits, consider a Bronze plan. Bronze plans have the lowest monthly premiums of all the ACA plans that are eligible for the premium tax credit. They also have the highest costs when you get care, but if you feel confident you won’t need much care, the Bronze plan could make sense for you.
If your household income is within 100 and 250% of the federal poverty limit, you will likely qualify for cost-sharing reductions (CSRs), too. Remember that you have other costs associated with health insurance besides premiums, such as deductibles and co-pays. CSRs can bring down these costs, too, which can make a big difference for individuals who receive care often. Just know that you must select a Silver plan to receive CSRs. CSRs differ from tax credits in that they do not need to be reconciled on your tax return. They are set discounts you receive each time you get care.
As your life changes, your health insurance needs might change, too. So take advantage of each year’s Open Enrollment Period to explore your options. Remember, so long as you choose an eligible ACA plan, you can use your premium tax credit on whichever plan fits your needs. So compare plans annually, looking at each cost such as premiums, co-pays, deductibles, co-insurance rates, and out-of-pocket maximums. You may find that the plan that best suited you last year no longer suits you this year. Our experts are always here to help you find the best plan for your specific circumstances. Just tell our AI agent about your budget and needs, and get instant health insurance quotes.
Understanding your health insurance options, from plan tiers to tax credits, can be overwhelming. With Insurance ‘N You by your side, it doesn’t have to be confusing. We’re here to clarify coverage options. When questions come up, just ask our helpful AI agent.
We even created handy tools to help you stay organized, like our digital wallet, where you can keep documents like your claims and Summary of Benefits. Compare health insurance quotes from Insurance ‘N You today to select coverage with confidence.
Looking for more information about premium tax credits? Find helpful information about these government subsidies below!
The federal government funds the premium tax credit. They can either directly pay your insurance carrier each month if you choose the Advance Premium Tax Credit, or you’ll receive a tax refund when you file your taxes.
When it’s time to file your taxes, you’ll need to complete Form 8962. This form will show your tax professional the premium tax credit for which you qualify. If you took Advanced Premium Tax Credits throughout the year, you’ll compare the number on 8962 to the numbers on Form 1095-a to reconcile your tax credits (i.e. ensure you didn’t under-or over-receive tax credits).
If you don’t use all of your premium tax credits, the unused funds will be applied to your tax return as a credit, bringing down your tax liability.
Yes, if you opt out of advance premium tax credit payments and collect your credit at the end of the year, your tax refund may increase.
You will only need to pay back part of your advance premium tax credit if you wind up making more money than you reported (i.e. than your credit was based on). In that case, your tax professional will calculate what your tax credit for the year should have been, based on your true income. Then they will deduct that number from the premium tax credits you received, and you will likely need to repay that difference.
