The U.S. tax law provides to eligible individuals and families a refundable tax credit to subsidize the purchase of qualified health plans. These include—but are not limited to—plans offered through the federal and state health benefit exchanges.
- The Premium Tax Credit (PTC) is a refundable tax credit designed to help eligible individuals and families pay for qualified health plans, generally purchased through the federal or state exchanges or the individual insurance market.
- Eligibility for the PTC for an exchange plan is determined upon enrollment and is based generally on the applicant’s tax return filed two years earlier.
- To obtain the PTC, Form 8961 must be filed with the claimant’s tax return, even if a tax return is not otherwise required.
- No PTC is allowed for Medicaid, CHIP, other government programs, and, in most cases, employer-sponsored plans.
- Individuals eligible for employer-sponsored plans, other than individual HRAs, cannot waive coverage and claim the PTC for another plan, unless the employer plan is either unaffordable or covers insufficient costs.
Understanding the PTC
The premium tax credit generally is paid in advance to the insurer issuing the qualified plan as an advance payment PTC, or APTC. The APTC is paid to the insurer and credited monthly against premiums for plans offered through the Health Insurance Marketplace, i.e., health exchange plans. In some cases eligible individuals can elect to pay their premiums out-of-pocket and claim the PTC at the end of the tax year, instead of benefitting from an APTC.
Whether you receive an APTC or claim a PTC at year-end, you must file IRS Form 8962 with your Form 1040. If you benefitted from an APTC, it must be reconciled with the allowable PTC. If the APTC exceeds the allowable PTC, you must repay the difference. If the APTC is less than the PTC, you can claim a credit in the amount of the difference and reduce your tax liability or receive a refund.
Eligibility for—and the amount of—the APTC is estimated by the U.S. Department of Health and Human Services (HSS) upon enrollment in a qualified plan, usually on the basis of your tax return for two years earlier. Individuals who are eligible for the APTC may also be eligible for reduced cost-sharing, i.e., reduced deductibles and co-pays.
If your circumstances change after enrollment, you must inform the exchange promptly.
Who Can Take the PTC?
Married individuals who file a joint return and single individuals who file their own returns are eligible for the PTC, provided they and their insurance plans meet additional requirements. Individuals listed as dependents on a return and married individuals filing separately generally are not eligible for the PTC. Special exceptions apply for certain victims of domestic abuse or spousal abandonment and for some individuals who qualify as married living apart under the Head of Household rules.
Generally, to qualify for the PTC, your household income must be at least 100%—but no more than 400%—of the federal poverty line for your household’s size. Household income is defined as modified adjusted gross income (MAGI). It is calculated by adding back nontaxable income, such as tax-exempt interest, amount excluded from income by citizens or residents living abroad, and the nontaxable portion of Social Security benefits, to your AGI. The chart, below, provides the standard ranges of household income at which individuals and families of four can benefit from the PTC in 2020 and 2021 for the 48 contiguous states and the District of Columbia. Alaska and Hawaii have separate poverty level guidelines and ranges
|Eligibility for PTC: Household Income Ranges 2020 and 2021|
|Income Range for 2020||Income Range for 2021|
|Single Individual||Family of Four||Single Individual||Family of Four|
|$12,490 to $49,960||$25,750 to $103,000||$12,760 to $51,040||$26,200 to $104,800|
Exchange plans, and thus the PTC, are not available to individuals who are not U.S. residents or nationals nor to undocumented individuals who are not lawfully present in the U.S.
Which Health Plans Qualify for the PTC?
In addition to meeting the personal status and income requirements, you must be covered by a “qualified plan” to claim the PTC. Generally, qualified plans are plans offered on federal and state exchanges and on the individual insurance market. In most cases, if you, your spouse or your dependent are eligible for coverage under a plan that offers minimum essential coverage (MEC) from a source other than an exchange or the individual insurance market, the plan is not a qualified plan and you, your spouse or your dependent, respectively, are not entitled to the PTC.
Plans treated as offering MEC include most employer-sponsored plans whether or not you enroll, as well as Medicaid, CHIP and similar government-sponsored health coverage. If your employer offers an individual Health Reimbursement Account (HRA) and your accept it, you are not eligible for the PTC. However, if you decline such HRA coverage, you can be eligible for the PTC, provided other requirements are met. However, if your employer offers COBRA or retiree coverage and you choose not to enroll, you still can be eligible for the PTC for other qualified plan coverage.
In some cases, an employee might still be able to claim the PTC when eligible for employer-sponsored health coverage. If an employer-sponsored plan is determined either to be unaffordable for an employee, or to provide less than “minimum value,” i.e., cover too small a portion of healthcare costs, the employee can decline such coverage and still claim the PTC with respect to premiums for a qualified plan obtained through an official exchange or in the individual insurance market. Generally, a plan is considered unaffordable, if the employee’s annual cost for self-only coverage is more than 9.78% of the employee’s household income.
Cornell Law School. Legal Information Institute. "26 U.S. Code § 36B - Refundable credit for coverage under a qualified health plan." Accessed Feb. 22, 2021.
IRS. "Form 8962." Accessed Feb. 22 2021.
HealthCare.gov. “Cost Sharing Reduction.” Accessed Feb. 22, 2021.
IRS. "Instructions for Form 8962 (2020)." Accessed Feb.2, 2021.
Kaiser Family Foundation. “Explaining Health Care Reform: Questions About Health Insurance Subsidies.” Published: Oct 30, 2020. Accessed Feb. 22, 2021.
IRS. "Publication 974 (2019) Premium Tax Credit (PTC)." Accessed Feb. 22, 2021.