The Affordable Care Act (ACA) offers premium tax credits to assist eligible individuals and families pay for health insurance on the marketplace. These subsidies can either be applied towards monthly bills, or returned when filing taxes at year’s end.
Some households choose to receive advance payments of premium credits from the Treasury each month, helping reduce out-of-pocket insurance costs. These payments are calculated based on projected income; households should report any changes in circumstances throughout the year as soon as they occur in order to avoid having to repay an advance premium credit later on.
What is a premium tax credit (PTC)?
The premium tax credit (PTC) is a tax subsidy designed to assist eligible individuals and families purchase health insurance through the marketplace. It’s calculated based on household’s projected income for the year and distributed directly to health insurers to reduce monthly premium costs. Furthermore, if its final amount falls short of expectations during the year it can be used either to lower taxes owed at tax time or increase refunds.
Individuals and families earning between 100-400% of the poverty line may qualify for the Premium Tax Credit to help cover marketplace plan costs. The PTC may be used to purchase bronze, silver, gold or platinum marketplace health plans; people should report any changes in income or life events that might impact eligibility in order to avoid overpayments and repayments at tax time. People covered under other “minimum essential coverage,” like Medicare or employer-sponsored plans may not qualify; such individuals should consider enrolling instead in these plans instead of receiving PTC.
How do I know if I qualify for a PTC?
The PTC is calculated based on household income relative to the FPL and family size, and paid directly to health insurers to offset monthly health insurance premiums. Individuals or families whose income falls within 400% of FPL may also qualify for this credit as a tax refund when filing their taxes.
At various times throughout the year, individuals should notify VHC of any changes in their income so that their APTC is accurate. At year-end, individuals must compare their actual income against what was advanced APTC and may have to repay some or all of it back.
Prior to 2021, individuals with access to affordable employer group coverage who had excess Advance Premium Tax Credit were required to repay any excess amounts on their tax returns. But thanks to the recently passed American Rescue Plan Act, this requirement was suspended until 2022, giving more middle and low-income Americans assistance affording healthcare costs.
How do I apply for a PTC?
The Affordable Care Act’s Premium Tax Credit (PTC) is available to individuals and families whose income falls between 100% and 400% of the federal poverty level (FPL), which varies by state; for 2021-2022 it was set at $13,590 per individual and $15,620 per family of eight.
PTC payments are distributed throughout the year to help cover marketplace insurance premiums, with final reconciliation taking place after filing your tax return. Therefore, it’s crucial that any life changes be reported to ensure that your PTC credit is accurately estimated.
Some states also offer an additional subsidy called cost-sharing reduction, which assists with deductibles and co-pays. Typically, cost-sharing reduction only applies to marketplace plans purchased through your state exchange. If you need assistance for Marketplace health coverage options, consult a certified tax preparer or visit an enrollment center.
How do I get a PTC refund?
Under the original ACA rules, individuals who received PTC advance payments and had their premiums paid upfront but then earned over 400% of FPL had to return some or all of that subsidy when filing their return – this practice became known as the “subsidy cliff.”
COVID-2021 legislation temporarily eased this requirement for people who received auto-renewed Marketplace coverage, and didn’t need to repay APTC when filing their tax returns. This was extended through 2023 under both American Rescue Plan and Inflation Reduction Act legislation; though that doesn’t mean people don’t still need to reconcile APTC payments annually with the IRS using Form 8962 filed along with their tax returns; otherwise they must file amended returns if any overpayment occurred for any prior years (this distinction should not be overlooked).
