Inflation Reduction Act Boosts Obamacare Tax Credit
Enhancements to the premium tax credit are extended for three more years under the Inflation Reduction Act.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter

Despite its name, the Inflation Reduction Act's main goals are really to address climate change and lower healthcare costs. One of the ways healthcare costs are reduced is by extending enhancements to the premium tax credit that were put in place for 2021 and 2022. Now that President Biden has signed the bill into law, not only will more people qualify for the premium tax credit for three more years, but many of them will also get a larger credit during that time.
[Yours free, download The Kiplinger Tax Letter (opens in new tab) August 18 issue for more details on how the Inflation Reduction Act will affect you, your clients, or your business.]
Premium Tax Credit Eligibility Expanded
The premium tax credit was originally enacted as part of the Affordable Care Act (a.k.a., Obamacare) to help lower- and middle-income Americans pay for health insurance purchased through the healthcare marketplace (e.g., HealthCare.gov (opens in new tab) or a state exchange). By subsidizing the cost of health insurance with the credit, more people can afford insurance and get it at a lower price. And, with advance payments of the credit directly to the insurer, consumers have less out-of-pocket costs.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
However, there are a number of requirements you must satisfy to be eligible for the credit. For instance, you normally can't claim the credit unless your household income is between 100% and 400% of the federal poverty level for your family's size. You also can't be claimed as a dependent on someone else's tax return. And, if you're married, you generally must file a joint return to claim the credit. (There are other requirements, too.)
With regard to the household income requirement, the American Rescue Plan Act (ARPA), which was passed last March in response to the COVID-19 pandemic, changed that requirement for the 2021 and 2022 tax years. Instead of capping the federal poverty level at 400%, people with income levels above that threshold are allowed to claim the premium tax credit for those two years (assuming they satisfy all the other eligibility requirements).
The Inflation Reduction Act extends the temporary exception to the 400% cap through the 2025 tax year. That permits people with household incomes over that amount three more years to claim the premium tax credit (again, assuming they otherwise qualify). According to the Centers for Medicare & Medicaid Services (opens in new tab), 1.1 million Americans are eligible for the 2022 credit who wouldn't have qualified if the 400% cap had not been lifted, which gives you a sense of how many people will be affected for the next three years now that the Inflation Reduction Act has been signed into law.
Larger Premium Tax Credit Amounts
Calculating the amount of your premium tax credit can be complicated. Generally, the credit amount equals the health insurance premium charged for the second cheapest "silver plan (opens in new tab)" available to you, minus your expected contribution amount, which is based on your household income. This approach permits people with a lower income to get a larger credit.
For 2021 and 2022, the ARPA increased the credit amount for eligible taxpayers by reducing the percentage of annual household income they're required to contribute toward their health insurance premium. For earlier years, the percentages ranged from 2% to 9.5% of household income (the higher your income, the higher your percentage). For 2021 and 2022, the contribution percentages go from 0% to 8.5%.
The Inflation Reduction Act allows people to use the lower contribution percentages for three more years. The Kaiser Family Foundation (opens in new tab) says this will keep premium costs relatively flat for 2023. On the other hand, allowing the reduced contribution amounts to expire at the end of 2022 would have resulted in an increase of out-of-pocket health insurance premiums for roughly 13 million people. If the lower percentages had not been in effect for 2022, the KFF estimates that premium payments would have been 53% higher this year in the 33 states using HealthCare.gov (opens in new tab) to sign up residents for Obamacare.
What's Not in the Inflation Reduction Act
There were some other changes made to the premium tax credit by COVID-relief laws. For instance, advance payments that exceeded the credit amount on your 2020 tax return didn't have to be repaid. For 2021, if you received (or were approved to receive) unemployment compensation at any point during the year, your household income was treated as being 133% or less of the federal poverty level for your family size. These types of changes aren't included in the Inflation Reduction Act.
Congress also considered several other enhancements to the premium tax credit during last year's negotiations for the failed Build Back Better bill. One provision that was tossed around would have excluded Social Security benefit lump-sum payments for people with disabilities, widow(er)s, new retirees, and others from the calculation of household income for purposes the credit. Other ideas were presented that would have let people with a household income below 100% of the federal poverty level claim the credit and adjusted the payback rules for people with household incomes below 200% of the federal poverty level. None of these changes, or others from the Build Back Better bill that aren't already mentioned, made it into the Inflation Reduction Act, either.
Learn More About the Inflation Reduction Act
The Inflation Reduction Act was signed into law on August 16, 2022. For more information from Kiplinger about this climate, healthcare and tax legislation, see:
- The Inflation Reduction Act and Taxes: What You Should Know;
- EV Tax Credits Are Changing: What's Ahead;
- Save More on Green Home Improvements Under the Inflation Reduction Act;
- Is an Army of New IRS Agents Coming for Your Tax Dollars?;
- Buckle Up: What the Inflation Reduction Act Means for Your Small Business;
- Biden's Inflation Reduction Act: Investing Winners and Losers;
- Inflation Reduction Act a Blessing in Disguise for Drug Stocks?; and
- How Senate Breakthrough on Climate Could Benefit ESG Investors.
Rocky was a Senior Tax Editor for Kiplinger from October 2018 to January 2023. He has more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, he worked for Wolters Kluwer Tax & Accounting and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky has a law degree from the University of Connecticut and a B.A. in History from Salisbury University.
-
-
A Retirement Income Distribution Plan Is as Critical as Saving
Designing a strategy to efficiently use your retirement savings is a critical step on your retirement planning journey to maximize your income and ensure a long-lasting retirement.
By Bradley Rosen • Published
-
The Markets Were Miserable Last Year, But That’s Great News
It’s all about perspective. Hopefully, you learned that your financial plan can withstand market downturns. If not, now you know you need to make adjustments.
By Andrew Rosen, CFP®, CEP • Published
-
Can the Earned Income Tax Credit Help You?
The IRS and community partners want to improve earned income tax credit awareness.
By Kelley R. Taylor • Published
-
Tax Season is Here. What to Know Before You File
The IRS is accepting tax returns for the 2023 tax season, but there are some key things to know before you file.
By Kelley R. Taylor • Published
-
Child Tax Credit Changes and FAQs for Your 2022 Tax Return
Tax Breaks The bigger and better child tax credit for 2021 is gone, replaced by a new set of rules for taking the credit on 2022 returns.
By Joy Taylor • Published
-
When Can You File Taxes in 2023?
tax filing If you're an early bird when it comes to filing your tax return, there's good news from the IRS.
By Rocky Mengle • Published
-
The IRS Issued 12 Million Tax Refunds for 2020: Here's Why
An unemployment tax break caused the IRS to issue $14.8 billion in tax refunds.
By Kelley R. Taylor • Published
-
New EV Tax Credit Gets Complicated for 2023
More car models qualify for the full federal electric vehicle tax credit for a little while, but then what?
By Kelley R. Taylor • Published
-
When Are Taxes Due in 2023? Tax Deadlines by Month
tax deadline Know the tax deadlines that apply to you, so you don't get hit with IRS penalties or miss out on a valuable tax break.
By Rocky Mengle • Published
-
State "Stimulus Checks" in 2023 – Which States Are Still Sending Payments
Residents in a handful of states could still receive a tax rebate check or other payment in 2023.
By Rocky Mengle • Last updated