Each year during open enrollment, millions of families flock to find affordable health insurance. If you’ve shopped for health insurance on the federal marketplace, you may be eligible for a refundable health insurance tax credit.
The premium tax credit helps qualifying individuals and families afford health insurance purchased from the federally-regulated marketplace, better known as the Affordable Care Act (ACA) online network of health insurance plans or “Obamacare.”
It’s important to note that key provisions of the ACA, including the premium tax credit, are set to expire by the end of 2025 unless Congress acts. That being said, Republican lawmakers narrowly passed their version of Trump’s ‘big, beautiful’ bill through the House floor in May.
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As the partisan megabill heads towards the Senate, where it may face changes, some provisions tucked away in the markup include changes to the premium tax credit.
But for now, here’s what you need to know.
What is the Premium Tax Credit?
The premium tax credit (PTC) is designed to help people afford the cost of health insurance purchased through the federal health insurance marketplace.
As a refundable tax credit, the individual who claims the PTC can get some or all of the credit as a tax refund. If the credit lowers your tax bill to zero, the IRS applies the remaining portion of the credit to your tax refund.
So how does the PTC work?
The premium tax credit can be used to purchase four different plans offered through the ACA marketplace: bronze, silver, gold, and platinum.
The PTC is available immediately upon enrollment, so you can decide if you’d like payments to go directly to your insurer and lower your monthly premium or receive the credit as part of your tax refund.
If you’re eligible for the PTC, you’ll have several options for using your credit. You can:
- Receive it as a tax credit when you file your return
- Choose an advance premium tax credit and use the credit to pay your insurer in exchange for a lower monthly premium throughout the year
- Split it, receiving part of the credit on your tax refund and the rest as an advance to lower your insurance premiums
What’s happening to the premium tax credit?
House Republicans narrowly passed a comprehensive tax and spending bill dubbed ‘one, big beautiful bill’ this month, and now the megabill is on its way to the Senate for further revisions.
The partisan measure covers border security, energy policy, and calls to make permanent Trump’s Tax Cuts and Jobs Act of 2017 (TCJA). To finance the major tax breaks included in the bill, GOP lawmakers are calling for cuts to spending on landmark programs such as SNAP and Medicaid.
However, the ‘One Big Beautiful Bill Act’ failed to include an extension of the premium tax credit under the Affordable Care Act — which is slated to expire at the year-end.
What it did include were provisions to the premium tax credit, which would tighten the claims and eligibility standards for those who wish to access the tax break on their health insurance plan.
Some key provisions regarding the premium tax credit include:
- Prevents lawfully-present immigrants with incomes under 100% of the federal poverty level from claiming the credit, effective 2026.
- Restricts eligibility to verified U.S. citizens and certain qualified non-citizens, excluding those without a satisfactory immigration status, effective 2027.
- Reducing advance payments of premium tax credits for certain individuals enrolled in exchanges.
- Tightening claims, such as disallowing premium tax credit in case of certain coverage enrolled in during the special enrollment period, and repealing the recapture limit on excess payments of the credit.
These provisions may change as the GOP’s tax cuts and spending megabill moves through the Senate. However, the suggested modifications could make the credit harder to claim or completely inaccessible for many households who need it.
Who is eligible for the premium tax credit now?
To qualify for the premium tax credit, you or your family must be enrolled in a health insurance plan from the federal marketplace or your state’s healthcare marketplace for at least one month of the calendar year.
You’ll also have to pay your share of the marketplace plan premium by the original due date of your tax return.
Additionally, you must meet the following criteria:
- Not be eligible for a government program such as Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP).
- Not have access to an affordable employer-sponsored insurance plan (for 2025 an employer plan is considered affordable if the premium is equal to or less than 9.02% of your household income.)
- Have a household income at or below the federal poverty level.
The PTC is also available to lawfully residing immigrants with incomes below the poverty line who are not eligible for Medicaid due to their immigration status.
Your filing status also matters:
If you’re married and filing separately, you won’t be eligible for the PTC unless you are a victim of domestic abuse or spousal abandonment.
Taxpayers who are claimed as dependent will not qualify for the tax credit.
What is the federal poverty level for 2025
Taxpayers with income at or above the federal poverty line may be eligible for the premium tax credit.
To be eligible for the PTC, your income must be no more than 400% of the federal poverty line. These amounts will vary depending on your household size.
Other factors that may impact your credit amount include:
- Your address and area of residence
- The cost of your insurance coverage
Household Size | 100% | 150% | 200% | 300% | 400% |
|---|---|---|---|---|---|
1 | $15,060 | $22,590 | $30,120 | $45,180 | $60,240 |
2 | $20,440 | $30,660 | $40,880 | $61,320 | $81,760 |
3 | $25,820 | $38,730 | $51,640 | $77,460 | $103,280 |
4 | $31,200 | $46,800 | $62,400 | $93,600 | $124,800 |
5 | $36,580 | $54,870 | $73,160 | $109,740 | $146,320 |
Source: Department of Health and Human Services 2024 Poverty Guidelines. Note: Alaska and Hawaii have different federal poverty line guidelines.
PTC income limit
As mentioned, eligible taxpayers must have a modified adjusted gross income (MAGI) between 100% and 400% of the federal poverty line to receive the premium tax credit.
However, the Biden administration temporarily enhanced the premium tax credit through 2025, making people with incomes above 400% of the poverty level newly eligible for the credit if their benchmark premium exceeds 8.5% of the household income.
The benchmark is determined using the ‘second-lowest-cost silver plan’ available to your household and the maximum amount you are expected to pay toward your health insurance premium.
For 2025, individuals and families with incomes between 100% and 400% will pay no more than 8.5% of their MAGI.
Household income as a percentage of the federal poverty line | Maximum benchmark plan cost as a percentage of MAGI | Row 0 - Cell 2 |
Less than 150% | 0% | Row 1 - Cell 2 |
150% to 200% | 2% | Row 2 - Cell 2 |
200% to 250% | 4% | Row 3 - Cell 2 |
250% to 300% | 6% | Row 4 - Cell 2 |
300% or more | 8.5% | Row 5 - Cell 2 |
Source: Internal Revenue Service
How it works:
According to calculations from the Center for Budget and Policy Priorities (CBPP), a 60-year-old couple earning $80,000 (405% of the poverty level) currently pays $567 a month for their health insurance.
If the premium tax credit expansion were to expire by the end of 2025, their market premium would more than triple to $2,026, representing an annual increase of $17,500.
How to claim the premium tax credit
The premium tax credit is available to qualifying individuals and families with a health insurance plan from the federal marketplace www.healthcare.gov or your state’s healthcare marketplace.
Once you enroll in a healthcare plan, you will automatically be told if you are eligible for the PTC based on the information you provide. Then, you can decide how you’ll use the credit:
- You can decide to use some or all of the tax credit as an advance credit payment to help lower your monthly premium bill;
- Or you can receive the tax credit as a tax refund
No matter what choice you make, you’ll need to file IRS Tax Form 8962 at tax time. The form will determine your premium tax credit eligibility and reconcile any advance credit payments you’ve already received.
Bottom line: Why the premium tax credit matters
The premium tax credit helps make health insurance purchased from your state or federal marketplace more affordable. For families and individuals, the PTC can provide immediate relief by using an advanced amount to lower your monthly premium or can receive the amount as a refund at tax time.
While the PTC was traditionally designed to help folks with incomes at or below the federal poverty level, temporary expansions have allowed those with incomes above the poverty line to be eligible.
President-elect Donald Trump made several comments during his campaign, casting doubt on the future of the ACA, also known as Obamacare. The enhanced ACA, passed under the Biden administration, cut premiums nearly in half and expanded eligibility for the premium tax credit.
Those provisions are set to expire at the end of 2025 unless Congress acts. So, millions of people are at risk of losing access to affordable healthcare.
GOP lawmakers failed to include an extension of the premium tax credit on their version of Trump’s ‘One Big Beautiful Bill Act,’ which has caused concerns about the future of the tax break. However, they did include some provisions that could add obstacles for certain individuals who want to claim the credit.
All eyes will be on Congress this year to see how they manage the future of the Affordable Care Act program and the premium tax credit.
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