Premium Tax Credits

Premium Tax Credits are one of the major mechanisms established by the Affordable Care Act (ACA) to subsidize private health insurance and make it more affordable for low- and moderate-income Americans. Under the ACA, individuals with family incomes from 100 to 400 percent of the federal poverty level are eligible for premium tax credits that cover a portion of the cost of health insurance premiums purchased through the Health Insurance Marketplace. The amount of the credit is on a sliding scale based on the individual’s income and the plan that is purchased. The credit is refundable, meaning that the amount one receives is not limited by the amount of federal income tax one owes. The tax credit may be claimed in advance, but if someone uses more advance payments of the tax credit than they qualify for based on their final yearly income, they must repay the difference when they file their federal income tax return.

In addition to premium tax credits, some lower-income individuals may also be eligible for subsidies to cover the out-of-pocket costs of certain health insurance plans.

The American Rescue Plan Act of 2021 and Inflation Reduction Act of 2022 enacted a series of enhancements to the premium tax credit that increased the amount of the credit and made it available to more households, including by expanding eligibility to households above 400 percent of poverty if premiums exceed 8 percent of their household income. These enhancements are set to expire after 2025 if Congress does not extend them.

In 2024, 92 percent of marketplace enrollees, or 19.7 million people, qualified for premium tax credits.