In this Beyond the Basics webinar presented by the Center on Budget and Policy Priorities on September 16, 2021, Tara Straw, Director of Health Insurance and Marketplace Policy, provides an in-depth review of eligibility rules for premium tax credits—including how offers of employer-sponsored insurance can affect eligibility—as well as how premium tax credits are calculated.

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Jump to:

Premium Tax Credit Eligibility

• What is the Premium Tax Credit (PTC)?
• PTC Eligibility Requirements
• Income Requirements
• Eligible Tax Filing Status
• Exceptions to Joint Filing Requirement for PTC
• Special Rule for Certain Immigrants
• Types of Minimum Essential Coverage (MEC)

Eligibility for Employer-Sponsored Insurance (ESI)

• Eligibility for ESI
• Affordability of ESI
• Minimum Value of ESI
• Health Reimbursement Arrangement (HRA)
• Reconciliation of Overlapping Coverage

Calculation of the Premium Tax Credit

• How is the PTC Calculated?
• Expected Premium Contribution
• Benchmark Plans
• Factors that Affect the Cost of Benchmark Plans & Premiums
• Reporting Changes that Impact PTC
• PTC Repayment Caps

Additional Resources

Yearly Income Guidelines and Thresholds

Employer Coverage & Premium Tax Credit Eligibility Guide

Minimum Essential Coverage Reference Chart

Health Care Assister’s Guide to Tax Rules

Eligibility for subsidies in the Marketplace is determined in part by using specific percentages and thresholds that are indexed and change each enrollment year.

In addition, people who received advance premium tax credits (APTC) in the prior enrollment year will need to complete a tax return for that year and will need to use percentages and thresholds applicable to that tax year.

This reference guide lists all the indexed guidelines and thresholds that change each enrollment year.

Coverage Year 2022 / Tax Year 2021

September 2021

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Coverage Year 2021 / Tax Year 2020

March 2021 (updated to reflect changes to premium tax credits in the American Rescue Plan)

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Coverage Year 2020 / Tax Year 2019

October 2019

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Coverage Year 2019 / Tax Year 2018

June 2018

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Coverage Year 2018 / Tax Year 2017

November 2017

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In this Health Reform: Beyond the Basics webinar presented by the Center on Budget and Policy Priorities on September 22, 2020, Tara Straw, Senior Policy Analyst, provides an in-depth review of eligibility rules for premium tax credits—including how offers of employer-sponsored insurance can affect eligibility—as well as how premium tax credits are calculated.

↓ View Presentation Slides (PDF)

Jump to:

Premium Tax Credit Eligibility

• Income requirements
• Eligible tax filing status and exceptions

Employer-Sponsored Insurance

• Requirements of ESI
• Examples
• Additional rules and exceptions
• HRAs

Calculation of the Premium Tax Credit

• Expected premium contribution
• Benchmark plans
• Examples
• Repayments

Additional Resources

Yearly Income Guidelines and Thresholds

Employer Coverage & Premium Tax Credit Eligibility Guide

Minimum Essential Coverage Reference Chart

Health Care Assister’s Guide to Tax Rules

Updated September 2020

The health reform law changed the way Medicaid and CHIP determine eligibility for most beneficiaries to align with how eligibility for premium tax credits is determined in the Marketplaces.  All three coverage programs determine a household’s size and income using tax rules.  The Center on Budget and Policy Priorities developed The Health Care Assister’s Guide to Tax Rules to familiarize people who are helping consumers apply for Medicaid, CHIP and premium tax credits with the tax rules that are applied in determining eligibility for these programs.

The guide explains the basics of who must file taxes, different filing status options, rules for claiming tax dependents, rules for determining Medicaid and CHIP households and how these rules differ from rules for premium tax credit, as well as what sources of income are considered taxable and therefore counted in determining Medicaid and premium tax credit eligibility.  The guide is meant to give health care assisters a basic understanding of these rules to help guide discussions with applicants.

Millions of uninsured Americans are eligible for a premium tax credit to help them pay for health coverage. The premium tax credit is only available to people without another offer of affordable and adequate coverage; in most cases, this will mean that people with an offer of employer-sponsored coverage will not be eligible for the premium tax credit. The following Q&A explains how employer-sponsored health insurance affects a family’s eligibility for a premium tax credit, and when employees and their family members can forgo an offer of employer coverage and purchase coverage in the health insurance marketplace with the help of a premium tax credit.

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Are employers required to offer health insurance to employees and their family members?

No. Large employers (those with at least 50 full-time employees) have the choice to offer coverage to their full-time employees and their dependents, not including spouses, or to make a shared responsibility payment to the government on behalf of each full-time worker. Small employers (those with fewer than 50 full-time employees) will not make a shared responsibility payment if they fail to offer coverage. Some small employers that do cover their workers will qualify for a tax credit to help pay the employer’s share of premiums.

Can part-time workers get coverage from their employers?

That decision is made by employers. Employers are not required to offer health insurance coverage or pay a shared responsibility payment for employees who work fewer than 30 hours per week. If an employer does not offer coverage to part-time workers, those employees may be eligible for premium tax credits to help pay for coverage purchased in the marketplace. If an employer does choose to offer coverage to part-time workers, those workers will only be eligible for premium tax credits if the employer’s offer of coverage is unaffordable or if it does not meet “minimum value,” which is a measure of the health plan’s share of expected costs.

Can someone who is offered employer-sponsored coverage qualify for a premium tax credit?

In most cases, no. An offer of employer-sponsored coverage generally makes an employee ineligible for a premium tax credit. The exception is if the employer-sponsored coverage is unaffordable or fails to meet the minimum value standard. If the coverage is affordable and adequate, the employee will be ineligible for a premium tax credit regardless of whether the employee chooses to enroll in the employer-sponsored coverage. However, if the employer’s health plan does not offer adequate coverage or is not affordable, the employee can choose to enroll in coverage in the marketplace and can qualify for a premium tax credit.

Employer-sponsored coverage meets the minimum value test and is considered adequate if it covers at least 60 percent of the total cost of benefits expected to be incurred under the plan. Employer-sponsored coverage is considered to be affordable if the contribution required to cover the employee is less than 9.83 percent of the employee’s household income in 2021.^[1] Employer-sponsored coverage must meet both tests; otherwise, the employee may forgo the employer’s offer and potentially qualify for a premium tax credit in the marketplace (an event sometimes referred to as “jumping the firewall.”)

How do you measure the adequacy of employer-sponsored coverage?

Employer-sponsored coverage is adequate if it meets the minimum value test. A plan meets this test if it is designed to pay at least 60 percent of the total cost of benefits expected to be incurred under the plan. This is not something that employees can determine on their own — it is a technical calculation usually determined by an actuary. Employees can learn whether their health plan meets minimum value by requesting a Summary of Benefits and Coverage (SBC) from their employer. The SBC is a required plan document and should clearly state whether the plan meets the minimum value requirement.

What benefits must employer-sponsored insurance cover?

Every health plan, including all employer-sponsored coverage, is required to meet important standards. First, plans cannot place lifetime or annual caps on coverage. In addition, plans must limit enrollees’ out-of-pocket expenses so an individual enrollee will not pay more than a certain amount for in-network care in a calendar year. (In 2021, the maximum out-of-pocket limit is $8,550.)^[1] In addition, all plans (except grandfathered plans in place prior to when these standards became effective) must cover preventive services with no cost sharing.

Most small employers that offer coverage purchase it in the small-group insurance market, which requires that every plan cover ten categories of services known as the essential health benefits.

How is the affordability of employer-sponsored coverage measured?

Employer-sponsored coverage is considered to be affordable to the employee if the employee’s share of the premium is less than 9.83 percent of the employee’s household income in 2021, regardless of the cost to cover family members. If coverage is affordable and meets minimum value, the employee is not eligible for a premium tax credit. For example:

• Jose and Alma Reyes are married and have two children. Jose has an annual salary of $25,000. Alma earns $10,000 from part-time work. Jose’s share of the premium for his employer-sponsored health insurance is $2,500 per year to cover only him (or 7.1 percent of household income). Jose’s health insurance is considered affordable because it costs less than 9.83 percent of Jose and Alma’s household income, even though it is 10 percent of Jose’s income alone. If their household income decreases — for example, if Alma loses her job — then Jose’s insurance would not be considered affordable. In that situation Jose and Alma could “jump the firewall” and become eligible for a premium tax credit. [In either scenario, their children are likely eligible for Medicaid or the Children’s Health Insurance Program (CHIP).]

How do you measure the affordability of family coverage offered by an employer?

Employee-only coverage is considered to be affordable if it costs less than 9.83 percent of household income in 2021. If employee-only coverage is affordable, any offer of coverage for dependents is automatically considered affordable as well. This means that coverage offered by an employer to dependents may cost more than 9.83 percent of income and still be deemed affordable as long as employee-only coverage costs less than 9.83 percent of income. In such cases, the dependents are not eligible for a premium tax credit because they are considered to have affordable employer-sponsored coverage. Using the earlier example of Jose and Alma Reyes:

• Jose and Alma are married and have two children. Jose and Alma have combined annual income of $35,000. Jose’s employer offers employee-only and family coverage. Employee-only insurance costs $2,500 per year (7.1 percent of household income) and coverage for the entire family costs $6,000 per year (17 percent of family income). Family coverage is considered affordable, even though it costs more than 9.83 percent of household income, because Jose’s employee-only insurance is affordable. The offer of affordable family coverage means that Jose, Alma and their children are not eligible for a premium tax credit, even if they turn down the employer offer of family coverage and instead opt for employee-only coverage or no coverage at all.

If a family has multiple sources of insurance for which they pay multiple premiums, do those costs factor into the affordability test?

No. Some families pay multiple premiums for multiple sources of insurance. For instance, each spouse may pay a premium for coverage under their respective employers’ insurance and the children may be enrolled in CHIP for a premium. The affordability test for eligibility for premium tax credits is limited to the cost of employee-only coverage as compared to the household income, regardless of other insurance or medical costs the family may incur.

What if the employer doesn’t offer family coverage?

Some employers offer coverage for employees only, or for employees and their children, and do not offer spousal coverage. Large employers will face a penalty for failing to offer coverage to full-time employees and their dependents if at least one employee receives a premium tax credit for marketplace coverage. There is no penalty for failure to offer coverage to the employee’s spouse. If no plan offered by the employer covers the spouse or children, the spouse or children may purchase insurance in the Marketplace and qualify for a premium tax credit, assuming all other eligibility rules are met.

• It’s a new plan year and Jose’s employer has changed its coverage options. Now, Jose’s employer offers employee-only and employee-plus-children coverage. They’ve dropped the family coverage option so Alma no longer has an offer of coverage. Employee-only insurance costs $2,500 per year (7.1 percent of income) and coverage for the employee plus children costs $4,500 per year (12.8 percent of income). The “employee plus children” option is considered affordable, even though it costs more than 9.83 percent of income, because Jose’s employee-only insurance is affordable. This means that Jose and his children are not eligible for premium tax credits, whether or not they accept this coverage option. Alma doesn’t have an offer of coverage through her own or Jose’s employer so she may be eligible for a premium tax credit to purchase coverage in the marketplace.

Are part-time workers eligible for a premium tax credit?

The affordability and adequacy of an employee’s health plan is measured the same way, regardless of whether the employee is designated as full-time or part-time. If a part-time worker is offered insurance that costs less than 9.83 percent of household income and meets minimum value, the worker will not be eligible for a premium tax credit. However, if a part-time worker is offered insurance that is unaffordable or is below minimum value — or if he is not offered coverage at all — then he may be eligible for a premium tax credit, assuming all other requirements are met.

Does employer-sponsored coverage have to fail both the affordability and minimum value tests to allow an employee and dependents to become eligible for a premium tax credit?

No, the offer of employer-sponsored coverage does not need to fail both tests. An employee can qualify for premium tax credits when no plan offered by the employer is both affordable and meets minimum value. For example, if an employer offers a plan that is very low-cost for the employee but has a minimum value of less than 60 percent, the employee can turn down the plan and qualify for a premium tax credit. However, if the employee enrolls in the plan, the employee will not be eligible for a premium tax credit. During the marketplace open enrollment period, an employee who enrolls in an employer plan that is not affordable or not minimum value can drop that plan and enroll in a marketplace qualified health plan (QHP) with a premium tax credit, assuming the employee meets all other eligibility requirements.

Is all employer-sponsored insurance required to meet the affordability and minimum value tests?

No, not every plan an employer offers is required to meet the affordability and minimum value tests. For example, an employer could offer three plans: Plan 1 that meets both affordability and minimum value, Plan 2 with comprehensive benefits but high premiums that is not considered affordable for all employees, and Plan 3 that has very low premiums but limited coverage that fails to meet minimum value. The employer can offer, and the employee can select, any of these plans. Regardless of which plan employees choose, they will not qualify for premium tax credits in the Marketplace because the employer offers at least one plan (Plan 1) that meets both affordability and minimum value. For the employee, any employer plan he accepts qualifies as minimum essential coverage to meet his obligation to obtain coverage, even if the plan’s benefits don’t meet the minimum value test.

How will the marketplace confirm whether an applicant for the premium tax credit has employer-sponsored insurance?

When a person fills out the marketplace application, they are asked questions about any offers of employer-sponsored coverage. The application asks if insurance is offered, whether it meets minimum value, its cost, and whether any waiting period applies to determine whether the employee is eligible for a premium tax credit despite having an offer of coverage. The marketplace will use information to determine whether the offer bars eligibility for PTC. Employers share data with the marketplace and the IRS to identify the people who have been offered employer-sponsored insurance (and insurers prepare a similar report that identifies who was enrolled in coverage).

If the person doesn’t have that information readily available, they can request download a form called the Employer Coverage Tool to be completed by the applicant’s employer or with the employer’s help. If the employer doesn’t assist in completing the document, the applicant can try to find this information in other ways. For example, the employee can find premium costs in information provided during their most recent open enrollment period. In addition, the minimum value of every plan should be on its Summary of Benefits and Coverage (SBC), a document that all plans — including employer-sponsored plans — are required to produce.

Does an offer of retiree coverage prevent someone from receiving a premium tax credit?

A person who is eligible for retiree coverage does not have to demonstrate that the retiree coverage offer was unaffordable or failed to meet minimum value to qualify for a premium tax credit. The retiree will be eligible for a credit if he meets all other criteria for eligibility. This is in contrast to other offers of employer-sponsored coverage which disqualify an employee from receiving a premium tax credit whether or not the coverage is accepted (assuming the coverage meets the affordability and minimum value tests). However, if the retiree actually enrolls in the retiree plan, it is considered minimum essential coverage and becomes a barrier to receiving premium tax credits. People who are enrolled in retiree coverage generally must wait until the marketplace open enrollment period to drop that coverage and enroll in a QHP with a premium tax credit.

If an employer offers retiree coverage, but does not extend it to the retiree’s spouse, will the spouse be eligible for a premium tax credit?

Yes, assuming that other requirements are met, the spouse will be eligible for a premium tax credit in the marketplace. The retiree’s eligibility for retiree coverage will not affect the spouse’s eligibility for a premium credit.

Does an offer of COBRA coverage prevent someone from receiving a premium tax credit?

COBRA is continuation coverage that is available to workers and their families after certain circumstances make them no longer eligible for the worker’s employer plan. The same rules that apply to people who are eligible for retiree coverage apply to people who are eligible for COBRA. Like retiree coverage, an offer of COBRA does not bar someone from being eligible for a premium tax credit. It is only a barrier to receiving the credit if the person actually enrolls. During the marketplace open enrollment period, an individual enrolled in COBRA could drop that coverage and enroll in a marketplace plan with a premium tax credit, if otherwise eligible.

Does an offer of domestic partner coverage for unmarried, cohabitating couples create a firewall from premium tax credit eligibility?

Some employers offer health coverage for domestic partners (whether of the same or opposite sex). In most cases, the offer of coverage would not prevent the domestic partner from being eligible for premium tax credits. A person who is offered coverage because of his or her relationship to an employee, but who does not file a joint tax return as a spouse or is not claimed as a dependent on the employee’s tax return, may turn down the offer of coverage and be eligible for a premium tax credit, if all other tests are met. However, an employee’s spouse or dependent who is offered coverage through the employer cannot qualify for a premium tax credit unless the coverage is unaffordable or fails to meet the minimum value test.

If an employer gives employees a stipend for coverage instead of providing health insurance, are those employees still eligible for a premium tax credit?

Yes. Some employers offer a cash “stipend” instead of offering health insurance. This cash stipend is taxable income, similar to a bonus or a pay raise, and cannot be conditioned on the purchase of health insurance or made through payroll deductions. This type of employer assistance does not disqualify a person from receiving a premium tax credit. Employers cannot reimburse employees for the cost of their marketplace premiums using pre-tax dollars.

Can someone who is self-employed qualify for a premium tax credit?

Yes. A person who is self-employed can enroll in coverage through the marketplace and potentially qualify for a premium tax credit. A self-employed person who has employees (other than independent contractors) can purchase coverage for employees in the Small Business Health Options Program (SHOP) Marketplace.

Can a person enroll and qualify for a premium tax credit if he or she was offered employer-sponsored coverage but missed the employer’s open enrollment period?

In general, no. Some people may have missed their opportunity to enroll in their employer-sponsored plan. However, if the insurance offered by the employer was affordable and met minimum value, that employer offer still counts as an offer of minimum essential coverage that prevents a person from being eligible for a premium tax credit. A person in this position may enroll in marketplace coverage during an open or special enrollment period but will be ineligible for financial help.

^[1] This percentage is indexed and will change each enrollment year. For yearly guidelines, see Reference Chart: Yearly Guidelines and Thresholds.

View all key facts

As a result of the Affordable Care Act (ACA), millions of Americans are eligible for a premium tax credit that helps them pay for health coverage. This Q&A explains who is eligible for the tax credit, how the amount of an individual or family’s credit is calculated, how mid-year changes in income and household size affect tax credit eligibility, and how the reconciliation between the tax credit amount a person receives and the amount for which he or she was eligible will be handled.

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What is the premium tax credit?

The ACA created a federal tax credit that helps people purchase health insurance in health insurance marketplaces (also known as exchanges). The “premium tax credit” is available immediately upon enrollment in an insurance plan so that families can receive help when they need it rather than having to wait until they file taxes. People can choose to have payments of the premium tax credit go directly to insurers to pay a share of their monthly health insurance premiums charged or wait until they file taxes to claim them.

Who is eligible for a premium tax credit?

The premium tax credit is available to individuals and families with incomes between the federal poverty line and 400 percent of the federal poverty line^[1] who purchase coverage in the health insurance marketplace in their state. A premium tax credit is also available to lawfully residing immigrants with incomes below the poverty line who are not eligible for Medicaid because of their immigration status.

To receive a premium tax credit, individuals must be U.S. citizens or lawfully present in the United States. They can’t receive a premium tax credit if they are eligible for other “minimum essential coverage,” which includes most other types of health insurance such as Medicare or Medicaid, or employer-sponsored coverage that is considered adequate and affordable.

In 2014, a Supreme Court decision gave states the choice whether to expand Medicaid to cover adults with incomes below 138 percent of the poverty line. As a result, individuals earning between 100 and 138 percent of poverty can qualify for a premium tax credit in states that do not expand Medicaid, if states don’t already cover those individuals.

What kind of marketplace health plan can someone buy with the credit?

People can use their premium tax credit to buy four different types of plans offered through the marketplace in their state: bronze, silver, gold, and platinum. All plans sold in the marketplace must meet standards to ensure they provide adequate coverage. However, the plans vary, with bronze plans providing the least comprehensive coverage and platinum plans the most comprehensive.

In general, bronze plans require the most overall “cost sharing,” which means costs like deductibles and co-pays. Platinum plans would have the least overall cost sharing. For example, a bronze plan will likely have a higher deductible than a silver plan, while a platinum plan will likely have a lower deductible than a silver plan. People can purchase any of the four types of plans. But, cost-sharing reductions (which are available to people with incomes up to 250 percent of the poverty line) that lower deductibles and the total out-of-pocket costs under the plan, are only available to people who purchase a silver plan. (For more information on cost-sharing reductions, see Key Facts: Cost-Sharing Reductions)

Marketplaces also display catastrophic plans that are less comprehensive than bronze plans, but they are only available to people under the age of 30 and those who receive a marketplace exemption due to hardship or lack of an affordable insurance option. A premium tax credit cannot be used to buy these plans.

How much help do people get?

To calculate the premium tax credit, the marketplace will start by identifying the second-lowest cost silver plan that that is available to each member of the household, called the “benchmark plan.” The amount of the credit is equal to the total cost of the benchmark plan (or plans) that would cover the family minus the individual or family’s expected contribution for coverage (see Figure 1).

FIGURE 1: Calculation of the Premium Tax Credit

The individual or family is expected to contribute a share of their income toward the cost of coverage. That share is based on a sliding scale. Those who earn less have a smaller expected contribution than those who earn more, as shown in Table 1. For example:

• John is 24 years old and has an annual income of $25,520, which equals 200 percent of the poverty line. His expected contribution is 6.52 percent of his income, or $1,663 a year. The benchmark plan available to John is priced at $5,000; John would be eligible for a credit amount of $3,337 ($5,000 minus $1,663).
• Peter, Mary and their two children have an annual income of $65,500, which translates to 250 percent of the federal poverty line. At this income level, the family’s expected contribution is 8.33 percent of their income, or $5,456 a year. In the area where Peter and Mary live, the total premiums for the benchmark plan that would cover all members of the family is $15,000. The credit amount that the family would be eligible for is $9,544, which is $795 a month. ($15,000 minus their expected premium contribution of $5,456). An advance payment of $795 a month will be paid directly to the insurer offering the health plan that the family selects; the family would be responsible for paying the remaining premium to the insurer.

How does the marketplace determine the applicable benchmark plan?

The benchmark plan is the second lowest-cost silver plan that is available to each member of the household. In many cases, such as for single individuals or for parents and their dependent children, coverage can be obtained through a single policy. In cases where there may not be a silver plan offered through the marketplace that covers every single member of the household who is eligible for a premium credit (for example, because of the relationships of the individuals in the household), the benchmark may be based on the second lowest-cost silver option for the combined value of more than one policy.

The following example illustrates how the marketplace would determine the applicable benchmark plan in some different situations:

• Example 1: Single individual obtaining self-only coverage.  John is eligible for a premium tax credit, with an expected contribution of 6.52 percent of his income, or $1,656 a year. The three lowest cost silver plans providing self-only coverage in John’s area are Plans A, B, and C, priced at $4,800, $5,000, and $5,200, respectively. Plan B, which is the second lowest cost silver plan, will be used as the benchmark.
• Example 2: Parents and two children obtaining family coverage.  Peter, Mary, and their two children have income at 250 percent of the federal poverty line, qualifying them for a premium tax credit with an expected contribution of 8.33 percent of income, or $5,460. The benchmark plan in this case is the second lowest cost silver plan that covers the entire family. In the area where the family lives, the three lowest cost silver plans that cover the entire family are Plans A, B, and C, which cost $14,800, $15,000, and $15,200, respectively. Plan B, which is the second lowest cost silver plan, will be used as the benchmark.
• Example 3: Parents and two children obtaining coverage only for the parents.  The circumstances are the same as in Example 2, except that the family now lives in a state that has a higher income eligibility level for CHIP coverage so that the two children are ineligible for a premium credit because they qualify for CHIP. Peter and Mary’s household income would be the same at 250 percent of the poverty line, and their expected annual contribution would stay at $5,460. The applicable benchmark in this case is the second lowest silver plan that covers just Peter and Mary. The three lowest cost silver plans that cover Peter and Mary are Plans A, B, and C, which cost $9,800, $10,000, and $10,200, respectively. Plan B, which is the second-lowest cost silver plan, will be used as the benchmark in calculating the premium tax credit amount.
• Example 4: Members of a tax household residing in different locations.  The circumstances are the same as in Example 2, except that one child is attending college in a different part of the state where services are considered out of network and would not be covered by Peter and Mary’s plan. As a result, the family decides to purchase a separate plan where the child attends college and resides for most of the year. The three lowest cost silver plans that would cover Peter, Mary, and the younger child are Plans A, B, and C, which cost $12,300, $12,500, and $12,700, respectively. The three lowest cost silver plans that would cover the child in college are Plans D, E, and F, which cost $2,400, $2,500, and $2,600, respectively. In this case, the marketplace will add the premiums for Plans B and E to get the benchmark premium that will be used to calculate the premium credit amount for the family.

Does the premium tax credit account for differences in the price of plans based on age, location, and other factors?

The amount of the premium tax credit that an individual or family receives will take into account family size, geographic area, and age. For example, older people will get a larger premium credit than younger people, and an individual who lives in a high-cost state would receive a larger premium credit than an individual with the same characteristics who lives in a low-cost state. However, the premium tax credit will not cover the portion of the premium that is due to a tobacco surcharge. The following examples illustrate how age and tobacco use will affect the amount of the premium tax credit:

• John is 64 years old and has an annual income of $25,520, or 200 percent of the poverty line, which qualifies him for a premium tax credit. His expected contribution is 6.52 percent of his income, or $1,656 a year. Because he is 64 years old, John’s premium could be as much as three times the cost of the premium for someone who is 24 years old. Assuming John’s premium is $15,000, his expected contribution would still be $1,656 a year, the same as the expected contribution for a 24-year old, and his premium credit would be much larger, $13,344 in this example ($15,000 minus $1,656).
• As in our original example, John is 24 years old. As a non-smoker, the benchmark plan available to John is priced at $5,000 so John would be eligible for a credit amount of $3,344 ($5,000 minus $1,656). If John was a smoker, however, in most states insurers could charge him as much as one and a half times the usual premium. This would raise the cost of the second lowest cost silver plan to $7,500. However, John’s premium credit amount would not be adjusted to account for the additional $2,500 in premiums he would be charged because he is a tobacco user. As a result, even with a premium tax credit, it would cost him an additional $2,500 to purchase the benchmark plan.

Do people who receive a premium tax credit ever have to pay more than their expected contribution?

How much people will have to pay for coverage depends on the plan they choose. People can use the premium tax credit to buy a bronze, silver, gold, or platinum plan. The amount of the credit generally stays the same, regardless of which plan a person selects.

Gold and platinum plans will have higher premiums than the silver benchmark plan used to calculate the premium tax credit amount, so people will have to pay more than their expected contribution towards the premiums for these plans.

Bronze plans usually cost less than the benchmark plan. So, if an individual or family chooses a bronze plan, their share of the premium will be lower and possibly even zero. (The premium tax credit cannot exceed the plan premium,)

People must purchase a silver plan in order to get help with their cost-sharing expenses. So, purchasing a bronze plan may not be the lowest-cost option for an individual or family when all their out-of-pocket health care costs are considered.

Here’s how it would work, using the earlier example of John, a single individual:

• John is 24 years old and his annual income is equal to 200 percent of the poverty line. In 2021, based on the cost of the benchmark plan and his expected contribution, he is eligible for a credit amount of $3,344 for the year. The benchmark plan for John costs $5,000 per year. There is also a bronze plan available that would cost $3,300 per year and the lowest-cost silver plan that would cost $4,500.
• If John purchases the benchmark plan, he will have to contribute $1,656 for the year (the $5,000 premium minus the $3,344 premium credit), but he will also be eligible for the cost-sharing reductions that will lower how much he will pay in deductibles and other out-of-pocket costs. If John purchases the cheapest silver plan which costs $4,500 a year, his contribution would go down to $1,156 for the year.
• If John purchases the bronze plan that costs $3,300 a year, he would not have to pay any premiums because the premium tax credit would cover the cost of the entire premium. (Even though John is eligible for a credit of $3,344, he could only claim a credit of $3,300, the bronze plan premium.)  He would not be able to receive cost-sharing reductions. This means that while John’s share of the premium will be zero under the bronze plan, he will have larger deductibles and co-payments when he needs health care services. His overall out-of-pocket health care costs (premiums and cost-sharing charges) could end up being higher under the bronze plan than under the silver plan, depending on how much health care he uses.

How do people qualify for the premium tax credit?

People can apply through the Health Insurance Marketplace online, by mail, or in person. (The open enrollment period for coverage in 2021 is November 1, 2020 through December 15, 2020, and some states with State-Based Marketplaces have longer open enrollment periods.) Applicants need to provide information on their income, the people in their household, how they file their taxes, and whether they have an offer of health coverage through their job. Based on the information provided in the application, the marketplace determines whether members of the household are eligible for a premium tax credit or other health care programs like Medicaid and the Children’s Health Insurance Program (CHIP).

Do people need to wait until they file taxes to receive the premium tax credit?

No. People can choose to receive the credit in advance. Many people wouldn’t be able to afford the entire premium upfront and wait until they file taxes to get reimbursed. Getting the premium tax credit in advance allows them to pay their monthly insurance premiums and enroll in coverage purchased through the marketplace. This is how it works:

• John is eligible for a premium tax credit of $3,344 a year. During the open enrollment period, he chose to purchase the second-lowest cost silver plan (the benchmark plan), which has an annual cost of $5,000. He decided to take the premium tax credit in advance, which means that the IRS sends a monthly payment of $279 ($3,344 divided by 12) directly to his health insurer. This brings down John’s portion of the health insurance premium from $417 to $138 per month, which he pays the insurer.

People who receive advance payments of the premium tax credit will need to file taxes for the year in which they receive them. For example, someone who received advance payments of the credit for the 2020 calendar year will need to file a tax return and reconcile their APTC for 2020 before the April 2021 deadline.

Also, married couples who receive advance payments will need to file a joint return to qualify for the premium tax credit. There is an exception to this rule for survivors of domestic violence and individuals who have been abandoned by their spouses. In addition, an individual who is married but who qualifies to file taxes as Head of Household can also qualify for a premium tax credit.

What if someone has not filed a tax return in the past?

People who did not file a tax return in prior years can still qualify for a premium tax credit if they are otherwise eligible, but they will have to file a return for years they receive advance payments of the premium tax credit to qualify in future years.

Do people have to take the premium tax credit in advance?

No. Most people want to get the credit in advance because they can’t pay their entire monthly health insurance premiums without help, but if they choose, people can wait and receive the credit when they file their taxes.

People can also take a lower advance payment than the amount that is calculated based on their estimated income for the year and receive any remaining credit they are due at tax time.

What happens when people who get a credit in advance file their taxes?

The amount of the advance premium tax credit that people receive is based on a projection of the income the household expects for the year. The final amount of the credit is based on their actual income as reported on the tax return for the year the advance payment was received.

People who receive advance payments of the credit will have to reconcile the amount they received based on their estimated income with the amount that is determined based on their actual income as reported on their tax return. This means that people whose income for the year is higher than they previously estimated could have to pay back some or even all of the advance payments they received. On the other hand, people whose income ends up lower than estimated could get a refund when they file their taxes. For example:

• Peter, Mary, and their two children estimate that their 2021 income will be $56,475. The marketplace determines that they are eligible for a premium tax credit of $10,793 for the year. Peter and Mary decide to take the credit in advance, and the money is sent directly to the insurer. When Peter and Mary file their 2020 taxes in February 2021, it turns out that their income was a little bit higher than they estimated because Peter received a $2,000 bonus at the end of the year. The family’s final credit amount is $296 less than the advance payments they received — $10,497 instead of $10,793. This means that at tax time, if the family was due to receive a refund, the refund would be reduced by $296. If they were not getting a refund, they would have to pay $296 to the IRS.
• On the other hand, if Peter and Mary’s actual income for 2020 was $2,000 lower than they estimated, their final credit amount would be $11,100. This means the family received $307 less in advance payments than they were eligible for. At tax time, the family would either receive an additional $307 refund, or if they owed taxes, the amount they owe would be reduced by $307.

One special rule is that if the advance payments received by people are greater than the final credit amount for which they are eligible, their repayment will be capped if their income is less than 400 percent of the poverty level. Table 2 shows the repayment limits. Note that if income for the year exceeds 400 percent of the poverty line, the individual or family would have to repay the entire amount of the advance payments they received.

What happens if people’s income or circumstances change during the year? How does that affect their eligibility for a premium tax credit?

People who experience changes in income and household size over the course of the year should report these changes to the marketplace when they happen because those changes can affect the amount of their premium tax credit. People whose incomes go down may be able to get a higher advance payment of the premium tax credit for the rest of the year, which would lower their monthly premium payments. (They also may receive more help with their cost sharing.) People whose incomes increase should report the change to have their credit for the rest of the year lowered and avoid having to pay back excess advance payments when they file their taxes. Household changes, which affect family income as a percent of the federal poverty level, such as having a baby or having a child leave the home, will also affect the amount of the credit and should be reported.

Another way people with fluctuating or unpredictable income can avoid having to pay back advance payments at tax time is to take less than the amount calculated based on their estimated income.

People who receive advance payments of the premium tax credit and who, partway through the year, receive an offer of employer coverage that is considered affordable and adequate should also report this change to the health insurance marketplace, as should those who become eligible for other coverage, such as Medicare or Medicaid. Having other “minimum essential coverage” would make people ineligible for a premium credit for the rest of the year.

Can people who don’t have to pay federal income taxes take advantage of the premium tax credit?

Yes. The premium tax credit is refundable, so people whose income taxes are lower than their premium tax credit can still take advantage of the credit. People eligible for the credit will be entitled to the full credit amount whether they take it in advance or wait until they file their taxes. For example:

• With an annual income of $24,280 for 2020, John is eligible for a premium tax credit of $3,412 for the year. John enrolls in a silver plan. In February 2021, when John files his 2020 tax return, John’s federal tax is $1,500. He will receive the full premium tax credit amount of $3,412 even though the amount of the credit is larger than his federal income tax liability.

^[1] The marketplace uses the federal poverty guidelines available during open enrollment to determine premium tax credit amounts for the following year (e.g. 2020 guidelines for 2021 coverage).
^[2] These percentages are indexed and will change each enrollment year. For yearly guidelines, see Reference Chart: Yearly Guidelines and Thresholds.

View all key facts

December 2019

This guide explains eligibility rules for individuals with offers of employer-sponsored coverage. It covers how to determine whether employer-sponsored coverage is affordable and minimum value, as well as special rules that reduce an employee’s required contribution.

The guide also offers details and examples on how ICHRAs and QSEHRAs work with marketplace plans.

Click here for the Employer Coverage & Premium Tax Credit Eligibility guide 

Additional Resources

Webinar OE7: Eligibility Rules for Premium Tax Credits

Guide: The Health Care Assister’s Guide to Tax Rules

In this Health Reform: Beyond the Basics webinar presented on October 3, 2019, Tara Straw, Senior Policy Analyst, provides an in-depth review of eligibility rules for premium tax credits—including how offers of employer-sponsored insurance can affect eligibility—as well as how premium tax credits are calculated.

↓ View Presentation Slides (PDF)

Watch the Webinar

Additional Resources

Reference Guide: Yearly Guidelines and Thresholds

Key Facts:

• The Premium Tax Credit
• Employer-Sponsored Coverage and PTC Eligibility

Reference Chart: Minimum Essential Coverage

Guide: Health Assister’s Guide to Tax Rules

OE7 Webinar: Determining Households and Income for PTCs and Medicaid

Beyond the Basics Webinar Series | View all webinars

Key Facts About Health Reform | View all key facts

Tools and Resources | View all tools and resources

Frequently Asked Questions | View FAQs

In this Health Reform: Beyond the Basics webinar presented on September 13, 2018, Tara Straw, Senior Policy Analyst, provides a detailed discussion of eligibility for the premium tax credit—including how offers of employer-sponsored insurance can affect eligibility—as well as how the credit is calculated.

This is Part I is a four-part series on core elements of eligibility and enrollment.

Presentation Slides

↓ View presentation slides (PDF) 

Watch the Webinar

Overview

Jump to video section, View slides 

Open enrollment 6 for coverage year 2019

Overview of the coverage landscape

Premium Tax Credit Eligibility

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Definition of the premium tax credit

Income requirements (video section, slides)

Ineligible for other minimum essential coverage (video section, slides)

• Offers of employer-sponsored coverage

Eligible filing status (video section, slides)

• Exceptions to the joint filing requirement

Calculation of the Premium Tax Credit

Jump to video section, View slides 

How is the amount of PTC calculated?

• Cost of benchmark plan
• Expected premium contribution

Examples:

• Impact of benchmark plan cost on PTC calculation
• Impact of expected contribution on PTC calculation
• Impact of age on PTC calculation
• Impact of plan choice on premiums
• Impact of “silver loading” on premiums

Reconciliation of the Premium Tax Credit

Jump to video section, View slides 

Reconciliation of the PTC and repayment limits

Potential issues:

• Failure to pay premiums
• Only Column A of Form 1095-A is completed

Overlapping coverage

Q&A

Additional Resources

Resources | View resources links

Reference Guide: Yearly Guidelines and Thresholds

Key Facts:

• The Premium Tax Credit
• Employer-Sponsored Coverage and PTC Eligibility

Reference Chart: Minimum Essential Coverage

Guide: Health Assister’s Guide to Tax Rules

Webinar OE6: Determining Households and Income for PTC and Medicaid

Beyond the Basics Webinar Series | View all webinars

Key Facts About Health Reform | View all key facts

Tools and Resources | View all tools and resources

Frequently Asked Questions | View FAQs

Georgetown University’s Center on Health Insurance Reforms (CHIR) has updated and improved their comprehensive resource manual: the Navigator Resource Guide. The Guide is a practical, hands-on resource with over 300 frequently asked questions (FAQs) on topics such as marketplace eligibility, premium and cost-sharing assistance, the individual mandate, and post-enrollment issues for individuals. It also provides answers to commonly asked questions for small businesses and individuals with employer based coverage.

Researchers at CHIR will periodically update the Navigator Resource Guide to capture emerging issues and questions from the field.

↓ View the Navigator Resource Guide