Premium Tax Credit
A premium tax credit is available for health insurance coverage purchased from a state Exchange. Exchanges must determine whether individuals are eligible, and the tax credit is paid on an advance basis to the health insurance provider. Individuals are eligible for the tax credit if: (1) their household income is at least 100% and not more than 400% of the Federal Poverty Line (FPL); (2) they are not eligible for governmental coverage (such as Medicare, Medicaid and CHIP); and (3) they are not eligible for employer coverage that is adequate and affordable. Household income is based on the income of the taxpayer and all other individuals in the taxpayer's household who are required to file a tax return.
Premium Premium Tax Credit FAQs
- What is the Federal Poverty Line?
Answer: The Federal Poverty Line is a poverty threshold used for administrative purposes, such as determining financial eligibility for certain federal assistance programs. The FPL is issued each year by the Department of Health and Human Services and published in the Federal Register. The most recent FPL numbers are available by clicking here.
- What is 400% of FPL?
Answer:The following are examples of 400% of FPL in 2012 for different family sizes:
- Individual: $44,680
- Family of 2: $60,520
- Family of 4: $92,200
- Family of 6: $123,880
- When is employer coverage considered to be "adequate"?
Answer: Employer coverage is considered to be adequate if the plan pays at least 60% of the allowable costs covered by the plan. If an employee is eligible for employer coverage that is adequate, the employee is not eligible for a premium tax credit.
- When is employer coverage considered to be “affordable”?
Answer: Employer coverage is considered to be affordable if the employee’s required payment for employee-only coverage does not exceed 9.5% of the employee’s household income. If an employee is eligible for employer coverage that is affordable, the employee is not eligible for a premium tax credit.
- How is the premium tax credit calculated?
Answer: The premium tax credit is the lesser of the premium for the plan in which the taxpayer actually enrolls, or the excess of the premium for a benchmark plan over the applicable percentage of the taxpayer's household income. The benchmark plan is the second lowest cost silver plan available in the individual market in the rating area in which the taxpayer resides. The applicable percentage of the taxpayer's household income represents the amount of the taxpayer's required out-of-pocket contribution to the premium cost if the taxpayer purchases the benchmark plan. The remainder of the premium for the benchmark plan is the premium tax credit amount.
- How is the premium tax credit reconciled?
Answer: The taxpayer's applicable percentage varies with household income, increasing from 2% (household income at 100% of FPL) to 9.5% (household income at 400% of FPL). The premium tax credit is available for the taxpayer and other individuals the taxpayer claims as tax dependents.
Taxpayers receiving the premium tax credit must file an income tax return, even if a return is not otherwise required. On the return, the taxpayer must reconcile advance credit payments with the amount of credit actually allowed. If the allowable credit amount exceeds the advance credit payments, the taxpayer may receive a refund. If the advance credit payments exceed the allowable credit amount, the taxpayer must pay the excess as an additional tax liability. The additional tax liability is capped for taxpayers with incomes below 400% of FPL. - What is the estimated amount of premium tax credit for different household incomes?
Answer: The following table illustrates the estimated premium tax credit amounts for different household incomes:
Source: All data from this chart was estimated using Kaiser Family Foundation's "Health Reform Subsidy Calculator" available at http://healthreform.kff.org/SubsidyCalculator.aspx. The total premium used is the estimated premium for a 45-year old taxpayer with a family of four. - What is the "applicable percentage" for different household incomes?
Answer: The applicable percentage increases on a sliding scale from an initial percentage to a final percentage as a taxpayer's household income increases. The initial and final percentages for each level of household income are shown in the following table:
Household income as % of FPL
Initial Percentage
Final Percentage
Less than 133%
2.0
2.0
At least 133% but less than 150%
3.0
4.0
At least 150% but less than 200%
4.0
6.3
At least 200% but less than 250%
6.3
8.05
At least 250% but less than 300%
8.05
9.5
At least 300% but less than 400%
9.5
9.5
- When is a taxpayer's additional tax liability capped?
Answer: If the advance credit payments exceed the allowable credit amount, the taxpayer must pay the excess as an additional tax liability. The additional tax liability is capped for taxpayers with incomes below 400% of FPL in accordance with the following table:
The additional tax liability is not capped for taxpayers with incomes at or above 400% of FPL. Thus, if advance credit payments are determined based on an expected income of 250% of FPL but the taxpayer's year-end income is 400% of FPL (or higher), the taxpayer will have an additional tax liability equal to the full amount of the advance credit payments.Household income as % of FPL
Limitation for those filing as single
Limitation for those filing in other filing categories
Less than 200%
$300
$600
At least 200% but less than 300%
$750
$1,500
At least 300% but less than 400%
$1,250
$2,500
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Additional Resources
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Federal Poverty Level
Link to the latest levels as established by the federal government
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Health Insurance Exchanges
Learn more about the state Exchanges.
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Individual Mandate
Summary of the requirement to have minimum essential coverage.
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American Fidelity Assurance Company does not provide tax or legal advice.