Do I Qualify for a Tax Credit for Health Insurance?

Lorraine Roberte is an insurance writer for The Balance. As a personal finance writer, her expertise includes money management and insurance-related topics. She has written hundreds of reviews of insurance products.

The premium tax credit is a refundable credit that helps lower the cost of your monthly health insurance premium. You must meet the requirements and file a specific form with your tax return to qualify for it. Find out if you meet the requirements and qualify, and what steps you must take to claim the premium tax credit.

Key Takeaways

• Premium tax credits are refundable credits that help lower the cost of health insurance that's purchased through the Health Insurance Marketplace.
• Your household income must fall within a specific range to qualify for a premium tax credit, at least 100% but no more than 400% of the federal poverty line for the size of their household as of 2022.
• You won't be eligible for the tax credit if you can get affordable health coverage through your employer or if you qualify for a government health insurance program.
• You must file a tax return to claim and reconcile the premium tax credit, even if you don't usually have to file a tax return.

What Is the Premium Tax Credit?

The premium tax credit is part of the Affordable Care Act. It's designed to help lower the cost of monthly health insurance premiums for families or individuals who meet the requirements.

The credit is only available if you enroll in a qualifying plan through the Health Insurance Marketplace. The exchange’s “metal” plans, such as gold or silver, qualify for the credit, but you can't apply the credit toward a catastrophic plan.

You get to decide when you’ll use these funds if you qualify. You can apply them all or in part to your premiums each month, which is referred to as taking advanced payment, or you can wait and claim your entire premium tax credit to get a refund when you file your tax return.

Note

The advanced payment goes to your health insurance company to reduce the amount of your premium. The money isn't paid directly to you.

Who Qualifies for the Premium Tax Credit?

You must meet the following requirements to qualify for the premium tax credit:

• Have a household income between 100% and 400% of the federal poverty level
• File a tax return with a filing status that’s not married filing separately
• Aren’t eligible to be claimed as a dependent on someone else’s tax return

In addition, you or a family member must:

• Have had health insurance through the Marketplace for at least one month
• Not be able to get affordable coverage through your employer
• Not qualify for health insurance through a government program such as Medicaid, Medicare, or TRICARE

Note

The IRS defines "affordable coverage" through your employer as a plan with an annual premium for self-only coverage that doesn't exceed a certain percentage of your household income. It's 9.61% in 2022, dropping to 9.12% in 2023.

Income Requirements

Your household income must fall between 100% and 400% of the federal poverty level based on the size of your household. You can use this chart to see if you meet the income requirements for the premium tax credit if you live in the 48 contiguous states or Washington, D.C.

Add $4,720 for each additional person if there are more than eight people in your household in 2022.

Add $4,540 for each additional person if there were more than eight people in your household in 2021.

Typically, your annual household income must be between the two amounts listed above for your family size, but the American Rescue Plan of 2021 provided a temporary increase in the premium tax credit for 2021 and 2022. No one must pay more than 8.5% of their household income in premiums for benchmark or less expensive plans. Benchmark plans are the second-lowest-priced silver plans available in the Marketplace, and their costs are used to calculate your credit.

You can get an idea of how much your credit might be based on your state, household size, and income using this HealthCare.gov calculator.

Note

Poverty guidelines are different for residents of Alaska and Hawaii. If you live in one of these states, see the U.S. Department of Health and Human Services' ASPE website for your numbers.

How To Get Premium Tax Credits

You must take the following steps to claim the premium tax credit if you meet the requirements.

1. Apply for Health Insurance on the Marketplace

Premium tax credits are only available for Marketplace plans so you must fill out an application for coverage. The amount of your premium tax credit is estimated based on the financial information you provide when you fill out the application.

2. Decide When To Use the Discount

When you have your discounted rate, you get to decide when to use it. You have three options:

1. Have advanced payments sent directly to your health insurer to reduce the amount of your monthly premium.
2. Pay the full monthly premium and claim the tax credit when you file your tax return.
3. Apply some credits to lower your monthly health insurance premiums and claim the rest when you file your tax return.

You’ll have to decide which option makes the most sense for your family. You’ll have to reconcile your account when you file your tax return no matter which option you use.

3. Reconcile Your Accounts

You’ll be using last year’s tax information when you fill out an application on the Marketplace. Those numbers may not accurately reflect your household size and income during the current year so you must reconcile your advance premium tax credit each year.

You must file Form 8962 when you file your tax return if you had advanced payments sent to your insurer. This form compares your actual income for the year with the estimated totals you used when you applied for health insurance.

Note

Your advanced payments may have been too large if you earned more income than you thought you would. This means you may have to repay part or all of this money.

There’s generally a maximum reconciliation payment. The maximum payment ranged between $300 and $2,650 based on family size and income in 2019. The IRS suspended all requirements to repay excess advance payments for the 2020 tax year. This was a temporary measure, and standard rules were reinstated for the 2021 tax year and going forward.

Your advanced payments might have been too small if you earned less money than you thought you would. In this case, you can take the balance back with your tax refund when you file your return.

Other Health Care Tax Credits

The premium tax credit isn’t the only credit available to help you save money on health insurance. The health coverage tax credit is another federal tax credit that helps reduce the cost of insurance for people aged 55 through 64 who receive benefits from the Pension Benefit Guaranty Corp or those who are eligible for Trade Adjustment Assistance allowances due to a qualifying job loss.

You may also qualify for the small business tax credit if you own a small business. You must enroll in a Small Business Health Options Program (SHOP) plan to claim it. There are additional eligibility requirements based on the size of your business and the number of employees you have.

The Bottom Line

Health insurance premiums can be expensive. The premium tax credit can help reduce your monthly bill if you qualify. Make sure you apply to claim your credit.

Frequently Asked Questions (FAQs)

How do health care tax credits affect my tax returns?

You must file a specific form each year to reconcile your tax credit. This process compares the amount of financial help you received to the amount you should have gotten based on your actual earnings and household size. It can impact the amount of your refund or your tax bill if there's a difference between the two.

How much of a tax credit will I get for health care?

Premium tax credits are on a sliding scale. The amount of premium tax credit you qualify for is based on your household size, household income, and the cost of silver plans available through the Marketplace. The total amount of the credit can't be more than the premiums for the plan you enroll in.

How long is the premium tax credit for health care available?

The Affordable Care Act does not include an end date for premium tax credits. Legislation sometimes increases the amount of the tax credit, but the basic credit introduced by the ACA does not expire.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Kaiser Family Foundation. "How Do the Premium Tax Credits Work?"
2. Internal Revenue Service. "Questions and Answers on the Premium Tax Credit."
3. Internal Revenue Service. “Eligibility for the Premium Tax Credit.”
4. Department of Health and Human Services. “Poverty Guidelines.”
5. Department of Health and Human Services. "2021 Poverty Guidelines."
6. Centers for Medicare and Medicaid Services. “American Rescue Plan and the Marketplace.”
7. Internal Revenue Service. "About Form 8962, Premium Tax Credit."
8. Internal Revenue Service. "2019 Instructions for Form 8962." Page 16.
9. Internal Revenue Service. "Suspension of Repayment of Excess Advance Payment of the PTC."
10. Internal Revenue Service. "2021 Instructions for Form 8885.” Pages 1-2.
11. HealthCare.gov. "How To Offer SHOP Health Insurance to Your Employees."

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