What the Premium Tax Credit Does

The Premium Tax Credit is a federal payment that reduces what you pay each month for health insurance bought through the Health Insurance Marketplace. The government sends the money directly to your insurance company, lowering your monthly bill. You do not pay the full premium yourself — the credit covers part of it.

The credit is based on your household income and the cost of the second-lowest Silver plan in your area. If your income falls between 100% and 400% of the federal poverty line, you may receive a credit. The exact amount depends on where you live, how many people are in your household, and what you reported as your expected income for the year.

This is different from a tax refund. The credit works throughout the year, month by month, not as a lump sum when you file taxes. Your insurance company applies it to your bill before you see the amount due.

Key Takeaways

  • The Premium Tax Credit is a monthly payment from the federal government to your insurance company that lowers your premium.
  • You must buy insurance through the Health Insurance Marketplace (Healthcare.gov or your state's marketplace) to receive the credit.
  • Your income must fall between 100% and 400% of the federal poverty line, though some people below 100% may also receive it depending on state rules.
  • You report your expected household income when you enroll, and the credit amount is based on that number — if your actual income differs, you may owe money back or receive a refund when you file taxes.

How Income Limits Work

The credit is available to people whose household income is between 100% and 400% of the federal poverty line. The poverty line changes each year. For 2024, 400% of the poverty line for a single person is approximately $54,120 per year; for a family of four, it is approximately $111,000 per year. These numbers increase slightly each January.

Your household income includes wages, self-employment income, Social Security, pensions, and other sources. It does not include certain benefits like Supplemental Security Income (SSI) or Temporary Assistance for Needy Families (TANF).

If your income is below 100% of the poverty line, you may still receive a credit in some states that expanded Medicaid. In those states, people below the poverty line are often directed to Medicaid instead. In states that did not expand Medicaid, some people below 100% of the poverty line fall into a coverage gap and cannot receive the credit.

What You Report During Enrollment

When you enroll in a Marketplace plan, you report your expected household income for that year. This is the number the government uses to calculate your credit. You also report the number of people in your household and your filing status.

The credit is based on what you expect to earn, not what you earned last year. If you think your income will be different in the coming year, report that expected amount. If you are unsure, use your most recent tax return or pay stubs as a guide, but adjust for any known changes — a new job, a job loss, a change in hours, or a spouse starting or stopping work.

You can update your income information at any time during the year if your situation changes. Changes that allow you to update include a job loss, a significant increase or decrease in income, marriage, divorce, or a change in household size. When you update, your credit amount may increase or decrease, and your monthly premium will change accordingly.

How the Credit Amount Is Calculated

The government calculates your credit using a formula that compares the cost of the second-lowest Silver plan in your area to a percentage of your household income. That percentage starts at 2% for people at 100% of the poverty line and increases to 8.5% for people at 400% of the poverty line.

Here is how it works in practice: if the second-lowest Silver plan in your area costs $400 per month and the government determines you should pay 4% of your income toward insurance, and 4% of your income equals $150 per month, then your credit is $250 per month. You would pay $150; the credit pays $250.

The credit applies to any plan you choose, not just Silver plans. If you pick a Bronze plan that costs less, you pay less out of pocket but the credit amount stays the same. If you pick a Gold or Platinum plan that costs more, you pay the difference.

What Happens at Tax Time

At the end of the year, you file your taxes and report your actual household income. The IRS compares what you reported when you enrolled to what you actually earned. If you earned less than you reported, you may receive a refund of the extra credit. If you earned more, you may owe some of the credit back.

There are limits on how much you can owe back. For 2024, if your income is below 400% of the poverty line, you owe back no more than $650 for an individual or $1,300 for a family, even if the credit overpayment was larger. These caps increase slightly each year. If your income is at or above 400% of the poverty line, there is no cap — you owe back the full overpayment.

To avoid a large bill at tax time, update your income information in the Marketplace whenever your situation changes. The more accurate your reported income, the closer your credit will be to what you actually owe.

Who Cannot Receive the Premium Tax Credit

You cannot receive the credit if you have access to affordable health insurance through an employer. The government defines "affordable" as a plan that costs no more than 8.39% of your household income (this percentage changes yearly). If your employer offers a plan at that price or lower, you are not may be able to access for the Marketplace credit.

You also cannot receive the credit if you are enrolled in Medicare, Medicaid, CHIP, or TRICARE. If you are a non-citizen, you must have a valid immigration status to receive the credit. Undocumented immigrants are not may be able to access.

If you are claimed as a dependent on someone else's tax return, you cannot receive your own credit. The credit goes to the person who claims you as a dependent.

Frequently Asked Questions

Can I get the credit if I have a job that offers health insurance?

Only if your employer's plan is unaffordable. If the employee premium for self-only coverage is more than 8.39% of your household income, you may be may be able to access for the Marketplace credit. You would need to decline your employer's plan and buy through the Marketplace instead. Check your employer's plan cost and your income to see if you may have access to.

What if my income changes during the year?

Log into your Marketplace account and update your income information. Your credit will be recalculated and your monthly premium will change. If your income drops, your credit usually increases and you pay less. If your income rises, your credit decreases and you pay more. Changes take effect the month after you update.

Do I have to pay the credit back if I earn more than expected?

Yes, but only up to a limit. If your actual income is below 400% of the poverty line, you owe back no more than $650 (individual) or $1,300 (family) in 2024, even if the overpayment was larger. If your income is at or above 400% of the poverty line, you owe back the full amount. Filing taxes is how the IRS settles the difference.

Can I receive the credit if I am self-employed?

Yes. Report your expected net self-employment income for the year. This is your business income minus business expenses. If your income is between 100% and 400% of the poverty line, you may receive the credit. Self-employed people should update their income if their business earnings change significantly during the year.

What if I did not report my actual income correctly when I enrolled?

When you file taxes, the IRS will compare your reported income to your actual income. If you underreported, you may owe some of the credit back (up to the cap if your income is below 400% of the poverty line). If you overreported, you may receive a refund. Correcting the information as soon as you realize the error can reduce the amount you owe at tax time.