The Premium Tax Credit reduces what you pay for health insurance each month

The Premium Tax Credit is money the federal government sends to your health insurance company to lower your monthly premium. You do not receive it as a check or a refund — it goes directly to the insurer, reducing the amount you owe. The credit is available only if you buy coverage through the Health Insurance Marketplace (also called the Exchange) in your state, and only if your household income falls within a certain range.

The credit amount depends on your income, the cost of the second-lowest Silver plan in your area, and the number of people in your household. The lower your income, the larger the credit. If your actual income turns out to be different from what you reported when you enrolled, you may owe money back at tax time, or you may receive a refund.

Key Takeaways

  • The Premium Tax Credit is a federal subsidy that reduces your monthly health insurance payment, not a refund or a separate benefit you receive in cash.
  • You must purchase coverage through the Health Insurance Marketplace to use the credit; employer plans and off-Marketplace plans do not may have access to.
  • Your income must fall between 100% and 400% of the federal poverty line (the range varies slightly by year and household size) to receive any credit.
  • You report your expected household income when you enroll, and any difference between what you reported and your actual income is settled when you file your tax return.

How the credit amount is calculated

The IRS calculates your credit using three pieces of information: your household income, your household size, and the cost of the second-lowest Silver plan available in your county. The second-lowest Silver plan is the benchmark — the government assumes you will choose it, and the credit covers a percentage of that plan's cost based on your income.

If you choose a plan that costs less than the second-lowest Silver plan, you keep the difference. If you choose a more expensive plan, you pay the difference out of pocket. The credit itself does not change based on which plan you pick — only your out-of-pocket cost changes.

The percentage of the benchmark plan's cost that the credit covers increases as your income decreases. At 100% of the federal poverty line, the credit covers most of the cost. At 400% of the federal poverty line, the credit covers a smaller percentage. Above 400%, you receive no credit.

Income limits and how they affect your credit

Your household income must fall between 100% and 400% of the federal poverty line to receive any Premium Tax Credit. The poverty line changes each year and varies by household size. For 2024, the range is roughly $15,000 to $60,000 for a single person, though these numbers shift annually and differ for families.

If your income is below 100% of the poverty line, you may not be able to use the Marketplace credit, though you might be covered by Medicaid in your state. If your income is above 400% of the poverty line, you receive no credit, but you can still buy coverage on the Marketplace at full price.

Your income for this purpose includes wages, self-employment income, investment income, and certain other sources. It does not include Social Security benefits, child support received, or some other types of income. The IRS uses your modified adjusted gross income (MAGI) from your tax return as the starting point.

Reporting income when you enroll

When you enroll in a Marketplace plan, you report your expected household income for that year. The credit is based on this estimate, not on your actual income from the previous year. If you expect your income to change — because you are starting a job, losing a job, or changing hours — you should report the income you actually expect to earn.

You can update your income information at any time during the year if your situation changes. If you do not update it and your actual income ends up being different, the difference is settled when you file your tax return. You may owe money back if your actual income was higher than you reported, or you may receive a refund if your actual income was lower.

Reconciling the credit on your tax return

When you file your federal income tax return, you report how much Premium Tax Credit you received during the year. The IRS compares this to how much credit you were actually may have access to to based on your actual income. This process is called reconciliation.

If you received more credit than you were may have access to to, you owe the difference back to the IRS. This amount is subtracted from any refund you would otherwise receive, or added to the tax you owe. If you received less credit than you were may have access to to, the IRS sends you the difference as a refund.

The amount you owe back is capped if your income was between 100% and 200% of the poverty line. Above 200%, there is no cap — you owe back the full difference. This is why it is important to report your income as accurately as possible when you enroll and to update it if your situation changes during the year.

Marketplace plans versus other coverage

The Premium Tax Credit works only with plans purchased through the Health Insurance Marketplace. If you buy coverage directly from an insurance company, through your employer, or through a broker outside the Marketplace, you cannot use the credit. The Marketplace is the only place where the credit can be applied to your premium.

If you have access to employer coverage, you may not be able to use the Marketplace credit, depending on whether that coverage is considered "affordable" and meets other requirements. The rules are complex, and it is worth checking whether you are may be able to access before you enroll in a Marketplace plan.

What happens if your income changes during the year

If your income changes — because you get a raise, lose a job, have a child, or experience another life event — you can report the change to the Marketplace. You do not have to wait until open enrollment ends. The Marketplace will recalculate your credit based on your new expected income.

If your income increases, your credit may decrease, and your monthly premium will go up. If your income decreases, your credit may increase, and your monthly premium will go down. Changes take effect in the month after you report them, so it is worth updating your information as soon as you know your income will be different.

Frequently Asked Questions

Can I get the Premium Tax Credit if I have employer health insurance?

Not usually. If your employer offers coverage that is considered affordable and meets minimum value standards, you are not may have access to to the Marketplace credit. However, if the employer coverage is very expensive relative to your income, you may still be able to use the credit. You will need to check with the Marketplace or a tax professional to know for certain.

What happens if I do not report income changes to the Marketplace?

Your credit will be based on the income you reported when you enrolled. If your actual income is higher, you will owe money back when you file your tax return. If your actual income is lower, you will receive a refund. Reporting changes promptly prevents large surprises at tax time.

Is the Premium Tax Credit the same as a tax refund?

No. The credit is applied to your monthly premium while you are enrolled. Any difference between the credit you received and the credit you were may have access to to is settled on your tax return — you may owe money or receive a refund, depending on your actual income.

Can I use the Premium Tax Credit with a plan from outside the Marketplace?

No. The credit works only with plans sold through the Health Insurance Marketplace in your state. Plans sold directly by insurance companies or through other channels do not may have access to for the credit.

What income counts toward the Premium Tax Credit calculation?

The IRS uses your modified adjusted gross income (MAGI), which includes wages, self-employment income, interest, dividends, and certain other sources. It excludes Social Security benefits, child support received, and some other types of income. Your tax return shows your MAGI.