Premium Tax Credit (Government Tax Subsidy)

What Is a Premium Tax Credit?

A premium tax credit is designed to help individuals afford health insurance plans that are available through the government's Health Insurance Marketplace.

Premium tax credits allow people who have lower incomes to afford health insurance plans as part of the Affordable Care Act. The lower someone's income is, the larger the potential tax credit they may be eligible for. When searching for plans on the marketplace, you can opt to see what your premium would be based on your estimated tax credit.

It's important to note that you must file a tax return to be able to take advantage of a premium tax credit. While you can pay the full cost of your premiums and receive a tax credit or refund at the end of the fiscal year, you're also able to use your tax credit in advance to reduce the cost of your monthly health insurance premium.

Who Is Eligible for Premium Tax Credits?

Individuals who make between 100% and 400% of the federal poverty level for their household size will normally qualify for a tax credit.  However, there are a few factors that will determine if you are eligible even if your income falls between 100% and 400% of the federal poverty line.

To be eligible for this credit, you cannot be claimed as another person's dependent, and you also must not be able to take advantage of an employer-sponsored plan that offers minimum value. You are not eligible for a premium tax credit if you're eligible for government health coverage plans such as Medicaid, CHIP or TRICARE.

How to Apply for a Premium Tax Credit

It's not necessary to go out of your way to apply for a premium tax credit. This is because you'll essentially be applying for it when you file your taxes. Your tax credit can be applied to the cost of your premiums through the Health Insurance Marketplace. 

While you are arranging for health insurance, you'll have the option to apply a portion or all of your expected tax credit to the cost of your premiums. 

How to Reconcile Your Premium Tax Credit

When you file your taxes, you'll need to attach Form 8962, Premium Tax Credit, to your return. Even if you're normally not required to file a tax return because you make less than the minimum amount required to do so, you'll need to file your taxes to reconcile your tax credit. You'll be able to fill out Form 8962 with information from Form 1095-A, which will be provided to you if you or a dependent has health insurance through the marketplace.