Do I Qualify for a Tax Credit for Health Insurance?

Find Out Whether You Can Reduce the Cost of Your Health Insurance

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Premium tax credits are refundable credits that help lower the cost of your monthly health insurance payment. To qualify for the tax credit, you must meet the requirements and file a specific form with your tax return. 

Let’s look more closely at the requirements, how to tell if you qualify, and what steps you need to take to claim the premium tax credit. 

Key Takeaways

  • Premium tax credits are refundable credits that help lower the cost of health insurance bought through the Marketplace. 
  • To qualify for a premium tax credit, requirements include that your household income falls within a specific range, you can’t get affordable health coverage through your employer, and you don’t qualify for government health insurance programs. 
  • You must file your taxes to claim and reconcile the premium tax credit, even if you don't usually have to file a tax return. 

What Are Premium Tax Credits?

Premium tax credits are a part of the Affordable Care Act. These refundable credits are designed to help lower the cost of monthly health insurance premiums for families or individuals who meet the requirements. 

These credits are only available if you enroll in a qualifying plan through the Health Insurance Marketplace. The exchange’s “metal” plans (Gold, Silver, etc.) qualify for premium tax credits, but you cannot apply these credits towards a catastrophic plan

If you qualify, you get to decide when you’ll use these funds. You can apply them all or in part to your premiums each month, which is known as getting advanced payments, or you can wait and claim your entire premium tax credit to get a refund when you file your taxes.

The advanced payments go to your health insurance company to reduce the amount of your premium. They are not paid directly to you.

Who Qualifies for Premium Tax Credits?

To qualify for a premium tax credit, you must meet the following requirements:

  • Have a household income between 100% and 400% of the federal poverty level (see table below).
  • 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.

Income Requirements 

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

2022 Income Requirements
 Number of People in Your Home  100% of the Federal Poverty Level  400% of the Federal Poverty Level
 $13,590  $54,360
 2  $18,310  $73,240
 3  $23,030  $92,120
 4  $27,750  $111,000
 5  $32,470  $129,880
 6 $37,190  $148,760
 7  $41,910  $167,640
 8  $46,630  $186,520

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

2021 Income Requirements
Number of People in Your Home 100% of the Federal Poverty Level  400% of the Federal Poverty Level
1 $12,880 $51,520
2 $17,420 $69,680
3 $21,960 $87,840
4 $26,500 $106,000
5 $31,040 $124,160
6 $35,580 $142,320
7 $40,120 $160,480
8 $44,660 $178,640

In 2021, if there are more than eight people in your household, add $4,540 for each additional person.

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. 

Typically, your annual household income must be between the two amounts listed above for your family size. However, the American Rescue Plan of 2021 provided a temporary increase in premium tax credits for 2021 and 2022. The law means that 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 premium tax 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.

How To Get Premium Tax Credits

If you meet the requirements, here are the steps you need to take to get the premium tax credit. 

1. Apply for Health Insurance on the Marketplace

Since premium tax credits are only available for Marketplace plans, you must fill out an application for coverage. When you fill out this application, the amount of your premium tax credit is estimated based on the financial information you provide. 

2. Decide When To Use the Discount

Once 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 taxes.
  3. Apply some credits to lower your monthly health insurance premiums and claim the rest when you file your taxes.

You’ll have to decide which option makes the most sense for your family. No matter which one you choose, you’ll need to reconcile your account when you file your taxes next spring. 

3. Reconcile Your Accounts 

When you fill out an application on the Marketplace, you’re using last year’s tax information. Those numbers may not accurately reflect your household size and income during the current year. That’s why you need to reconcile your advance premium tax credit each year. 

If you had advanced payments sent to your insurer, you’ll need to file Form 8962 when you file your taxes. This form compares your actual income for the year with the estimated totals you used when you applied for health insurance.

If you earned more money than you thought you would, your advanced payments may have been too large. This means you may need to repay part or all of this money. 

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

If you earned less money than you thought you would, your advanced payments might have been too small. In this case, you can get the rest back with your tax refund. 

Other Health Care Tax Credits

The premium tax credit isn’t the only credit available to help you save money on your health insurance. The health coverage tax credit is another federal tax credit offered for the 2021 tax year that helps reduce the cost of insurance for people aged 55 through 64 who receive benefits from the Pension Benefit Guaranty Corp or people eligible for Trade Adjustment Assistance allowances due to a qualifying job loss.

If you own a small business, you may also qualify for the small business tax credit. To claim this credit, you must enroll in a Small Business Health Options Program (SHOP) plan. 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. Premium tax credits can help reduce your monthly bill. If you qualify, make sure you apply to claim your credits. 

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. If there’s a difference between the two, it can impact the amount of your refund or your tax bill.

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. However, the total amount of the credit cannot 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 to premium tax credits. In recent updates, the American Rescue Plan provides a temporary increase in the premium tax credit for 2021 and 2022.