What is a subsidy or premium tax credit and how is it calculated?

The premium tax credit is a refundable tax credit offered by the government to help eligible individuals and families with low or moderate income afford health insurance purchased through the Federal Health Insurance Marketplace or Exchange. 

Subsidies are calculated using a few simple criteria including zip code, taxable household size, as well as annual income. Typically those who have a lower income get a larger credit to help cover the cost of their insurance.  Additionally, you may qualify for subsidies differently depending on the plan type you select and your income.  If you choose a Silver plan, you may qualify for additional tax subsidies to help reduce out-of-pocket costs like deductibles, copays, coinsurance, and annual maximums in addition to the premium tax credits described here.

If you want to purchase a subsidized plan, we will ensure that you get your subsidy. The process by which we do this will depend on your state of residence.

You can choose to receive your premium tax credit in two ways:

1. When you enroll in Marketplace insurance, you can choose to have the Marketplace compute an estimated tax credit, aka subsidy, that is paid to your insurance company to lower what you pay for your monthly premiums. 
2. Or, you can choose to get all of the benefits of the credit when you file your tax return for that year. 

Either way, you will complete Form 8962, Premium Tax Credit (PTC), and attach it to your tax return for the year. The credit is “refundable” because, if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund. However, if you earned more income than reported, you will owe the difference between your actual allowable credit and your advanced credit payments (subsidy) when you file your taxes.

Who is eligible for the premium tax credit (subsidy)?

You are eligible for the subsidy if you meet all of the following requirements:

• Have household income that falls within a certain range.
• Do not file a Married Filing Separately tax return (unless you qualify for a special rule that allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status);
• Cannot be claimed as a dependent by another person; and
• In the same month, you, or a family member:
  • Enroll in coverage (excluding “catastrophic” coverage) through a Marketplace
  • Are not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value
  • Are not eligible for coverage through a government program, like Medicaid, Medicare, VA, CHIP or TRICARE
  • Pay the share of premiums not covered by advance credit payments

Who is a family member for purposes of the premium tax credit (subsidy)?

Your “family” includes anyone you claim on your tax return:

• You

• Your spouse

• Any dependents

Your family size is the total number of people in that group.