Jane Dotson
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, meaning those with lower incomes get a larger credit to help cover the cost of their insurance. Small businesses may also qualify for a tax credit if they offer health insurance to their employees. This is known as the Small Business Health Care Tax Credit and is worth up to 50% of the costs paid for employees' premiums.
| Characteristics | Values |
|---|---|
| Who is eligible for the Premium Tax Credit? | Individuals and families with low or moderate income who are not eligible for coverage through a government program (e.g. Medicaid, Medicare, CHIP, or TRICARE) |
| How is the size of the Premium Tax Credit determined? | Based on a sliding scale where those with lower incomes get a larger credit |
| How can the Premium Tax Credit be used? | To lower your adjusted gross income on your annual income tax return or to pay your insurer in advance, lowering your monthly premium (called an Advanced Premium Tax Credit) |
| What is the process for claiming the Premium Tax Credit? | Enroll in a health plan through the Marketplace and choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower your monthly premiums, or receive the full benefit of the credit when filing your tax return for the year |
| What forms are required for the Premium Tax Credit? | Form 8962, Premium Tax Credit (PTC) and Form 1095-A, Health Insurance Marketplace Statement |
| Are there any circumstances where an amended return is not required? | If you already filed a 2020 return and reported excess APTC or made an excess APTC repayment, no amended return or further action is necessary |
| Who is eligible for the Small Business Health Care Tax Credit? | Small businesses with fewer than 25 full-time equivalent (FTE) employees, an average employee salary of $56,000 or less, and offering SHOP coverage to all full-time employees |
| How much is the Small Business Health Care Tax Credit worth? | Up to 50% of the costs of employees' premiums (35% for non-profit employers) |
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What You'll Learn
Premium Tax Credit
The Premium Tax Credit (PTC) is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, where those with lower incomes receive a larger credit to help cover insurance costs. The PTC lowers the cost of health insurance by reducing the premiums paid during the year.
To be eligible for the PTC, you must meet the following requirements:
- You must get your health care coverage through the Marketplace.
- You cannot be eligible for health care coverage through other means, such as your employer or the government.
- Your income must fall within a certain range.
- Another person cannot claim you as a dependent on their return.
When you apply for Marketplace coverage, the Marketplace will estimate the amount of the PTC that you may be able to claim for the tax year, based on information such as your family composition, projected household income, and other factors. Based on this estimate, you can decide how much of your estimated credit you want to be paid in advance directly to your insurance company to lower your monthly premiums.
If you choose to have advance credit payments made on your behalf, you will need to file Form 8962 with your income tax return to reconcile the amount of advance payments with the PTC that you may claim based on your actual household income and family size. This form will either lower the amount of taxes owed on that return or increase your refund.
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Small Business Health Care Tax Credit
Small businesses can benefit from a tax credit if they provide health insurance to their employees. This is known as the Small Business Health Care Tax Credit. To qualify for the tax credit, the following conditions must be met:
- The business must have fewer than 25 full-time equivalent (FTE) employees.
- The average employee salary should be $56,000 per year or less.
- The business must pay at least 50% of the employee-only health care coverage for each full-time employee. Family or dependent coverage is not considered.
- The business must offer Small Business Health Options Program (SHOP) coverage to all full-time employees.
The amount of the tax credit is calculated on a sliding scale. Smaller employers with fewer than 10 employees and an average salary of $27,000 or less receive the highest tax credit. The credit can be worth up to 50% of the costs of employees' premiums (35% for non-profit employers). Even if a small business does not owe any tax during the year, they can carry the credit back or forward to other tax years.
The Premium Tax Credit is another credit that helps eligible individuals and families with low to moderate incomes cover the premiums for their health insurance. This credit is also available to those who purchase health insurance through the Health Insurance Marketplace or Exchange. The size of the Premium Tax Credit is also determined by income, with lower-income individuals receiving a larger credit.
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Eligibility
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, with those who have a lower income receiving a larger credit to help cover the cost of their insurance.
To be eligible for the Premium Tax Credit, you must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit (PTC). You must not be eligible for coverage through a government program, like Medicaid, Medicare, CHIP, or TRICARE.
For tax years 2021 and 2022, the American Rescue Plan Act of 2021 (ARPA) temporarily expanded eligibility for the Premium Tax Credit by eliminating the rule that a taxpayer with a household income above 400% of the federal poverty line cannot qualify for a premium tax credit.
If you are enrolled in a Marketplace plan but paid the full price because you did not qualify for a premium tax credit, you may still be eligible for other health coverage options, such as job-based health coverage, COBRA, or the Small Business Health Options Program (SHOP).
Small businesses may also be eligible for health insurance tax credits if they offer health insurance to their employees. To qualify for the Small Business Health Care Tax Credit, a company must have fewer than 25 full-time equivalent (FTE) employees, an average employee salary of $56,000 per year or less, pay at least 50% of their full-time employees' premium costs, and offer SHOP coverage to all full-time employees. The tax credit is highest for companies with fewer than 10 employees who are paid an average of $27,000 or less, and the smaller the business, the bigger the credit.
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Tax Credit Amount
The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace. The size of the Premium Tax Credit is based on a sliding scale, where those with lower incomes receive a larger credit to help cover the cost of their insurance. The credit can be used to lower your adjusted gross income on your annual income tax return.
When enrolling in a Marketplace plan, the Marketplace will estimate the amount of the Premium Tax Credit that you may be able to claim for the tax year. This estimate is based on information such as family composition, projected household income, and whether those being enrolled are eligible for other, non-Marketplace coverage. Based on this estimate, you can decide if you want to have all, some, or none of your estimated credit paid in advance directly to your insurance company to lower your monthly premiums.
If you choose to have advance credit payments made on your behalf, you will need to file Form 8962 with your income tax return to reconcile the amount of advance payments with the Premium Tax Credit that you may claim based on your actual household income and family size. It is important to report any life changes, such as increases or decreases in household income, to the Marketplace as they happen throughout the year to ensure that your advance payment amount is adjusted accordingly.
For small businesses, the tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit. To qualify for the Small Business Health Care Tax Credit, the business must have fewer than 25 full-time equivalent employees, an average employee salary of about $56,000 per year or less, pay at least 50% of their full-time employees' premium costs, and offer SHOP coverage to all full-time employees.
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Tax Credit for Self-Employed
If you are self-employed, you may be eligible to claim a tax credit for your medical insurance. This is separate from the self-employed health insurance deduction, which is an adjustment to your income, and can only be taken by self-employed workers. The self-employed health insurance deduction allows independent contractors and other self-employed taxpayers to deduct the health insurance premiums they pay to help offset the cost of medical expenses. This is one tax deduction you don’t want to miss. If you’re self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents.
The self-employed health insurance deduction is a federal tax deduction that reduces your annual income. Through this deduction, self-employed workers who have a net profit for the year can write off 100% of their health insurance premium. They can also deduct premium costs for any spouse or dependents. However, the deduction is limited to how much you pay out of your own pocket. If you use premium tax credits to lower the cost of your monthly payment, you can only deduct the portion of that premium you actually pay.
The ACA makes similar subsidies available for many self-employed people, and the American Rescue Plan and Inflation Reduction Act have made those subsidies larger and more widely available. Premium tax credits cover the majority of the cost of Marketplace (exchange) coverage for the average enrollee, making coverage much more affordable than it would otherwise be. The tax credits are available to households with incomes of at least 100% of the federal poverty level (FPL), as long as the enrollees do not have access to Medicaid or employer-sponsored health insurance that is considered affordable.
To take the deduction, you must meet certain Internal Revenue Service (IRS) criteria. The IRS has published rules and worksheets to help you determine how much of the self-employed health insurance deduction you may be able to claim. You can also use TurboTax Live Full Service, which will uncover industry-specific deductions for more tax breaks and file your taxes for you.
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Frequently asked questions
The premium tax credit is a refundable tax credit that helps eligible individuals and families with low or moderate incomes afford health insurance purchased through the Health Insurance Marketplace.
To get the premium tax credit, you must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit (PTC). The size of your premium tax credit is based on a sliding scale—those with lower incomes get a larger credit.
When you apply for Marketplace coverage, the Marketplace will estimate your premium tax credit for the tax year using information about your family composition, projected household income, and other factors.
If you have company medical insurance, you may not be eligible for the premium tax credit. However, if your company-provided insurance is considered unaffordable (i.e., it costs more than 9.02% of your household income), you may become eligible for the premium tax credit.
Yes, if you own a small business, you may be eligible for the Small Business Health Care Tax Credit if you offer health insurance to your employees. The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less.
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