The 2025 open enrollment is here, and millions of families are again flocking to find affordable health insurance. If you’ve shopped for health insurance on the federal marketplace, you may be eligible for a refundable health insurance tax credit.
The premium tax credit helps qualifying individuals and families afford health insurance purchased from the federally-regulated marketplace, better known as the Affordable Care Act (ACA) online network of health insurance plans or “Obamacare.”
It’s important to note that key provisions of the ACA, including the premium tax credit are set to expire by the end of 2025 unless Congress acts. But for now, here’s what you need to know.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What is the Premium Tax Credit?
The premium tax credit (PTC) is designed to help people afford the cost of health insurance purchased through the federal health insurance marketplace.
As a refundable tax credit, the individual who claims the PTC can get some or all of the credit as a tax refund. If the credit lowers your tax bill to zero, the IRS applies the remaining portion of the credit to your tax refund.
So how does the PTC work?
The premium tax credit can be used to purchase four different plans offered through the ACA marketplace: bronze, silver, gold, and platinum.
The PTC is available immediately upon enrollment, so you can decide if you’d like payments to go directly to your insurer and lower your monthly premium or receive the credit as part of your tax refund.
If you’re eligible for the PTC, you’ll have several options for using your credit. You can:
- Receive it as a tax credit when you file your return
- Choose an advance premium tax credit and use the credit to pay your insurer in exchange for a lower monthly premium throughout the year
- Split it, receiving part of the credit on your tax refund and the rest as an advance to lower your insurance premiums
Who is eligible for the premium tax credit?
To qualify for the premium tax credit, you or your family must be enrolled in a health insurance plan from the federal marketplace or your state’s healthcare marketplace for at least one month of the calendar year.
You’ll also have to pay your share of the marketplace plan premium by the original due date of your tax return.
Additionally, you must meet the following criteria:
- Not be eligible for a government program such as Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP).
- Not have access to an affordable employer-sponsored insurance plan (for 2025 an employer plan is considered affordable if the premium is equal to or less than 9.02% of your household income.)
- Have a household income at or below the federal poverty level.
The PTC is also available to lawfully residing immigrants with incomes below the poverty line who are not eligible for Medicaid due to their immigration status.
Your filing status also matters:
If you’re married and filing separately, you won’t be eligible for the PTC unless you are a victim of domestic abuse or spousal abandonment.
Taxpayers who are claimed as dependent will not qualify for the tax credit.
What is the federal poverty level for 2025
Taxpayers with income at or above the federal poverty line may be eligible for the premium tax credit.
To be eligible for the PTC, your income must be no more than 400% of the federal poverty line. These amounts will vary depending on your household size.
Other factors that may impact your credit amount include:
- Your address and area of residence
- The cost of your insurance coverage
| Household Size | 100% | 150% | 200% | 300% | 400% |
|---|---|---|---|---|---|
| 1 | $15,060 | $22,590 | $30,120 | $45,180 | $60,240 |
| 2 | $20,440 | $30,660 | $40,880 | $61,320 | $81,760 |
| 3 | $25,820 | $38,730 | $51,640 | $77,460 | $103,280 |
| 4 | $31,200 | $46,800 | $62,400 | $93,600 | $124,800 |
| 5 | $36,580 | $54,870 | $73,160 | $109,740 | $146,320 |
Source: Department of Health and Human Services 2024 Poverty Guidelines. Note: Alaska and Hawaii have different federal poverty line guidelines.
PTC income limit
As mentioned, eligible taxpayers must have a modified adjusted gross income (MAGI) between 100% and 400% of the federal poverty line to receive the premium tax credit.
However, the Biden administration temporarily enhanced the premium tax credit through 2025, making people with incomes above 400% of the poverty level newly eligible for the credit if their benchmark premium exceeds 8.5% of the household income.
The benchmark is determined using the ‘second-lowest-cost silver plan’ available to your household and the maximum amount you are expected to pay toward your health insurance premium.
For 2025, individuals and families with incomes between 100% and 400% will pay no more than 8.5% of their MAGI.
| Household income as a percentage of the federal poverty line | Maximum benchmark plan cost as a percentage of MAGI | Row 0 - Cell 2 |
| Less than 150% | 0% | Row 1 - Cell 2 |
| 150% to 200% | 2% | Row 2 - Cell 2 |
| 200% to 250% | 4% | Row 3 - Cell 2 |
| 250% to 300% | 6% | Row 4 - Cell 2 |
| 300% or more | 8.5% | Row 5 - Cell 2 |
Source: Internal Revenue Service
How it works:
According to calculations from the Center for Budget and Policy Priorities (CBPP), a 60-year-old couple earning $80,000 (405% of the poverty level) currently pays $567 a month for their health insurance.
If the premium tax credit expansion were to expire by the end of 2025, their market premium would more than triple to $2,026, representing an annual increase of $17,500.
How to claim the premium tax credit
The premium tax credit is available to qualifying individuals and families with a health insurance plan from the federal marketplace www.healthcare.gov or your state’s healthcare marketplace.
Once you enroll in a healthcare plan, you will automatically be told if you are eligible for the PTC based on the information you provide. Then, you can decide how you’ll use the credit:
- You can decide to use some or all of the tax credit as an advance credit payment to help lower your monthly premium bill;
- Or you can receive the tax credit as a tax refund
No matter what choice you make, you’ll need to file IRS Tax Form 8962 at tax time. The form will determine your premium tax credit eligibility and reconcile any advance credit payments you’ve already received.
Bottom line: Why the premium tax credit matters
The premium tax credit helps make health insurance purchased from your state or federal marketplace more affordable. For families and individuals, the PTC can provide immediate relief by using an advanced amount to lower your monthly premium or can receive the amount as a refund at tax time.
While the PTC was traditionally designed to help folks with incomes at or below the federal poverty level, temporary expansions have allowed those with incomes above the poverty line to be eligible.
President-elect Donald Trump made several comments during his campaign casting doubt about the future of the ACA, also known as Obamacare. The enhanced ACA passed under the Biden administration, cut premiums nearly in half and expanded eligibility of the premium tax credit.
Those provisions are set to expire at the end of 2025 unless Congress acts. So, millions of people are at risk of losing access to affordable healthcare.
All eyes will be on the newly elected Congress in the coming year to see how they manage the future of the Affordable Care Act program and the premium tax credit.
Related Content
-
Why Now May Be a Good Time to Invest in CommoditiesYou may want to consider adding inflation-hedging commodities such as bitcoin and gold to your portfolio.
-
How Lower Interest Rates Affect Your Finances: Credit Cards, Car Loans and MortgagesThe Fed's rate cut will provide relief for some borrowers, but savers will have to work harder to get decent returns.
-
FSA Contribution Limits Are Higher for 2025FSA A flexible spending account allows you to build tax-free savings for certain medical expenses.
-
Florida Tax Deadline Extension: What You Need to KnowTax Relief The IRS extended federal tax return file time due to severe storms.
-
IRS: Here’s How to Recover Your Tax Records After a Natural DisasterTax Records Your tax documents can help you get federal relief faster, the IRS says.
-
Voters Approve New Veteran Property Tax ReliefTax Relief Thanks to the election, some Veterans will soon see expanded property tax exemptions.
-
Nevada Approves Diaper Tax Relief Amid Childcare CrisisTax Relief Nevada voters have expanded sales tax relief to diapers. But are prices still too high?
-
Earned Income Tax Credit (EITC) 2024: How Much Will You Get?Tax Credits The refundable amount for workers with or without children is slightly higher this year. Here’s what you need to know.
-
Five Cities With the Lowest Property Tax in the U.S.Property Tax Property taxes are ultra-low in these popular metro areas, but is housing affordable?
-
IRS Expands Tax Breaks for Breast Cancer Screenings, ContraceptivesHealthcare Now you can get a tax deduction or reimbursement for certain medical expenses, like over-the-counter birth control and condoms.
