How Does the Premium Tax Credit Work for Health Insurance?
A premium tax credit, also called subsidies, can help you save on health insurance costs by reducing your monthly bill.
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It's only available if you buy insurance through a state or federal health insurance marketplace, and you need to make about $60,000 or less per year (roughly $125,000 per year for a family of four). You may also qualify for subsidies if you spend more than 8.5% of your household income on health insurance.
What is a health insurance tax credit?
A premium tax credit, also called a premium subsidy, lowers the cost of your health insurance. You can apply the discount to your monthly bill, or you can get the credit as a tax refund at the end of the year. However, Catastrophic coverage health plans aren't eligible for premium tax credits.
The credit is part of the Affordable Care Act (ACA), also called Obamacare. Premium tax credits help make marketplace health insurance more affordable.
More than 9 in 10 people with marketplace coverage qualify for premium tax credits.
Roughly 4 in 10 people with a marketplace plan pay less than $10 per month, on average, for coverage. The size of your premium tax credit depends on your household income. Typically, the less you earn, the larger your subsidy.
Health insurance tax credit amounts are set by the federal government, so they're the same nationwide. You can only qualify for a premium tax credit if you buy a Bronze, Silver, Gold or Platinum plan from HealthCare.gov or your state's health exchange.
How do I know if I qualify for a tax credit?
When you apply for coverage through a health insurance marketplace, also called an exchange, the system will determine your eligibility for tax credits based on how much money you make and the number of people in your household.
You qualify for premium tax credits if you make less than about $60,000 for a single person (roughly $125,000 for a family of four). And if you earn more than four times the federal poverty level, you may still qualify for health insurance discounts if you spend more than 8.5% of your income on health insurance.
You may qualify for free government health insurance, called Medicaid, if you make less than about $21,000 per year ($44,000 for a family of four).
You can preview your tax credit eligibility by using an Affordable Care Act subsidy calculator. If you qualify, then you'll get a quote for the second-cheapest Silver plan available, which is how the government figures out your tax credit.
The dollar value of your tax credit depends on two factors: the size of your family and your income. In other words, even if you earn more money, you can remain eligible for a premium tax credit if your family also gets bigger.
What are the income limits for the health insurance subsidy?
The 2024 income limits for the health insurance subsidy are $60,240 for a single person and $124,800 for a family of four. That's four times the federal poverty level (FPL), and the most you can earn and still qualify for premium tax credits (unless you pay more than 8.5% of your income for health insurance).
Premium tax credit eligibility by household size
Family size | Income range |
|---|---|
| 1 | $15,060 - $60,240 |
| 2 | $20,440 - $81,760 |
| 3 | $25,820 - $103,280 |
| 4 | $31,200 - $124,800 |
| 5 | $36,580 - $146,320 |
| 6 | $41,960 - $167,840 |
| 7 | $47,340 - $189,360 |
| 8 | $52,720 - $210,880 |
If you earn more than the maximum amount, you may still qualify for subsidies based on how your income compares to your cost of health insurance. For example, if you have high monthly health insurance bills because of your age or where you live, those monthly costs could be capped at 8.5% of your income through discounts.
How does the health insurance tax credit work?
You can get the health care tax credits in two ways.
- Advance premium tax credit (APTC): You pay less for health insurance each month based on your estimated tax credit.
- Federal tax refund: You get your health insurance subsidy in a lump sum at the end of the year.
There's no difference in the size of your discount between the two methods. The only difference is when you get the subsidy.
For the advance premium tax credit, here are the steps:
- Apply for insurance on the marketplace, and get your estimated discount.
- You pay less for health insurance. Your insurance company gets paid directly.
- Report your final tax credit amount when filing your federal income taxes.
You can apply for the advance premium tax credit (APTC) when you apply for health insurance through the marketplace. With this program, the government sends payments directly to the health insurance company every month. This lowers the amount you pay each month for health insurance.
You also have the option to get your subsidy in full at the end of the year. When filing your taxes, you subtract the full amount of the tax credit from all the taxes you owe. But during the year, you pay more per month for health insurance. In short, either you will get your credit all at once later, or it will be spread out over the year.
If money is tight, you should take the advance premium tax credit because it lowers your bills sooner.
Anyone who gets a health insurance tax credit must file Form 8962 (Premium Tax Credit) with their tax return. To complete Form 8962, you'll use the information from Form 1095-A (Health Insurance Marketplace Statement), which is a statement sent to you about your subsidies and health insurance costs.
The amount you save is based on the income you reported on the Form 1040 individual tax return.
What happens if my family size or income changes during the year?
Life-changing events can impact your tax credit eligibility or change your subsidy amount. For example, getting a divorce might lower your subsidy since your household size will decrease, but the birth of a child will increase the amount you save on health insurance.
Events that impact your premium tax credit
- Gaining or losing health insurance coverage
- Change in your household income
- Birth of a child
- Marriage
- Divorce
- Adoption
It is important to report changes immediately to avoid paying more than you have to for health insurance. And if you're currently using the advance premium tax credit (APTC), then it is particularly important to report any life changes to the marketplace as soon as possible.
If you wait to report such changes, there could be a gap between what you pay each month and what you owe. In this case, if you use more advance premium tax credits than you are allowed, you may have to pay more when filing your federal income tax return. On the other hand, if you use fewer premium tax credits than allowed, you may get a refund. This is known as "reconciling" your advance premium tax credits (APTC).
What is the small business health care tax credit?
The small business health care tax credit pays for up to half the cost of employee health insurance at qualifying small businesses.
Usually, small business owners are not required to offer health insurance if they have fewer than 50 full-time employees. To encourage small business owners to offer health insurance to their workers, the ACA introduced the small business health care tax credit.
Keep in mind that not everyone qualifies for this tax credit, including small business owners who don't have employees.
Small businesses can qualify for this tax credit up to two years in a row. You and your business would be eligible for the credit if you meet all of the following requirements:
- You bought insurance through the Small Business Health Options Program (SHOP) marketplace.
- You have fewer than 25 full-time employees.
- You pay average wages of less than $62,000 per year.
- You pay at least half the cost of your full-time employees' health insurance rates.
If you qualify, the federal government pays for part of the cost of your workers' health insurance. The size of your workforce influences the amount of money you get. For example, if your business has fewer than 10 full-time employees, you can get the maximum amount. A larger business with 24 employees would qualify for a lower tax credit.
The credit covers up to 50% of the costs you pay for your employees' coverage (35% for nonprofits). For example, say a firm qualifies for the full small business tax credit and chooses to pay for 100% of its employees' health insurance rates, which costs the firm $70,000 per year. That firm's tax return would be credited $35,000 at the end of the year.
Qualifying small businesses can claim this tax credit by filing Form 8941 with their taxes.
Self-employed health care tax credit
If you are self-employed, health insurance tax credit eligibility is based on how much you earn and your family size. The income limits are the exact same between self-employed and employed individuals. For example, a single person can earn up to $60,240 and still qualify for premium tax credits.
But determining your subsidy amount is more complex if you're self-employed. In order to get the most from your tax credit, it's a good idea to talk to a tax professional.
Frequently asked questions
What is a tax credit for health insurance?
A tax credit for health insurance reduces your monthly health insurance costs.
To be eligible, you need to buy your plan through HealthCare.gov or a state marketplace, and you can't earn more than $60,240 per year ($124,800 for a family of four). Discounts can be applied monthly to reduce your health insurance bill (also known as advanced premium tax credits, or APTCs), or you can get the credits as a refund when filing your federal income tax return. You can also qualify for tax credits if your employer coverage costs more than about 9% of your income.
How do I qualify for advanced premium tax credits (APTCs)?
To qualify for advanced premium tax credits (APTCs), you need to make $60,240 or less per year ($124,800 for a family of four) and buy a Bronze, Silver, Gold or Platinum plan from HealthCare.gov or your state health exchange.
You'll find out if you qualify for health insurance tax credits when you shop for health insurance. After you enter your income information and household size, the health marketplace website will show you whether you qualify and the subsidy amount you'll receive.
What are the income limits for the premium tax credit?
For 2025, you're eligible for premium tax credits if you make between about $21,000 and $60,240 for a single person ($31,200 to $124,800 for a family of four). Those with higher incomes may also qualify if they spend more than 8.5% of their income on health insurance.
Sources and methodology
Federal poverty level (FPL) figures and limits are from HealthCare.gov. Information about federal premium tax credit eligibility guidelines is from IRS.gov.
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