How Does the Premium Tax Credit Work for Health Insurance?
When you buy insurance through the health marketplace, you'll automatically get discounts if you earn an income that qualifies.
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Most people who buy health insurance through HealthCare.gov or their state health exchange qualify for "premium tax credits," also called subsidies. You can choose to pay less each month for health insurance with what's called an advanced premium tax credit (APTC), or you can get the full amount you're eligible for at the end of the year when you do your taxes.
To qualify, you need to have marketplace coverage and make about $63,000 or less per year (roughly $129,000 per year for a family of four) or 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 use the discount to lower your monthly bill, or receive the credit as a tax refund at the end of the year.
A health insurance premium is the amount you pay for coverage each month.
The credit is part of the Affordable Care Act (ACA), also called Obamacare. Premium tax credits help make marketplace health insurance more affordable.
Nearly everyone with ACA coverage can get premium tax credits. More than 90% of people with marketplace plans get subsidies, and about 4 in 5 people have the opportunity to buy an Obamacare plan for under $10 per month.
The size of your premium tax credit will depend on your household income. Typically, the less you earn, the larger your subsidy.
You can only qualify for a premium tax credit if you buy coverage from HealthCare.gov or your state's health exchange. The following plan types are eligible for subsidies:
- Bronze plans
- Silver plans
You can't get premium tax credits with catastrophic coverage.
How do I know if I qualify for a tax credit?
When you buy coverage through a health insurance marketplace (also called an exchange), the system will determine if you can get 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 $63,000 for a single person (roughly $129,000 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 $22,000 per year ($44,000 for a family of four).
You can get an idea of the size of your premium tax credit by using a health care subsidy calculator. If you qualify, then you'll get a quote for the second-cheapest Silver plan available.
The value of your tax credit depends on two factors: the size of your family and your income. That means you may still be able to get a premium tax credit if your family also gets bigger, even if you earn more money.
What is the income limit for marketplace insurance in 2025?
The 2025 Affordable Care Act (ACA) income limits for health insurance subsidies cap out at $62,600 for a single person and $128,600 for a family of four, unless you pay more than 8.5% of your income for health insurance.
Obamacare income limits by household size
Family size | Income range |
|---|---|
| 1 | $15,650 - $62,600 |
| 2 | $21,150 - $84,600 |
| 3 | $26,650 - $106,600 |
| 4 | $32,150 - $128,600 |
Add $5,500 for each additional person if you have more than eight people in your family. Different limits may apply to those living in Alaska and Hawaii.
You may still qualify for subsidies if you earn more than the ACA income limits for your household size. That's because the government caps health insurance costs at 8.5% of your income, regardless of how much money you earn.
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 a lower monthly rate for health insurance depending on how much money you think you'll make in a single year.
- 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 by the government each month.
- 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 the taxes you owe. However, during the year, you’ll pay more per month for health insurance.
You should usually take the advance premium tax credit, as it lowers your bills sooner.
Still, it might make more sense to get the tax refund at the end of the year if your income isn't consistent every month. That's because you could end up owing money when you file your taxes if you earned more than your estimated income.
Your accountant or tax preparation software will likely help you complete the appropriate forms to claim your tax credit. That includes Form 8962 (Premium Tax Credit). 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 depends on the income you reported on your 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 goes down, but the birth of a child will increase the amount you save on health insurance.
Events that change your premium tax credit
- Birth
- Change in your address
- Change in health insurance coverage
- Adoption
- Marriage or divorce
- Change in your household income
It’s important to report changes immediately to avoid paying more than you have to for health insurance. That's because you could owe the IRS money if you no longer qualify for the amount of tax credits you're getting.
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 eligible small businesses.
Usually, small business owners don't have to offer health insurance if they have fewer than 50 full-time employees. However, small business owners may qualify for a tax credit if they give employees the opportunity to enroll in workplace coverage.
Keep in mind that not everyone qualifies for this tax credit. This includes 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 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 half of the costs you pay for your employees' coverage (35% for nonprofits). For example, say a company qualifies for the full small business tax credit and chooses to pay for all of its employees' health insurance rates, which costs the firm $70,000 per year. That business would get tax credits for $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
Health insurance tax credit eligibility if you're self-employed will depend on your family size and income. The income limits are the exact same between self-employed and employed individuals. For example, a single person can earn up to about $63,000 and still qualify for premium tax credits.
However, your self-employed status can make figuring out your subsidy amount more complex. 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 lowers your monthly health insurance costs. To get credits, you need to buy your plan through HealthCare.gov or a state marketplace, and you can't earn more than about $63,000 per year (roughly $129,000 for a family of four).
What is an advanced premium tax credit (APTC)??
An advanced premium tax credit (APTC) lowers the amount you pay for health insurance each month when you buy coverage through the health marketplace and earn a qualifying income. The government pays the subsidy directly to your health insurance company throughout the year.
Will I have to pay back my premium tax credit??
You may have to pay back part or all of your advanced premium tax credit if your income or household size changes. For example, getting a raise at work or switching jobs could mean you'll have to pay back some, or even all, of your premium tax credit when you file your taxes.
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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