How do premium tax credits work?

  • Premium tax credits provide help paying premiums, with the most help available to those with income near 100 percent of poverty level and the least amount of help for those with income at 400 percent of poverty level.
  • The credit amount is based on family income and the cost of the second-lowest cost Silver plan (known as the benchmark plan), but you can use the credit to buy any plan in the marketplace, including a more expensive silver plan or a plan in the gold or platinum level. If you do, you will pay the difference if the plan you buy costs more than the so-called benchmark plan.
  • Example: If Mary has income of 100 percent of poverty ($11,670), she would be expected to pay 2 percent of her income toward the premium, or $233. If the benchmark plan costs $4,000 per year, Mary would owe $233 and the premium tax credit would cover $3,767. If Mary chooses to buy a Silver plan with a higher premium, she would pay the difference. For example, let’s say Mary buys a plan that costs $4,200 per year. She’ll owe $433, which is the difference between the cost of the plan she buys ($4,200) and the amount of credit she gets ($3,767).
  • You can choose to take the full amount of the credit when you are paying your premiums, pay the full premium out-of-pocket and file for a refund for the full amount of the credit when you file taxes, or take some of the credit up front and file for a refund for the rest of the credit when you file taxes.
  • If you smoke, you may be charged up to 50% more for your premiums and your tax credit won’t help cover the cost. However, in several states (CA, MA, NY, NJ, RI and VT) and DC, insurers are prohibited from charging more for tobacco users.
  • Be sure to report any changes in your household or income, since it may affect how much financial assistance you can get. If you get more help than you should have, based on your actual income over the year, you may have to pay back some of the credits when you file your taxes.