Premium assistance credit

For taxpayers who qualify, a premium assistance credit will be available to help pay for Marketplace-purchased coverage. To qualify:

  • The taxpayer’s household income must be greater than 100% (or 133% if state expanded Medicaid) to less than 400% of the federal poverty level.
  • The taxpayer and dependents must not be eligible for Medicaid, affordable employer-sponsored insurance, or other acceptable coverage.

    Note: The law specifies that the credit is available only to those with income from 100%–400% of the federal poverty level. Those who are not eligible for Medicaid but who have household income of less than 100% of the poverty level (they live in a State that did not expand Medicaid) would not be eligible for the credit, even if they purchased insurance through a Marketplace.

The premium assistance credit will be calculated monthly and will generally be paid directly to the insurance company, lowering the premium. When not paid directly to the insurance company, the taxpayer will receive it as a refundable credit when they file their taxes.

Calculation of the credit

The premium assistance credit is determined on a sliding scale. The lower the income, the higher the credit amount: taxpayers at or above 100% of the federal poverty level would pay a maximum of 2.01% of their 2015 income for premiums, while those at least 300% but less than 400% of the federal poverty level would pay 9.6% of their 2015 income for premiums. The credit is based on household income and family size, so that individuals at the lower end of the income scale get the most help. The credit is also based on the premium for a benchmark plan (the second-lowest cost silver plan available in the taxpayer’s resident state Marketplace). An individual or family who wants a more expensive or higher-tier plan (i.e., gold or platinum) must pay the difference.

2014 federal poverty level for the 48 contiguous states and the District of Columbia:

Persons
in family
100% federal
poverty level
133% federal
poverty level
250% federal
poverty level
400% federal
poverty level
1$11,670$15,521$29,175$46,680
2$15,730$20,921$39,325$62,920
3$19,790$26,321$49,475$79,160
4$23,850$31,721$59,625$95,400
5$27,910$37,120$69,775$111,640
6$31,970$42,520$79,925$127,880
7$36,030$47,920$90,075$144,120
8$40,090$53,320$100,225$160,360

Household income level* Maximum premium as percentage of income**
Less than 133%2.01%
At least 133% but less than 150%3.02% – 4.02%
At least 150% but less than 200%4.02% – 6.34%
At least 200% but less than 250%6.34% – 8.1%
At least 250% but less than 300%8.1% – 9.56%
At least 300% but less than 400%9.56%
*Based on percentage of income poverty level
**Percentage of portion of the premium the individual would pay; the balance would be the credit

The taxpayer cannot receive a credit greater than the cost of the insurance he or she purchased on the Marketplace.

The premium assistance credit is calculated by treating the family as a single, aggregated unit, and is the lesser of the following:

  • The monthly premium cost for one or more qualified health plans offered through a Marketplace, for the taxpayer or a member of the taxpayer’s family; or
  • The adjusted monthly premium for the second-lowest cost silver plan for the taxpayer, minus:
    • The applicable percentage of income contribution by a household, times the taxpayer’s household income, divided by 12.
Examples

Note: Eligibility for the premium tax credit is based on the most recent set of poverty guidelines available on the first day of the annual open enrollment period. The credit for 2014 will be based on the 2013 guidelines, the credit for 2015 will be based on the 2014 guidelines, and so on. Use of the 2014 federal poverty guidelines will begin on the first day of open enrollment for 2015 coverage, which is November 15, 2014.

The examples below are for the 2014 tax year, so they use the 2013 federal poverty level figures.

Example 1: A family of four had income of $47,100, which is 197% of the federal poverty level. Assume that the annual premium for their state Marketplace’s benchmark silver insurance plan was $10,000 a year. This family would have to pay 6.20 percent of its income, or $2,920, of this premium and would receive a tax credit for the difference: $7,080.

While this tax credit is tied to a silver plan, the family is allowed to buy any plan in the Marketplace it can afford. Whatever the premium is for the plan, the family will be able to reduce its payment by the amount of its credit: $7,080. The only exception is that if it decides to buy a cheaper policy with total premiums of less than this amount, it will not get any money back.

Example 2: A family of four and household income of $31,720. The applicable poverty level is $23,850, so that is 132% of the poverty level. The family’s $31,720 of income is just below 133% of the applicable poverty line, putting it in the “Up to 133%” income tier. The applicable percentage for that income tier is 2.01%. Thus, the family won't have to pay more than $638 (2.01% × $31,720) in annual premiums.

Example 3: Add a few dollars of additional income to bring the household income to $31,800 and the family will jump to the next tier ($31,800, equal to 133% of the applicable poverty line). The family falls into the next income tier (133% up to 150% = 3.02%). The initial premium percentage for that income tier is 3.02%. The family’s applicable percentage thus jumps to 3.02%. As a result, the family will be required to pay up to $960 (3.02% × $31,800) in premiums. This means that the additional $80 in income results in $322 more in required premium payments ($960 - $638).

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