Tax Facts

8849 / What are the requirements to claim the premium assistance tax credit under the Affordable Care Act?

Editor's Note: The ARPA expanded the premium tax credit rules to provide a more generous ACA benefit for 2021 and 2022. The Inflation Reduction Act of 2022 extended those expanded rules through 2025.

Under the preexisting ACA rules, the premium tax credit was only available to taxpayers with household income between 100 percent and 400 precent of the federal poverty line. ARPA generally eliminated the upper income limit and increased the amount of the premium tax credit (by decreasing the percentage of household income that individuals are required to contribute to their health insurance coverage). Under the ARPA, the percentage rates ranged from zero to 8.5 percent of household income (down from between 2.07 percent and 9.83 percent in 2021 under prior law) regardless of how much a family earns. In other words, even taxpayers with household income that exceeds 400 percent of the federal poverty line may be eligible for a credit if their cost of coverage exceeds 8.5 percent of income in 2021-2025. The enhanced credit was generally available for taxpayers who submit a health insurance exchange application and select a plan on or after April 1, 2021. Taxpayers who had previously enrolled in exchange coverage could reselect their plan to qualify for the increased tax credits effective May 1, 2021.

The premium assistance tax credit is a subsidy that can be claimed by certain low- to-moderate income taxpayers in order to offset the cost of health insurance coverage. In order to be eligible to claim the premium assistance tax credit, a taxpayer must meet all of the following requirements:1

  1. The taxpayer must purchase health insurance through the health insurance marketplace (also known as the health insurance exchanges).
  2. The taxpayer must have income that falls within certain ranges (see Q 8850).
  3. The taxpayer must not be able to obtain affordable coverage through an employer-provided health plan that provides minimum value (see Q 8883 for a discussion of what constitutes "affordable coverage" and Q 8885 for a discussion of plans that provide "minimum value").

Planning Point: In 2022, the IRS proposed regulations that would change the ACA rules governing premium tax credit eligibility to provide that the affordability of employer-sponsored coverage for the employee's family would be based on the amount the employee would be required to pay to cover both the employee and eligible family members, rather than the individual employee alone. Under the existing rules, if the self-only coverage is "affordable" for the employee, coverage is also deemed affordable for a spouse and dependents (meaning that the spouse and dependents would not qualify for the premium tax credit). Under the new rule, family members would be disqualified only if the cost of family coverage is less than the annual affordability threshold. "Family coverage" under the new rule means any employer plan that covers related individuals other than the employee (including self-plus-one plans). The regulations would also create a separate minimum value rule for family members, so that they would not lose premium tax credit eligibility if the employer plan did not provide minimum value to the family members (regardless of its cost). The regulations are effective for tax years beginning in 2023 and beyond.

  1. The taxpayer must be ineligible for government-sponsored health care programs, such as Medicaid and Medicare.

Planning Point: IRS proposed regulations clarify that Medicaid coverage that is limited to COVID-19 testing and diagnostic services under section 6004(a)(3) of the Families First Coronavirus Response Act (FFCRA) does not constitute "minimum essential coverage" under a government-sponsored program.2

  1. Generally, a taxpayer who is married must file a joint return (though exceptions exist for certain victims of domestic violence).3
  2. No other person may claim a dependency exemption with respect to the taxpayer for the tax year.
Planning Point: IRS final regulations confirmed that the reduction of the personal exemption to zero dollars between 2018 and 2026 does not impact a taxpayer's ability to claim the premium tax credit. Under the regulations, taxpayers are treated as though they claimed a personal exemption deduction if the taxpayer files a federal income tax return and does not qualify as a dependent of another taxpayer. Taxpayers are also considered to have claimed a personal exemption deduction for any other qualifying dependent, as long as the taxpayer lists the dependent's name and taxpayer identification number on their Form 1040 for the year.

Individuals with household income (see Q 8850) that falls between 100 and 400 percent of the poverty line (as adjusted based on family size) may be eligible for the premium tax credit. The federal poverty guidelines that exist as of the first day of the annual open enrollment period are used to determine whether an individual is eligible for the credit, so that the 2024 guidelines are used to determine a taxpayer's credit for 2025.4

In 2026, the federal poverty guidelines for the 48 contiguous states (including Washington, D.C.) that determine eligibility in 2027 are:

  • $15,960 (100 percent) to $63,840 (400 percent) for an individual;
  • $21,640 (100 percent) to $86,560 (400 percent) for a family of two;
  • $27,320 (100 percent) to $109,280 (400 percent) for a family of three; and
  • $33,000 (100 percent) to $132,000 (400 percent) for a family of four.

In 2025, the federal poverty guidelines for the 48 contiguous states (including Washington, D.C.) that determine eligibility in 2026 are:

  • $15,650 (100 percent) to $62,600 (400 percent) for an individual;
  • $21,150 (100 percent) to $84,600 (400 percent) for a family of two;
  • $26,650 (100 percent) to $106,600 (400 percent) for a family of three; and
  • $32,150 (100 percent) to $128,600 (400 percent) for a family of four.

In 2024, the federal poverty guidelines for the 48 contiguous states (including Washington, D.C.) that determine eligibility in 2025 are:

  • $15,060 (100 percent) to $60,240 (400 percent) for an individual;
  • $20,440 (100 percent) to $81,760 (400 percent) for a family of two;
  • $25,820 (100 percent) to $103,280 (400 percent) for a family of three; and
  • $31,200 (100 percent) to $124,800 (400 percent) for a family of four.

In 2023, the federal poverty guidelines for the 48 contiguous states (including Washington, D.C.) that determine eligibility in 2024 are:

  • $14,580 (100 percent) to $58,320 (400 percent) for an individual;
  • $19,720 (100 percent) to $78,880 (400 percent) for a family of two;
  • $24,860 (100 percent) to $99,440 (400 percent) for a family of three; and
  • $30,000 (100 percent) to $120,000 (400 percent) for a family of four

The federal poverty line is modified for taxpayers living in Alaska and Hawaii. If a taxpayer's primary residence during the tax year changes to a state with a different federal poverty line, or if married taxpayers reside in states with different federal poverty lines, the poverty line that applies is the higher of the two guidelines.6 Proposed regulations provide that if a taxpayer's household income is below 100 percent of the federal poverty line, so that he or she would generally be eligible to claim the premium tax credit, eligibility will be lost if the taxpayer intentionally or recklessly disregards the facts and provides incorrect information regarding household income to the exchanges.7

If a retired individual is offered health coverage, he or she may decline the offer of coverage and remain eligible for premium tax credit assistance if he or she is otherwise eligible based on household income. As discussed above, an active employee does not qualify for premium tax credit assistance if he or she is offered employer-sponsored health coverage that is affordable and provides minimum value, even if the employee declines the offer of coverage. A retiree is not considered to be eligible for employer-sponsored coverage unless he or she actually enrolls in the health plan. Further, family members of the retiree who are eligible to enroll in the health plan are not considered eligible for coverage unless they actually enroll in the plan.8

The U.S. Supreme Court, in King v. Burwell, held that the premium tax credits are available to all individuals who purchase insurance through an exchange, even if the individual purchased insurance through an exchange established by the federal government.9

1. IRC § 36B.

2. Prop. Treas. Reg. § 1.5000A-2(b)(2).

3. Notice 2014-23, 2014-16 IRB 942.

4. IRC § 36B(d)(5).

5. See the 2023 Department of Health & Human Services website for the federal poverty guidelines that apply for families larger than four and the figures for Alaska and Hawaii, available at: https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines (last accessed September 28, 2024).

6. Treas. Reg. § 1.36B-1(h).

7. Prop. Treas. Reg. § 1.36B-2(b)(6)(ii).

8. TD 9745.

9. 135 S. Ct. 2480 (2015).

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