Health Care Reform

Premium Tax Credit

A premium tax credit is available for health insurance coverage purchased from a state Exchange. Exchanges must determine whether individuals are eligible, and the tax credit is paid on an advance basis to the health insurance provider. Individuals are eligible for the tax credit if: (1) their household income is at least 100% and not more than 400% of the Federal Poverty Line (FPL); (2) they are not eligible for governmental coverage (such as Medicare, Medicaid and CHIP); and (3) they are not eligible for employer coverage that is adequate and affordable. Household income is based on the income of the taxpayer and all other individuals in the taxpayer's household who are required to file a tax return.

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Premium Tax Credit FAQs

  • Court of Appeals Decision on Health Care Reform Law
    On Tuesday, July 22, 2014 the U.S. Court of Appeals in the District of Columbia and the 4th District fell on opposite sides with regard to the ability of Federally-Facilitated Exchanges (FFEs) to provide subsidies (e.g., Premium Tax Credits) to offset the cost of health care. The decisions do not impact the ability of state run exchanges to offer subsidies. The implications that a Federal exchange not be allowed to offer subsides extends to individuals and employers. Individuals in the 36 states that are run by an FFE could lose their Premium Tax Credits and have to pay more for coverage through the Exchange. That scenario, though, may benefit employers in those states as the 4980H penalties only apply if an employee receives a Premium Tax Credit in the exchange. The DC decision (which struck down the law) has been stayed pending review by the full Circuit court, which is not expected before this fall. Therefore, these rulings change nothing for now with respect to how both employers and individuals operate in the new environment of Health Care Reform. Learn more about the 4980H employer mandate obligations on our website. Click here.
  • What is the Federal Poverty Line?
    Answer: The Federal Poverty Line is a poverty threshold used for administrative purposes, such as determining financial eligibility for certain federal assistance programs. The FPL is issued each year by the Department of Health and Human Services and published in the Federal Register. The most recent FPL numbers are available by clicking here.
  • What is 400% of FPL?
    Answer:The following are examples of 400% of FPL in 2012 for different family sizes:
    • Individual: $44,680
    • Family of 2: $60,520
    • Family of 4: $92,200
    • Family of 6: $123,880
    These numbers represent the FPL for the continental United States – the FPL numbers are slightly higher for Alaska and Hawaii.
  • When is employer coverage considered to be "adequate"?
    Answer: Employer coverage is considered to be adequate if the plan pays at least 60% of the allowable costs covered by the plan. If an employee is eligible for employer coverage that is adequate, the employee is not eligible for a premium tax credit.
  • When is employer coverage considered to be “affordable”?
    Answer: Employer coverage is considered to be affordable if the employee’s required payment for employee-only coverage does not exceed 9.5% of the employee’s household income. If an employee is eligible for employer coverage that is affordable, the employee’s family is not eligible for a premium tax credit.
  • How is the premium tax credit calculated?
    Answer: The premium tax credit is the lesser of the premium for the plan in which the taxpayer actually enrolls, or the excess of the premium for a benchmark plan over the applicable percentage of the taxpayer's household income. The benchmark plan is the second lowest cost silver plan available in the individual market in the rating area in which the taxpayer resides. The applicable percentage of the taxpayer's household income represents the amount of the taxpayer's required out-of-pocket contribution to the premium cost if the taxpayer purchases the benchmark plan. The remainder of the premium for the benchmark plan is the premium tax credit amount.
  • How is the premium tax credit reconciled?
    Answer: The taxpayer's applicable percentage varies with household income, increasing from 2% (household income at 100% of FPL) to 9.5% (household income at 400% of FPL). The premium tax credit is available for the taxpayer and other individuals the taxpayer claims as tax dependents.

    Taxpayers receiving the premium tax credit must file an income tax return, even if a return is not otherwise required. On the return, the taxpayer must reconcile advance credit payments with the amount of credit actually allowed. If the allowable credit amount exceeds the advance credit payments, the taxpayer may receive a refund. If the advance credit payments exceed the allowable credit amount, the taxpayer must pay the excess as an additional tax liability. The additional tax liability is capped for taxpayers with incomes below 400% of FPL.
  • Are part-time employees eligible for a premium tax credit?

    A part-time employee who is eligible for adequate and affordable employer-sponsored coverage is not eligible for a premium tax credit to purchase Exchange coverage.  A part-time employee who is not eligible for adequate and affordable employer-sponsored coverage may qualify for a tax credit if other conditions to qualify are satisfied.  If a group health plan conditions plan eligibility on having worked a specified number of hours during a period, and it cannot be determined whether an employee is reasonably expected to regularly work the required number of hours, employers may (but are not required to) utilize the method from Notice 2012-59 (summarized in connection with the Free Rider Penalty) to determine whether an employee expected to work variable hours has met the plan’s eligibility criteria.  Any employee who is not offered an opportunity to enroll in employer-sponsored coverage during the “measurement period” (described in connection with the Free Rider Penalty)will be eligible to receive premium tax credits if the other conditions to qualify are satisfied.


American Fidelity Assurance Company does not provide tax or legal advice.

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