What Is a Premium Tax Credit?

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The premium tax credit is a federal refundable tax credit that lowers your monthly premiums on plans from the Health Insurance Marketplace. Your premium tax credit amount depends on your household income and other factors.

Key Takeaways

  • The refundable premium tax credit lowers health insurance premiums for marketplace plans for eligible individuals and families with low to moderate incomes. 
  • Your premium tax credit is the cost of the SLCSP minus your maximum premium contribution amount.
  • Any unused credit is deducted from your tax liability when you file.
  • If you claim the premium tax credit, you’ll need to file Form 8962 and attach it to your Form 1040 when filing your taxes.

How Premium Tax Credits Work

The premium tax credit was created to provide affordable health insurance to eligible families and individuals with low to moderate incomes. It’s available only for health insurance purchased through the Health Insurance Marketplace (also known as the "exchange").

When you enroll in a marketplace plan, you can choose to receive your premium tax credit either in advance to lower your monthly premium or when you file your tax return for that tax year. If you accept it in advance, the marketplace calculates your estimated credit amount based on the application information. If you use less than your allotted tax credit, you’ll get a refundable credit on your tax liability when you file.

If you use more tax credits than you qualify for based on your final yearly income and household size, you must repay the difference when you file your income tax return. There are repayment caps based on your income and filing status, but if your income is 400% or more above the federal poverty line, you’ll owe the full amount.


For tax years 2021 and 2022, the American Rescue Plan of 2021 waived the 400% limit on who can receive the premium tax credit.

How To Calculate Your Premium Tax Credit

The maximum health insurance premium you’d pay for a marketplace insurance plan is typically equal to what you'd pay for the second lowest cost Silver plan (SLCSP) available to you on the marketplace, minus a specific percentage of your household income. Your premium tax credit is then the difference between your maximum premium contribution and the plan’s premium.


Your SLCSP premium is usually noted on Form 1095-A, a tax form the marketplace will send you early in the filing year if someone in your household had a marketplace plan the previous year.

Here’s how much of the SLCSP premium you’re responsible for, based on the tax-filing year and your income compared to the poverty line. Remember that the premium tax credit works on a sliding scale, so the percentage of SLCSP premiums you pay directly correlates to your income level. Here's an example of what that sliding scale looks like for tax year 2022:

Income as a Percentage of the Federal Poverty Line Percentage of SLCSP Premium You Pay on Income Earned
Less than 150% 0%
150%-199% 0%-2%
200%-249% 2%-4%
250%-299% 4%-6%
300%-399% 6%-8.5%
>400% 8.5%

Example of the Premium Tax Credit

Suppose you live in one of the 48 contiguous United States (Alaska and Hawaii have slightly different criteria) and want to calculate your premium tax credit for your family of three.

Federal guidelines show that the poverty line for a family of three is $23,030. You estimate your household income will be $46,100, which puts you at around 200% of the poverty line. That means you’re responsible for paying between 2% and 4% of the SLCSP.

Now suppose the benchmark plan available to you costs $10,000 for the year. If your maximum premium contribution is 4%, you’d only pay $400 per year and your premium tax credit would be $9,600 ($10,000 – $400).

Your premium tax credit remains the same regardless of which type of marketplace plan you choose (Bronze, Silver, Gold, or Platinum) and how much that health plan costs. But if you purchase one that’s more expensive than the SLCSP, the tax credit won't cover as much of your premium.


To claim the premium tax credit, you’ll need to file Form 8962 and attach it to your Form 1040 during tax season.

Who Qualifies for a Premium Tax Credit

You may be eligible for a premium tax credit if you meet the following criteria:

  • You or a family member have a qualified health plan through the marketplace.
  • You or members of your household aren’t eligible for employer- or government-sponsored health insurance coverage.
  • Your household income is 100% to 400% of the federal poverty line, based on your family size (though you may still qualify if your household income is below 100% if you meet all the requirements outlined by the IRS).
  • Nobody claims you as a dependent on their tax return.
  • If you’re married, you’ll file a joint tax return unless you qualify for an exception.
  • You paid all your health insurance premiums.

Frequently Asked Questions (FAQs)

Do I have to pay back the premium tax credit?

No, as long as you receive the proper amount of premium tax credit based on your income. If you take more of the credit than your income warrants, you may be liable to pay back the extra you took.

Who gets the premium tax credit?

Generally speaking, anyone who has a marketplace plan and earns 100% to 400% more than the federal poverty line in 2023 is eligible for premium tax credits. Some applicants with income under 100% of the federal poverty line can get the tax credit, too.

Is it a good idea to use the premium tax credit for health insurance?

Yes, but you need to make sure that you only take as much of the premium tax credit as you need. If you take more of the credit than you need, you may have to pay back the extra when you file your taxes.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Questions and Answers on the Premium Tax Credit," Question 27.

  2. IRS. "Questions and Answers on the Premium Tax Credit," Questions 1, 7.

  3. IRS. "Eligibility for the Premium Tax Credit."

  4. IRS. "Questions and Answers on the Premium Tax Credit," Question 20.

  5. HealthCare.gov. "Second Lowest Cost Silver Plan (SLCSP)."

  6. Congress.gov. "American Rescue Plan Act of 2021," Page 183.

  7. Department of Health and Human Services. "Poverty Guidelines."

  8. Georgetown University Health Policy Institute. "How Premium Tax Credits And Cost-Sharing Reductions Work."

  9. Internal Revenue Service. "Instructions for Form 8962 (2021)."

  10. IRS. "Premium Tax Credit Flow Chart: Are You Eligible?"

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