You may be eligible for a Premium Tax Credit (PTC) to subsidize the cost of your health insurance premiums. The only plans that qualify for the PTC are those acquired through a qualified health insurance exchange (exchange). The exchanges can determine eligibility and the amount of your PTC (if any) based on your family size and projected household income (including spouse and dependents’ income) for the year.
People not eligible for the PTC
- Very low income individuals who are eligible for free coverage;
- People covered by an employer plan;
- Those disqualified due to household income or family size; and
- Those who file their tax returns as married filing separately.
Two ways to claim the PTC (if eligible)
- Applying an advance of your PTC toward the monthly insurance premium; or
- Taking the full PTC on your tax return for premiums paid out-of-pocket.
Applying an advance of your PTC toward the monthly insurance premium
You can take an advance payment of your PTC at the beginning of each year based on the projected estimate of your income and family size for the year. A pro-rata share of your advance payment would be paid to the health insurance company each month and applied to your premiums.
When you file your federal tax return the following year, you would calculate your actual PTC and reconcile it to your advance payment. If your income turned out to be higher than you estimated, you may owe taxes; if it was lower, you may have a tax refund. Using this method may be helpful if you can’t afford the premium, but could cause you to owe taxes, if your advance payment was more than you were entitled to.
Taking the full PTC on your tax return for premiums paid out-of-pocket
If you can afford to pay your health insurance premiums out-of-pocket, it may cause you less problems to simply pay them each month and then claim the full PTC when you file your taxes. This way you will know the exact amount of the PTC you are entitled to (if any). The PTC would either reduce your tax liability or increase your refund.