Publication 3498: The Premium Tax Credit (PTC)
Understand the tax implications of your marketplace health plan. This guide details the rules and process for claiming the Premium Tax Credit on your return.
IRS Publication 3498 serves as a guide for individuals and families navigating the tax provisions associated with the Affordable Care Act (ACA). The document helps taxpayers understand their responsibilities related to health coverage under federal law. It provides a framework for determining who needs coverage, who might be exempt, and how financial assistance, such as tax credits, integrates with the annual income tax filing process.
Health Coverage Requirement and Exemptions
The Affordable Care Act introduced a provision that required individuals to maintain a certain level of health insurance, known as minimum essential coverage. However, the federal penalty for not having coverage was reduced to $0, effective from the 2019 tax year onward. Despite the lack of a federal penalty, some states have implemented their own individual mandates that require residents to maintain health coverage or pay a state-level penalty.
Even when the federal penalty was in effect, the law provided several exemptions that relieved certain individuals from the requirement. An automatic exemption was granted to individuals whose gross income was below the annual tax return filing threshold. Other exemptions could be claimed on a tax return using Form 8965, for situations like having a gap in coverage for less than three consecutive months.
Exemptions were also available for those who could not find affordable coverage, defined as a plan costing more than a certain percentage of their household income. Specific life events or hardships could also qualify an individual for an exemption. Members of federally recognized Native American tribes, individuals who are incarcerated, and those with certain religious objections were also among the groups exempt from the individual mandate.
Qualifying for the Premium Tax Credit
The Premium Tax Credit (PTC) is a refundable tax credit designed to make health insurance more affordable for eligible individuals and families. A primary requirement for eligibility is purchasing health coverage through the official Health Insurance Marketplace. Plans purchased directly from an insurance company outside of the Marketplace are not eligible for this credit.
Eligibility is heavily dependent on a taxpayer’s household income relative to the federal poverty line (FPL). To qualify, a household’s income must be at least 100% of the FPL for their family size. The original upper income limit was 400% of the FPL, but legislative changes have extended eligibility for those with incomes above this threshold through 2025.
Another condition for receiving the PTC is that the individual cannot be eligible for other forms of affordable health coverage. This includes most employer-sponsored plans, Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP). An employer’s plan is considered unaffordable if the employee’s share of the premium for the lowest-cost self-only plan is more than a set percentage of their household income. Married couples must file a joint return to be eligible for the PTC.
Reporting and Reconciling on Your Tax Return
When you file your federal income tax return, you must account for any health coverage assistance you received. This process begins with Form 1095-A, Health Insurance Marketplace Statement, which is sent by the Marketplace to anyone who was enrolled in a plan through them. This form provides information for each month of coverage, including the total premium for the plan, the premium for the second-lowest cost silver plan (SLCSP), and the amount of any advance premium tax credit (APTC) paid on your behalf.
The information from Form 1095-A is used to complete Form 8962, Premium Tax Credit (PTC). On this form, you calculate the actual premium tax credit you are eligible for based on your final, verified household income for the year. This calculation may differ from the estimate you provided to the Marketplace when you initially enrolled. Filing Form 8962 is required for anyone who received APTC, even if they normally would not be required to file a tax return.
The core of this process is reconciliation, where you compare the total APTC you received throughout the year with the actual PTC you qualify for. If the APTC you received was less than the credit you are entitled to, the difference will increase your tax refund or lower the amount of tax you owe.
Conversely, if the APTC paid to your insurer was more than the PTC you ultimately qualify for, you will have an excess advance payment that must be repaid. This repayment will either reduce your expected refund or increase your tax liability. The amount of this repayment may be limited for taxpayers whose household income is less than 400% of the federal poverty line.