What Is the PTC Tax Credit and Who Is Eligible?

The Premium Tax Credit (PTC) is a refundable tax credit that helps individuals and families afford health insurance purchased through the Health Insurance Marketplace. The credit reduces monthly premium payments and is available even to those who owe little or no federal income tax, as it is designed to bridge the gap between a family’s affordable contribution and the plan’s actual cost.

Eligibility Requirements for the PTC

To qualify for the Premium Tax Credit, a taxpayer must meet several specific conditions.

• Have a household income between 100% and 400% of the federal poverty line (FPL). For tax years 2021 through 2025, this upper limit is waived, and those with incomes above 400% FPL may still be eligible. Household income is the Modified Adjusted Gross Income (MAGI) of the taxpayer, spouse, and any dependents required to file a tax return.
• Be enrolled in a qualified health plan through the Marketplace.
• Not be eligible for other minimum essential coverage like Medicare, Medicaid, or an affordable employer-sponsored plan. For 2025, an employer plan is “affordable” if the employee’s share for self-only coverage is no more than 9.02% of household income and provides “minimum value” by covering at least 60% of benefit costs.
• File a joint tax return if married, though limited exceptions exist for victims of domestic abuse or spousal abandonment.
• Not be claimed as a dependent on another person’s tax return.

How the PTC Amount is Calculated

The Premium Tax Credit amount is calculated by balancing a household’s expected contribution with the price of a benchmark health plan. A household’s income relative to the federal poverty line (FPL) determines the percentage of income they are expected to contribute to their premium; a lower income means a smaller expected contribution.

The calculation uses the premium for the “benchmark plan,” which is the second-lowest cost Silver plan (SLCSP) available to the family through their Marketplace. The PTC is tied to this specific plan’s cost, regardless of which plan the family actually chooses.

The final PTC amount is the lesser of either the total premiums for the enrolled plan, or the SLCSP premium minus the household’s expected contribution. For example, if the SLCSP costs $10,000 and the expected contribution is $4,000, the potential credit is $6,000. If the family’s chosen plan costs only $5,500, their credit would be limited to $5,500.

Methods for Receiving the Credit

Taxpayers have two options for receiving the credit. The first is through advance payments, known as the Advance Premium Tax Credit (APTC), which are sent directly to the insurance company each month. This lowers the policyholder’s out-of-pocket premium cost.

APTC is based on an income estimate, so it is important to report life changes like a new job, marriage, or birth of a child to the Marketplace. Updating this information allows for an adjustment of the advance payments to prevent a large overpayment or underpayment at tax time.

The second method is to claim the entire credit on an annual federal income tax return. This involves paying the full monthly premium all year and then calculating the total PTC owed based on actual income. The credit is then claimed as a lump sum, which can increase a tax refund or lower tax liability.

Reconciling the PTC with Form 8962

Anyone who received advance payments of the PTC must reconcile them by filing Form 8962, Premium Tax Credit, with their federal income tax return. This form is also used to claim the credit if no advance payments were taken.

To complete Form 8962, taxpayers use information from Form 1095-A, Health Insurance Marketplace Statement. This document, sent by the Marketplace, lists total premiums, the premium for the second-lowest cost Silver plan (SLCSP), and any APTC paid on the taxpayer’s behalf.

Form 8962 compares the APTC received with the actual PTC you are eligible for based on your final household income. If the advance payments were more than the actual credit, the excess must be repaid with your tax return, though repayment caps may apply based on income.

If the advance payments were less than the actual credit, the difference is received as a net Premium Tax Credit. This can increase your tax refund or lower the tax you owe.