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Tax & AccountingNovember 11, 2022

Congress extends expanded eligibility for Health Insurance Premium Tax Credit until 2025

By: CCH AnswerConnect Editorial

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Congress has extended relief through 2025 for taxpayers who purchase health insurance on a Marketplace Exchange and want to take advantage of the Premium Tax Credit (PTC). The PTC is a refundable credit that helps eligible individuals and their families cover the premiums for health insurance purchased through a state-run exchange. An individual who qualifies for affordable health care coverage under an employer- or government-sponsored plan is not eligible for the PTC. For those who do qualify, the PTC effectively subsidizes the cost of purchasing health insurance on an Exchange.

For 2021 and 2022, the American Rescue Plan provided relief to taxpayers buying health insurance on a Marketplace Exchange via: 

  1. An increase in the amount of the credit, and;
  2. The elimination of the income cut off for the subsidy. 

Congress has now extended this relief through 2025. 

The amount of the credit was essentially increased after 2021

 The amount of the tax credit is based on a taxpayer’s annual household income, which is then multiplied by the “applicable percentage”. The applicable percentage is calculated by first determining the percentage that the taxpayer’s household income bears to the federal poverty line (FPL) for the taxpayer’s family size. For 2022, the federal poverty level is $13,590 for a single person, with $4,720 for each additional family member. 

The applicable percentage for each income range for 2021 – 2025 is as follows: 

  • For household income up to 150% of the FPL, the applicable percentage is 0%.
  • For household income from 150% to 200%, the applicable percentage ranges from 0% to 2%.
  • For household income from 200% to 250%, the applicable percentage ranges from 2% to 4%.
  • For household income from 250% to 300%, the applicable percentage ranges from 4% to 6%.
  • For household income from 300% to 400%, the applicable percentage ranges from 6% to 8.5%.
  • For household income 400% of the FPL and higher, the applicable percentage is 8.5%.

Compared to pre-2021 rates, this means that lower income taxpayers have higher subsidies, and people earning up to 150% of the FPL do not have to pay anything for health insurance.

There is no income cap on tax credit eligibility through 2025

Prior to 2021, the subsidy was available only to low income taxpayers, specifically, those whose household income did not exceed 400% of the federal poverty line (FPL). However, Congress has  provided credits for a whole new population of taxpayers with income above 400% of the FPL, effectively eliminating the income cap for premium subsidies through 2025. As a result, no taxpayer benefiting from the PTC will have to pay more than 8.5% of household income for the benchmark plan. 

Why do taxpayers need to know about the extension of this relief?

The extension of this relief, both increasing the amount of the credit, and creating a whole new group of taxpayers who may take advantage of this relief, is important news for taxpayers who may believe their health insurance premiums for Marketplace Exchange plans will cost them more than they really will.

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