How is the Premium Tax Credit or Repayment Amount calculated?

If you purchased private healthcare through the Health Insurance Marketplace (HealthCare.gov), then you may have qualified for the premium tax credit. The premium tax credit is a refundable tax credit designed for low or moderate-income individuals and families to help them afford health insurance.

How is the Amount of the Premium Tax Credit Computed?

The premium tax credit is calculated by taking the difference between the following two values: 

1. The cost of a benchmark plan. This is the second-lowest-priced silver plan that is available to each member of the household.
2. Your expected premium contribution. This is how much the individual or family is expected to contribute towards the purchase of the insurance premium. Your expected premium contribution is based on a sliding scale that takes into account the individual or family's anticipated income for the tax year relative to the federal poverty line (expressed as a percentage).

Example

• Suppose your total family income is just below $55,500 (200% of the poverty line for 2022). Your expected premium contribution is 2% of this income or $1,110 for the year.
• If the second-lowest priced silver plan is $5,000, then this would become the benchmark plan.
• Therefore, the premium tax credit would be $5,000 - $1,110 = $3,890

How Do I Receive the Premium Tax Credit?

Eligible applicants have the option of taking the premium tax credit when they buy health insurance or later when they file their tax returns. If you take the advance payments of the premium tax credit, then you can not get it a second time when you file your taxes.

Regardless of which method you choose, you must also reconcile the premium tax credit when filing your tax return. This is because your actual income may be different from the projected income that was originally used to calculate the credit. Credit recipients will receive Form 1095-A and can use this information to fill out Form 8962, Premium Tax Credit.

In general, if your income is higher than expected, then you may have to pay back some of this credit. If your income was lower than expected, then the difference may be refunded.

For more information, please see Questions and Answers on the Premium Tax Credit on the IRS's website.