What Is the Premium Tax Credit and How Is It Calculated?
The premium tax credit fills the gap between a benchmark plan's price and what the law expects you to pay. See the three-step calculation and a worked 2027 example.
The premium tax credit is a federal credit that lowers the monthly price of a marketplace health plan based on your income. The credit fills the gap between the price of a benchmark plan and the amount the law expects you to pay. This guide explains who qualifies and walks through the calculation step by step, with a worked example for 2027 coverage.
What is the premium tax credit?
The premium tax credit is a refundable federal tax credit for people who buy coverage through HealthCare.gov or a state marketplace. Most people take the credit in advance, and the marketplace pays it to the insurer each month. Others pay the full premium and claim the credit when they file. The credit works on any metal level except catastrophic plans. Your tax return later checks the amount against your actual income on Form 8962. Key facts:
- Type: refundable federal tax credit
- Where it applies: marketplace plans only
- How it is paid: monthly in advance, or at tax time
- Not available for: Catastrophic plans and private plans outside the marketplace
Who qualifies for the premium tax credit?
The premium tax credit generally goes to marketplace enrollees with income from 100% to 400% of the federal poverty level. Basic eligibility rules for 2027 coverage:
- Income: generally $15,960 to $63,840 for one person
- Coverage: a plan bought through HealthCare.gov or a state marketplace
- Other coverage: no access to affordable employer coverage, Medicare, or Medicaid
- Tax filing: married couples generally file jointly, and no one can claim you as a dependent
A job offer can block the credit if the employer plan counts as affordable for you. Income above 400% of the poverty level removes the credit under current rules. See how the 2027 subsidy cliff works.
How is the premium tax credit calculated?
The premium tax credit calculation follows three steps. The marketplace runs these steps for you when you apply.
- Benchmark premium: find the second-lowest-cost Silver plan for your household in your area
- Expected contribution: multiply your household income by the applicable percentage for your income level
- Credit: subtract the expected contribution from the benchmark premium
A plan cheaper than the benchmark costs you less than your expected contribution. A pricier plan costs you the difference. The credit can never exceed the premium of the plan you pick.
What percentage of income do you pay in 2027?
The expected contribution for 2027 coverage rises with income and tops out at 10.22% of household income. IRS Revenue Procedure 2026-26 sets the 2027 percentages. Key points:
- Income below 250% FPL: lower percentages, set by income level
- Income from 250% to 300% FPL: the percentage starts at 8.66% and rises toward the top rate
- Income from 300% to 400% FPL: 10.22% of income
- Income above 400% FPL: no premium tax credit
The marketplace calculates your exact percentage from your income estimate.
How does the premium tax credit calculation work in a real example?
A worked example shows the premium tax credit calculation for one person. The premiums are sample numbers, not a quote.
| Step | Sample amount |
|---|---|
| Household income | $50,000, about 313% FPL |
| Applicable percentage | 10.22% |
| Expected contribution | $5,110 a year, about $426 a month |
| Sample benchmark Silver premium | $650 a month |
| Premium tax credit | About $224 a month |
| Net cost of a $500 Bronze plan | About $276 a month |
Real benchmark premiums depend on your age, ZIP code, and household size. The marketplace shows your actual numbers.
Why does age change the premium tax credit?
Age changes the premium tax credit because older enrollees face higher benchmark premiums. The expected contribution depends only on income, not age. A 60-year-old and a 30-year-old with the same income pay the same expected contribution. The 60-year-old's benchmark premium is higher, so the 60-year-old gets a larger credit. That pattern holds only up to 400% FPL, where the credit applies.
How do you get the premium tax credit?
The premium tax credit comes either as an advance payment or at tax time. Your choice changes your monthly bill and your tax risk. The table compares the two routes.
| Route | How it works | Main risk |
|---|---|---|
| Full advance credit | Lowers each monthly premium | Repayment if income rises |
| Partial advance credit | Lowers the premium by a smaller amount | Smaller repayment risk |
| Claim at tax time | You pay the full premium, then claim the credit | Higher monthly cost during the year |
What happens to the premium tax credit at tax time?
The premium tax credit gets reconciled on your tax return. Form 8962 recalculates the credit with your actual income. Too little advance credit means a refund. Too much means a repayment, with no cap starting with 2026 coverage. Read how to use Form 1095-A and whether you have to pay the credit back.
Frequently asked questions
Is the premium tax credit refundable?
The premium tax credit is refundable. You can receive the credit even if you owe little or no federal income tax. A credit larger than your tax can increase your refund. You still must file a tax return with Form 8962 to claim or reconcile the credit.
Can you use the premium tax credit on any metal level?
The premium tax credit works on Bronze, Silver, Gold, and Platinum marketplace plans. Catastrophic plans do not qualify. Cost-sharing reductions are different, because those extra savings apply only to Silver plans for eligible lower-income enrollees. See how to compare metal levels.
Does a job offer stop you from getting the premium tax credit?
A job offer can stop you from getting the premium tax credit if the employer plan counts as affordable and meets minimum value rules. The IRS sets the 2027 affordability share at 10.22% of household income. Ask your employer for plan cost details before you apply.
Get help estimating your premium tax credit
A licensed broker can estimate your 2027 credit and compare plans after the credit. I'll build your income estimate with you and compare ACA and private options side by side. Private plans ask health questions and carry no tax credits; if a private plan isn't the right fit, ACA plans can't turn you down because of a pre-existing condition. My help is free.