The Health Insurance Premium Tax Credit (PTC) was almost 13 years ago. Thanks to Obamacare, eligible individuals who are unable to obtain affordable coverage through their employers can purchase coverage from the market and qualify for PTC and reduce monthly premiums. Those who can obtain affordable health insurance through their employers are not eligible for PTC or are not eligible for Medicare, TRICARE, Medicaid, or other federal health insurance programs.
Temporary PTC mitigation has ended
Prior to 2021, PTC was only available to people with revised, adjusted gross income (AGI) ranging from 100% to 400% of the federal poverty guidelines that purchased insurance through markets such as Healthcare.gov and met certain other rules. The revised AGIs for this purpose are AGI and tax-free interest, non-taxable social security benefits, and tax-free foreign earning income.
During the Covid-19 pandemic, federal lawmakers strengthened the PTC in 2021 and 2022, giving more people eligible for grants. Congress has also increased the credit amounts of many qualified individuals. Lawmakers later updated these enhancements, but created them temporarily until 2025.
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In 2025, individuals with an AGI modified above 400% of federal poverty levels can qualify for PTC to the extent that the cost of the benchmark silver plan in the market exceeds 8.5% of their income.
However, from 2026, the rules have returned to those that were in effect before 2021, so only individuals with amended AGIs of 100% to 400% of the poverty level will obtain PTC. This means fewer people will qualify for PTC. Also, almost everyone else who maintains PTCS qualifications have a much lower credit amount than before. This means that individuals will pay a high premium to their health insurance.
This will begin to affect those seeking market compensation for 2026 on Healthcare.gov later this fall, unless Congress acts to extend PTC mitigation. And then, the impact continues to be felt. If PTC strengthening expires, 3.7 million people will ultimately lose their Heath insurance, as they cannot afford monthly premiums. And this is a conservative person.
Extending the PTC mitigation is not the goal of President Trump or most Congressional Republicans. The PTC has silence as GOP lawmakers in Washington, DC have extended expiration provisions in the 2017 Tax Cuts and Employment Act and are working on tax contracts to provide additional tax cuts. The House Passed “One Big Beautiful” bill will not extend the easing. And while we expect Senate Republicans to make some changes to the House package, there is no prediction that they will add PTC relief. Congress could potentially address PTC relief with another tax bill later this year, but that appears to be a long shot.
How do premium tax credits work?
PTC is estimated when you go to the market to buy health insurance. Estimated credits for 2026 are based on expected 2026 income. To get this in mind, we will start with the AGI changed in 2024 and add or reverse the expected revenue changes for 2026. The lower the modified AGI, the greater the credits.
Most people who qualify for PTC generally choose to pay directly to their health insurance company in advance to lower their monthly health insurance premiums. If you choose this, you will need to file a federal tax return, even if your income may be below the filing threshold, or if you are expecting a refund. Calculate the PTC amount using IRS Form 8962, list the advances made to the insurance company (found in Form 1095-A received from the health insurance market), and adjust the two numbers. If your PTC exceeds your prepayment, you can claim an excess of PTC on Form 1040. If PTC is less than progress, most people will need to pay back the excess or all the excess.
Beware of the IRS Audit Red Flag
PTC false reporting on Form 1040 is a simple red flag for the IRS. That computer flag filed a tax return showing an amended AGI beyond the limits for obtaining a PTC. The IRS will also receive Form 1095-A from the Health Insurance Market, which taxpayers have prepaid their PTC, selected to reduce their monthly premiums, and the amount of these advances. Please double-check that you are eligible for PTC and report correctly before submitting Form 1040.
Also, if you are currently registered in market coverage, please let the market know of any changes that may affect your PTC amount in 2025. For example, if you lose your job and report low income, the market will increase your future subsidy amount and put more money into your pocket. Reporting higher income also reduces subsidies. For example, you could sell your investment property or find a new job. Submitting Form 1040 next year will help reduce surprises by notifying the market.
