The Basics of Premium Tax Credit and Individual and Family Health Insurance


Just recently, Health and Human Services Secretary-nominee Tom Price and House Speaker Paul Ryan made headlines because of what they said regarding refundable tax credits. Both of them want to use it to replace Obamacare subsidies for people who don’t have access to employer-provided health insurance. What is your take on it? Do you think it can greatly help your individual and family health insurance concerns?

Individual and Family Health Insurance

The importance of insuring one’s health is already common knowledge these days. While you may seem healthy today, you do not really know what will happen tomorrow. You might just find yourself suffering from a serious illness; for instance, cancer or diabetes.

In these situations, it helps to have something to rely on – like a health insurance plan. There are various types of coverage plans that companies offer, and you should be careful when choosing one that would fit your needs.

Premium Tax Credit

The premium tax credit (PTC) aims to make health insurance more affordable for people with low incomes and who do not have access to coverage sponsored by employers. It is refundable in the sense that if your credit amount is more than your tax liability, you will get the difference as a refund.

Individuals and families should meet a particular income level to become eligible for the PTC. Also, they should enroll in a qualified health plan through a federally-operated state marketplace or a state-operated individual insurance marketplace. Apparently, people with lower incomes receive larger credits.

How do You Become Eligible for PTC?

Take a close look at the following requirements:

  • You should be an “applicable taxpayer”. Being an applicable taxpayer means you meet one of the following requirements for the tax year: household income between 100% and 400% of the federal poverty line, not a dependent on another taxpayer, joint federal income tax return for married people.
  • You cannot be eligible for minimum essential coverage under a program sponsored by the government (Medicaid, Medicare, CHIP, or TRICARE)
  • You should not have access to minimum essential coverage sponsored by an employer. Employers offering coverage should explain what meets the definition of minimum essential coverage.

Make sure you understand each requirement in detail to avoid possible problems.

Can You Make Advance Payments?

Yes. To benefit from it, you don’t have to wait until after filing your Form 1040 for the year. You may choose to pay the estimated credit amount directly to the insurance company in monthly installments. These are advance PTC payments and doing this will lower your monthly premiums.

PTC Calculation

The calculation of your allowable PTC amount is on a monthly basis. It  takes the number of months you have and pay for coverage. Determining your allowable PTC amount for an entire year requires comparison of the actual premiums paid for coverage and a calculated affordable premium amount based on your household income.