Understanding the Premium Tax Credit (PTC) and How It’s Changing After 2025

The Premium Tax Credit (PTC) is a refundable credit designed to make health insurance more affordable for individuals and families. It works by limiting the percentage of your household income that you’re required to pay for health insurance premiums purchased through a Health Insurance Marketplace.

How the PTC Works

The amount of the PTC you qualify for depends on your household income compared to the Federal Poverty Line (FPL):

• Lower-income households pay a smaller percentage of their income toward premiums.

• Higher-income households pay a larger percentage, with the credit covering the rest.

Before recent legislative changes, taxpayers with household income above 400% of the FPL didn’t qualify for the PTC.

You’re eligible for the PTC if you:

• Purchase coverage through a health insurance exchange, and

• Aren’t eligible for affordable employer-sponsored insurance, Medicare, Medicaid, or another government program.

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Temporary Changes: 2021–2025

The American Rescue Plan Act of 2021 and the Inflation Reduction Act of 2022 significantly expanded access to the PTC:

• Households earning up to 150% of the FPL could qualify for a 0% contribution rate, meaning the credit could cover the full premium cost.

• Those earning above 400% of the FPL could still receive a PTC, capping their premium contribution at 8.5% of household income.

Example:
A household at 200% of the FPL would only pay between 2% and 4% of its income toward premiums after the credit.

These provisions are in effect through tax year 2025.

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What Happens After 2025

Unless Congress takes further action, the PTC rules will revert to pre-2021 levels beginning January 1, 2026:

• No PTC for households earning above 400% of the FPL.

• Increased contribution percentages for lower- and middle-income households.

2026 Example:
A household at 200% of the FPL will be expected to contribute 6.6% to 8.44% of its income toward premiums — a significant jump from the 2021–2025 rates.

Additionally, the affordability threshold for employer-sponsored coverage will rise to 9.96% of household income in 2026. If the cost of your workplace health plan is below that threshold, you won’t qualify for a PTC, even if Marketplace coverage is more appealing.

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Key Takeaways

• Act now: If your income is near or above 400% of the FPL, you may lose PTC eligibility in 2026.

• Plan ahead: Premium costs could rise significantly for many households when temporary provisions expire.

• Stay informed: Annual IRS updates adjust the income percentage thresholds for inflation.

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Need Help Planning for These Changes?

Navigating the PTC rules — especially with the upcoming changes — can be complex. Our team can help you:

• Estimate your 2025 and 2026 PTC eligibility.

• Plan your household income to maximize available credits.

• Compare Marketplace and employer coverage costs.

Contact us at contact@psacpa.com or call 301-879-0600 to schedule a quote and ensure you’re prepared before these changes take effect.