Do You Qualify for Affordable Care Act (ACA) Tax Credits?

Find out if you'll qualify for health care credit.

By , J.D.

If you purchase your own individual health insurance coverage from your state health insurance exchange, you might qualify for tax credits under the Affordable Care Act (ACA), also called "Obamacare," to help pay the cost.

The rules for obtaining the credits depend on the year.

Overview of ACA Tax Credits

Although they're called credits, the payments made under the ACA are really a government-funded subsidy. You don't need to owe any income taxes to receive the credit.

And, unless you direct otherwise, the credit is paid directly to your health insurance company, not to you when you enroll in your health insurance plan. So, you don't need to wait until your taxes have been filed and processed to receive the credit; nor do you need to pay the full premium when you purchase health insurance and then wait to be reimbursed.

How to Get the ACA Credit

To obtain the ACA credit, you must: (1) obtain your health insurance through your state exchange, (2) file a joint return if you're married, and (3) not have access to affordable health coverage elsewhere—for example, through an employer or spouse's employer.

You must also get your health insurance during the open enrollment period, which is ordinarily November 1 through December 15 (but is longer in a few states). However, you can still get coverage after the open enrollment period if you have a life change—for example, you move to another state, lose your health insurance, get married or divorced, or have a baby. You can also get ACA coverage anytime if you qualify for Medicaid in your state.

State Exchanges

A majority of states use the federal exchange, but several have their own state exchanges. You'll be directed to the appropriate exchange website. You'll have to complete an application that includes your estimate of what your income will be. The website has detailed advice on how to do this accurately.

When your application is complete, the exchange will determine whether you qualify for the credits and, if so, how much. You'll need to verify your income when you file your taxes for the year; and if you end up earning more than you estimated, you might have to pay back all or part of your tax credits. If your income changes unexpectedly during the year, you can let your exchange know, and they'll adjust your credit so you don't get paid too much or too little.

ACA Tax Credits for 2021 Through 2025

As originally designed, the premium tax credit was only for low- and moderate-income people whose household income was between 100% and 400% of the federal poverty level (FPL).

Congress removed the 400% of FPL limit for 2021 through 2025. During these years, Americans who earn over 400% of the federal poverty level are required to pay no more than 8.5% of their household income for ACA health insurance. Regardless of how high their income is, they're entitled to a premium tax credit to the extent the cost of the silver benchmark plan in their area exceeds 8.5% of their household income. Those with incomes under 400% of the federal poverty level are required to pay less than 8.5% of their income for health insurance, based on a sliding scale.

As a result of these changes, many self-employed business owners are able to qualify for premium tax credits for the first time; others receive larger credits. For example, if your income is $100,000, you are required to pay no more than $8,500 for ACA coverage. If a silver plan for your family cost $15,000, you're entitled to a $6,500 premium tax credit. The old pre-2021 rules are scheduled to return in 2026.

Determining the Amount of the Credit

How much is the credit? It depends on your household size, income, and the cost of health insurance where you live.

You can get an idea of how big a credit you'll qualify for by using the Kaiser Foundation Health Insurance Marketplace Calculator. If you plug in your income numbers, the calculator will give you an estimate of your subsidy.

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