How ACA premium tax credits work
The listed premium is not what most people pay. A premium tax credit can cover most or all of the cost, depending on household income and family size.
The idea
The marketplace caps what you pay for the benchmark silver plan (the second- lowest-cost silver plan in your area) at a percentage of your household income. If the benchmark costs more than that percentage, the difference is paid as a tax credit. You can apply it to any metal level, though the credit is always calculated from the benchmark silver price.
What counts as income
Credits use modified adjusted gross income (MAGI) of everyone on the tax return, plus certain tax-exempt income, and the number of people in your household. Reporting income changes during the year matters: if your actual income differs from the estimate, you settle up on your tax return.
Advance vs. tax time
You can take the credit in advance as a reduction in the monthly premium, or claim it when you file. Advance is usual, but overestimating income means repaying some credit later — estimate carefully and update the marketplace if your income changes.
Cost-sharing reductions
People with income up to 250% of the federal poverty level who buy a silver plan may also get cost-sharing reductions: lower deductibles, copays and out-of-pocket maximums. This is another reason silver can be the best value at lower incomes.
Policy changes
Subsidy rules have changed several times, and temporary enhancements have been extended by Congress at various points. Always get the current rules and an official estimate from HealthCare.gov or your state marketplace before enrolling.
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