Skip to content

Real Life Examples

These examples show how changes in a family's size and income will affect the amount of premium tax credit, but not the advance credit payment amounts.

Example One

The information for the family is as follows:

  • Tax year: 2016
  • $4,100 monthly income
  • 4 household members: Parents age 28 and 30 and two children under 18
  • They plan to file jointly
  • They live in Weber County, Utah
  • Their monthly insurance premium, before any tax credit, is $526
  • Elected advance credit payments of $475 per month

No Changes: Assuming there are no changes during the year, their premium tax credit would be approximately $6,060. Advance payments of the credit totaling $5,700 will be made to their insurer based on annual income of $49,200 (which is 203% of the federal poverty line) and an estimated benchmark premium of $767. The family will receive the remaining $360 when they claim the credit on the Form 1040.

Changes: However, if one of the parents finds a better paying job in April that increases their monthly income to $4,500, their annual income will then be $52,800 (218% of the federal poverty line). If the Marketplace isn't notified, the $5,700 in advance payments of the credit will still be paid to their insurer, but they will be eligible for a premium tax credit of only about $5,544. The family will need to repay the $156 difference when they claim the credit on the Form 1040.

Example Two

The information for the family is as follows:

  • Tax year: 2016
  • $5,200 monthly income
  • 3 household members: 46 year old single mother and two daughters who will be 18 and 20 at the end of the year. The 20 year old is attending college, so the mother is still eligible to claim her
  • Plan to file unmarried head of household filing status
  • They live in Massachusetts
  • Their benchmark insurance premium is $588 per month
  • Their monthly premium, before any tax credit, is $467
  • Elected advance credit payments of $90 per month

No changes: Assuming there are no changes during the year, the mother’s premium tax credit would be approximately $1,128. Advance payments of the credit totaling $1,080 will be made to the insurer based on annual income of $62,400 (311% of the federal poverty line) and an approximate benchmark insurance premium of $7,056. She will receive the remaining $48 when claiming the credit on the Form 1040.

With Changes: However, if the family's income is reduced by $200 per month in June (so the monthly household income is $5,000 per month for June through December), the premium tax credit allowed is now $1,260. If the Marketplace isn't notified of the reduced income, the $1,080 in advance payments of the credit will still be paid to the insurer. Therefore, she will have an additional $180 of the premium tax credit available when claiming the credit on the Form 1040.

KEY TERMS

Applicable Percent

The percent of your income that you are considered able to afford for your and your family's health insurance.

Benchmark Plan

The benchmark plan is the second lowest cost silver plan available in your area that covers the members of your family (you, your spouse and your dependents) who are enrolled in Marketplace coverage and not eligible for other health insurance coverage such as employer-sponsored or government-sponsored coverage.

The premium tax credit is the lesser of:

  • The premiums for the plan in which you and/or your family members enroll,

or

  • The premium for your benchmark plan minus your contribution amount.

Contribution Amount

The contribution amount is the amount you are considered to be able to afford to pay for health insurance. It would be the amount you pay if you enroll in your benchmark plan.

Determined by multiplying your annual household income by your applicable percent.

Family

Generally you (if no one can claim you as a dependent), your spouse (if married and both spouses are on the same return), and anyone else that you are able to claim as a dependent.

Federal Poverty Line

The poverty guidelines published by the Department of Health & Human Services.

Health Insurance Marketplace

One of the state or the federal exchanges where you can shop for and purchase health insurance.

Health Insurance Premium

This is the total cost of the plan you choose on the Exchange before the premium tax credit is applied.

Household Income

Household income is your modified adjusted gross income (MAGI) and the MAGI of your spouse if you file a joint return, plus the MAGI of your dependents who are required to file a federal tax return.

Modified adjusted gross income is the adjusted gross income as reported on Form 1040 plus any:

  • Foreign earned income exclusion,
  • Nontaxable Social Security benefits (including tier 1 railroad retirement benefits), and
  • Tax-exempt interest.

It does not include Supplemental Security Income (SSI).

Silver Plan

Marketplace insurance plans are categorized by metal levels: bronze, silver, gold, and platinum. The metal level is based on how much the insurer pays for services covered under the plan.

A silver plan is a health insurance plan where the insurer pays on average 70% of the cost of covered services.

The premium tax credit is limited by comparing the cost of your coverage to that of the second lowest cost silver plan that covers you and your family.

If you are enrolled in more expensive coverage, you will pay the additional amount. However, if you are enrolled in coverage that costs less, your share of the premium will also be less.

For more information, go to healthcare.gov