Dear [CLIENT NAME]:
If you are reviewing your employer’s open enrollment health insurance options over the next month or two, you may want to take a look as to whether your family may qualify for subsidies provided through the federal Premium Tax Credit, which may lower your health insurance costs.
Federal health insurance subsidies cover a portion of your monthly premiums and are paid directly to your health insurance company, but only if you purchase the insurance through a government-established health care exchange. These exchanges offer a variety of different health insurance plans (e.g., Blue Cross, Kaiser, Anthem, etc.) Additional information can be found here: https://www.healthcare.gov/marketplace-in-your-state/. The amount of your subsidy is based on your income. The lower your income, the higher your subsidy.
The subsidies are also referred to as the Advanced Premium Tax Credit (APTC) or just the Premium Tax Credit (PTC). They are defined as tax credits because the subsidies you receive must be reconciled when you file your annual income tax return. If your income was lower than you estimated when you purchased your insurance through the exchange, then you are entitled to claim an additional Premium Tax Credit on your income tax return. If your income was higher than you estimated when you purchased your insurance, then you may have to pay back some of the subsidies you received.
Individuals generally are not allowed a PTC if they are eligible for affordable employer-sponsored health care coverage. Under the IRS’s new rules, coverage is affordable for an employee if the portion of the premiums that must be paid by the employee for family coverage (the employee, spouse, and eligible members of the household) is equal to or less than household income multiplied by the Required Contribution Percentage (8.39% in 2024 and 9.02% in 2025).
Before 2023, coverage was deemed affordable for the entire family if the portion of the premiums that must be paid by the employee for self-only coverage was equal to or less than household income multiplied by the Required Contribution Percentage. This meant that many families did not qualify for the subsidies.
Because the cost of family coverage is more expensive than the cost of self-only coverage, more employees will now find that their own coverage offered by their employer is affordable, but the health insurance coverage offered by the employer is not affordable for their spouse and dependents. This new rule will allow the spouse and dependents to receive subsidies if they purchase their health insurance separately on an exchange.
The marriage of the health insurance rules and tax rules can become very complicated. Please contact our office for an appointment if you would like to discuss the tax consequences of receiving subsidies (aka Premium Tax Credits) for the purchase of health insurance through an exchange.
Sincerely,
Your tax professional
