FAQ: Premium Tax Credits (PTCs) and Cost-Sharing Reductions (CSRs)

Individuals may be eligible for a premium tax credit if they meet all of the following criteria:

• Buy health insurance through the Marketplace
• Have annual household incomes between 100% to 400% FPL (Federal Poverty Level)
• Are ineligible for other “minimum essential coverage”
• Are ineligible for Medicare, Medicaid, CHIP or TRICARE programs
• Do not file a Married Filing Separately tax return (unless victim of domestic abuse or spousal abandonment)
• Cannot be claimed as a dependent by another person

Individuals and families may be eligible for savings on out-of-pocket costs if they meet all of the following criteria:

• Have annual household income between 100% to 250% FPL
• Are eligible for a premium tax credit
• Enroll in a CSR Silver-level plan on the Marketplace

Clients are not eligible for a PTC or a CSR if they are eligible for “minimum essential coverage” outside the Marketplace. Minimum essential coverage includes most other types of health insurance such as Medicare or Medicaid. It also includes employer-sponsored coverage that is affordable and provides minimum value. Employers must notify employees if plans meet these two requirements.

The premium tax credits are administered on a sliding-scale based on the client’s household income and size. Those who have a lower income get a larger credit to help cover the cost of their insurance. In other words, the higher your income, the lower the amount of your credit.

Cost-sharing reductions are based on income and household size. The lower a person’s income, the more they will benefit from a CSR.

Both subsidies are determined based on modified adjusted gross income (MAGI). Generally, MAGI is the individual or household’s adjusted gross income, plus any tax-exempt Social Security, interest, or foreign income.

Individuals eligible for a premium tax credit can choose to:

Get it now: Have some or all of the credit paid in advance directly to the insurer by the Marketplace every month. The person/family then pays less for their monthly premium. This is also known as an “advance payment of the premium tax credit,” or APTC. In most cases, RWHAP clients are required to take the APTC to avoid owing any money to the program. The advantage of APTCs to the client is that they do not have to pay as much out of pocket and then wait for the tax credit to be applied at the time they file taxes.

Get it later: Wait to get the lump sum credit when they file their federal income tax return at the end of the year. If a person or family decides to receive the PTC later, they will pay their full premium each month.

The CSR is applied all year long, reducing the cost of deductibles, copayments, and coinsurance and lowering the out-of-pocket maximum for the year. Clients cannot get the CSR in a lump sum at the end of the year.

Clients must file a federal income tax return after the end of the year regardless of whether they received the premium tax credit in advance or plan to claim it as a lump sum. The client will then use the return to reconcile the difference between the APTC payments and the actual amount of the credit that the client is eligible for at the end of the year.

Individuals who receive APTCs should file a federal tax return because it will impact their future APTC eligibility. For example, individuals who received APTCs for their 2023 Marketplace plan should file and reconcile their 2022 taxes, otherwise they may lose any savings they receive for their 2024 Marketplace plan. Gathering the required documents, filling out the appropriate paperwork, and submitting taxes on time helps ensure that coverage remains accessible and affordable, year after year.

Eligibility for individuals who receive PTCs for the first time will be determined using the financial information in their Marketplace application. For later years, financial eligibility will be determined using the most recent available tax return.

If married, the client must file a joint tax return with their spouse unless the client is a victim of domestic abuse or spousal abandonment. The applicant cannot be claimed as a dependent on someone else’s tax return.

There is no relationship between the CSR and filing taxes. This means that when an individual files taxes at the end of the year, there is no reconciliation process for the CSR.

Clients must apply for APTCs through the Marketplace as part of the online application. This is called “eligibility determination.” The client must authorize collection of tax data from the IRS during the application process so that the Marketplace can determine their eligibility.

Even if a client is renewing Marketplace coverage, they should update household and income information in the Marketplace every year to be sure they receive the correct amount of APTC. If they do not update their information, they might get  too much APTC and have to pay it back at the end of the year, or they might get too little APTC which might make it difficult to afford their monthly premium costs. 

CSRs do not have a separate application process. Clients who apply for a PTC through the Marketplace are automatically assessed for CSR eligibility.

PTCs can be used for any metal-level plan (Platinum, Gold, Silver, or Bronze). The amount of the PTC is based on the cost of the Silver-level plan, but it can be applied to any plan, except catastrophic plans.

CSRs are only available for Silver-level plans.

Even if they receive both PTCs and CSRs, a client may still have health insurance expenses they will be responsible for, such as premiums, deductibles, co-insurance and copays.

The RWHAP can help eligible consumers pay for health insurance premiums and out-of-pocket expenses. Check with RWHAP recipients in your state, including ADAP, to see what financial assistance is available and as you help clients compare plan costs, make sure they understand all costs associated with their health insurance plan.

RWHAP funds may be used to cover any remaining portion of the client’s premium or out-of-pocket costs (i.e., copayments, deductibles, coinsurance). This additional assistance is available in many jurisdictions and you should contact the RWHAP recipient, including ADAP, in your state to learn more. For more information about the use of RWHAP funds for premium and cost-sharing assistance for the purchase and maintenance of private health insurance coverage, see HRSA/HAB Policy Clarification Notice (PCN) #18-01. For more information about the use of RWHAP funds to purchase health insurance for clients in the Marketplace and the reconciliation of advance premium tax credits, see HRSA/HAB Policy Clarification Notice (PCN) #14-01.

Clients will get a notice from their insurance company that explains any changes from last year’s plan. This letter will also include an estimate of the PTC for the upcoming plan year. 

As part of tax filing, clients must reconcile the APTCs they received with their actual year-end income to determine whether they received the correct amount of assistance and if they need to pay back or are owed money. Clients must also authorize the collection of tax data when updating their application for the next Open Enrollment Period. If they do not reconcile PTCs or authorize collection of tax data, they will not receive PTCs or CSRs.

Changes in some circumstances can affect the PTC or CSR amount. These circumstances include change in household income; life events such as marriage, divorce, birth, or adoption of a child; other changes to household composition; and gaining or losing eligibility for government or employer health care coverage. Note that changes in household income or composition may not qualify as a life event that would allow someone to enroll during a Special Enrollment Period. It is important for clients to report accurate income information and any income or family size changes throughout the year to avoid owing money at the end of the year.

PTCs are reconciled at the end of the year, meaning that the IRS will review and determine whether the correct amount of credit was applied. When a person files federal taxes, they will need to fill out IRS Form 8962 to document premium tax credits received and actual amount of premium tax credits owed based on income and household size at the end of the year. The amount of premium tax credits received can be found in a letter from the Marketplace that is typically sent to clients at the end of January, following the end of the plan year.

The information a person includes on Form 8962 will be used to indicate whether that person is owed a refund or owes the IRS money because of an advance premium tax credit overpayment.

CSRs are not reconciled at the end of the year.

Yes. Lawfully present immigrants with incomes between 100% to 400% FPL may be eligible for premium tax credits and those with incomes between 100% to 250% FPL may also be eligible for cost-sharing reductions. Lawfully present immigrants with household incomes below 100% FPL and not otherwise eligible for Medicaid based on immigration status may be eligible for tax credits and lower out-of-pocket costs if they meet all other eligibility requirements.

Undocumented immigrants are not eligible to buy health coverage through the Marketplace. They are not eligible for premium tax credits or other savings on Marketplace plans.

Factors	PTC	CSR
Can they be used to pay for:
Premiums
Deductibles
Copays
Coinsurance
How the financial assistance is applied:
Money sent directly to the insurer every month to lower the premium	for APTCs only
Money sent to the insured individual in one lump sum once their annual taxes have been filed	for PTCs only
Discounts given by the insurer to lower an individual's out-of-pocket costs
Can they be used for the following QHP categories?
Platinum
Gold
Silver
Bronze
Reconciled at the end of the year?

Sources

• http://www.healthreformbeyondthebasics.org/cost-sharing-charges-in-marketplace-health-insurance-plans-part-2/
• http://www.irs.gov/uac/The-Premium-Tax-Credit