Treasury Releases Fact Sheet on Health Insurance Premium Tax Credit

• Household income must be between 100% and 400% of the federal poverty level.

• Covered individuals must be enrolled in a "qualified health plan" through an Affordable Insurance Exchange.

• Covered individuals must be legally present in the United States and not incarcerated.

• Covered individuals must not be eligible for other qualifying coverage, such as Medicare, Medicaid, or affordable employer-sponsored coverage.

• The credit amount is generally equal to the difference between the premium for the "benchmark plan" and the taxpayer's "expected contribution."

• The expected contribution is a specified percentage of the taxpayer's household income. The percentage increases as income increases, from 2% of income for families at 100% of the federal poverty level (FPL) to 9.5% of income for families at 400% of FPL. (The actual amount a family pays for coverage will be less than the expected contribution if the family chooses a plan that is less expensive than the benchmark plan.)

• The benchmark plan is the second-lowest-cost plan that would cover the family at the "silver" level of coverage.

• The credit is capped at the premium for the plan the family chooses (so no one receives a credit that is larger than the amount they actually pay for their plan).

• The credit is advanceable, with advance payments made directly to the insurance company on the family's behalf. The advance payments are then reconciled against the amount of the family's actual premium tax credit, as calculated on the family's federal income tax return. Any repayment due from the taxpayer is subject to a cap for taxpayers with incomes under 400% of FPL. The caps range from $600 for married taxpayers ($300 for single taxpayers) with household income under 200% of FPL to $2,500 for married taxpayers ($1,250 for single taxpayers) with household income above 300% but less than 400% of FPL.

• The proposed regulation provides that a taxpayer is not required to repay any portion of the advance payment if a family ends the year with household income below 100% of FPL after having received advance payments based on an initial Exchange determination of ineligibility for Medicaid.

• Tax credits are available to qualified individuals offered (but not enrolled in) employer-sponsored insurance if (a) it is "unaffordable" (meaning that the self-only premium exceeds 9.5% of household income); or (b) it does not provide a minimum value (meaning it fails to cover 60% of total allowed costs). We anticipate that future regulations will define minimum value in a way that preserves the existing system of employer-sponsored coverage, but that does not permit employers to avoid the statutory responsibility standards. We also are contemplating whether to provide appropriate transition relief with respect to the minimum value requirement for employers currently offering health care coverage. Future guidance will define minimum value in a way that preserves the existing system of employer-sponsored arrangements, which does not require employers to provide a specific package of health benefits, but that does not permit the employers to avoid responsibility standards. We are also contemplating whether to provide appropriate transition relief with respect to the minimum value requirement for employers currently offering health care coverage.

• Solely for purposes of applying the employer responsibility provisions, we anticipate that future guidance will provide a safe harbor permitting employers to base the affordability calculation on the wages they pay their employees instead of employees' household income.

The premium tax credit is generally set based on the benchmark plan. The family's expected contribution is a percentage of the family's household income.

If a family chooses a plan that is less expensive than the benchmark plan, the family will generally pay less, thereby creating an incentive to choose a less costly plan and reducing overall health care costs.

Because premiums are generally higher for older individuals, the premium tax credit also is higher for these individuals.