The Affordable Care Act (ACA) was established to provide access to healthcare for all individuals and to ensure that every plan covers essential health benefits. To make these plans more affordable, the ACA introduced a system of marketplace subsidies, which are advanced tax credits designed to lower monthly premiums.

Health Insurance Marketplace Subsidies

There are two types of financial assistance available to enrollees in ACA Marketplace plans:

• Advanced Premium Tax Credits (APTC): These subsidies reduce the monthly premiums for insurance coverage.
• Cost Sharing Reductions (CSR): These reduce deductibles, copayments, and other out-of-pocket costs when enrollees receive medical care.

Premium tax credits can be applied to any of the four “metal” levels of Marketplace coverage: bronze, silver, gold, and platinum. Bronze plans have the lowest premiums but come with higher deductibles and out-of-pocket costs, while platinum plans have higher premiums and much lower out-of-pocket expenses.

Who Is Eligible for the Premium Tax Credit?

While anyone can enroll in an ACA plan, to qualify for a premium tax credit for 2025, an enrollee must meet the following criteria:

• Household income must be at least equal to the Federal Poverty Level (FPL)
• The enrollee must not have access to an employer plan (including a family member’s employer) that meets ACA standards and is considered affordable. For 2025, the affordability threshold is set at 9.02% of household income.
• The enrollee must not be eligible for coverage through Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP)
• The enrollee must have U.S. citizenship or provide proof of legal residency
• If married, the enrollee must file a joint tax return

Understanding Household Income for Premium Tax Credits

For the purposes of determining eligibility for premium tax credits, household income is calculated based on Modified Adjusted Gross Income (MAGI), which includes the income of the taxpayer, spouse, and any dependents required to file a tax return. MAGI encompasses wages, salary, foreign income, interest, dividends, and Social Security benefits.

For individuals receiving a W-2 income, gross income is typically used for calculations. For self-employed individuals, household income is usually defined as business income minus expenses. To ensure you calculate your income correctly when applying for ACA subsidies, it’s helpful to work with an agent who specializes in ACA plans.