Premium Tax Credit

A subsidy built into the tax system

The premium tax credit, often shortened to PTC, is how the federal government helps people pay for health coverage bought through the Marketplace. It is a refundable tax credit, but most people take it in advance, sent straight to the insurer each month, so the premium bill they see is already reduced.

It only applies to plans purchased through HealthCare.gov or a state exchange. Plans bought directly from an insurer or through a private channel do not qualify.

How the credit is calculated

The math has three pieces:

1. Your expected contribution. The IRS sets an applicable percentage based on where your income falls relative to the federal poverty level. For 2027, under Rev. Proc. 2026-26, those percentages range from 2.15% to 10.22% of household income.
2. The benchmark plan. This is the second-lowest-cost silver plan in your area for your household.
3. The credit. Benchmark premium minus your expected contribution. You can apply that dollar amount to any metal level.

Example

A self-employed graphic designer, single, expects 2027 income of $50,000. That is under the 2027 subsidy line of $63,840 for a household of one. Her applicable percentage is near the top of the range, so she is expected to contribute a set share of her income toward the benchmark plan. Whatever the benchmark costs above that contribution is covered by her credit. If she chooses a bronze plan that costs less than the benchmark, her credit can cover most or all of it.

If her income instead lands at $65,000, she is over 400% of the federal poverty level and gets no credit at all for 2027.

The 400% line is back

The temporary rules that extended credits above 400% of FPL ended after 2025. For 2027, the line is firm:

• $63,840 for one person
• $86,560 for two
• $109,280 for three
• $132,000 for four

These use 2026 HHS poverty guidelines, which is how the Marketplace measures 2027 coverage.

Reconciliation at tax time

Because the advance credit is based on your estimate, you settle up on your tax return using Form 8962. Underestimate income and you may owe money back. Self-employed people with uneven income should update their Marketplace application during the year when income shifts.

When private coverage wins

If your income is safely above the subsidy line, the credit is not a factor, and a private plan may cost less than a full-price Marketplace plan. Our guides on the 2027 ACA subsidy cliff and health insurance without a subsidy walk through both paths. Frank can check where you land and quote both options.