Calculating the Premium Tax Credit Tutorial

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In this video, we explain how the premium tax credit is calculated for various income levels and household sizes.

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Section 1401 of the Affordable Care Act provides our initial guidance on the Premium Tax Credit. It tells us that the tax credit caps the amount that someone would pay for the second-lowest-priced silver-level plan in the individual marketplace. The difference between the capped amount and the total premium for that benchmark plan becomes the tax credit amount, which can then be applied to any qualified plan in the marketplace.

The amount that someone is capped at for the benchmark plan is done on a sliding scale depending on income as a percentage of the Federal Poverty Level and is indexed for inflation each year. Internal Revenue Procedure 2014-37 provides the indexed amounts for 2015:

The initial premium percentage is— The final premium percentage is—
Up to 133% 2.01% 2.01%
133% up to 150% 3.02% 4.02%
150% up to 200% 4.02% 6.34%
200% up to 250% 6.34% 8.10%
250% up to 300% 8.10% 9.56%
300% up to 400% 9.56% 9.56%

The Federal Poverty Level guidelines are released each January by the Department of Health and Human Services. The 2014 numbers can be found on the aspe.hhs.gov website. From those numbers, we can calculate the incomes all the way up to 400% of the FPL for different household sizes. The 2014 numbers for the 48 contiguous states is below.

Household Size 100% 133% 150% 200% 250% 300% 400%
1 11,670 15,521 17,505 23,340 29,175 35,010 46,680
2 15,730 20,921 23,595 31,460 39,325 47,190 62,920
3 19,790 26,321 29,685 39,580 49,475 59,370 79,160
4 23,850 31,721 35,775 47,700 59,625 71,550 95,400
5 27,910 37,120 41,865 55,820 69,775 83,730 111,640
6 31,970 42,520 47,955 63,940 79,925 95,910 127,880
7 36,030 47,920 54,045 72,060 90,075 108,090 144,120
8 40,090 53,320 60,135 80,180 100,225 120,270 160,360

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