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