The premium tax credit is a tax credit that offsets your annual health insurance premiums. It’s a way for the government to pay for some or all of your private health insurance costs.
Before 2021, premium tax credits were only available to households with annual income below 400 percent of the federal poverty level. The 400 percent cutoff created something called the premium tax credit (or “subsidy”) cliff. If you made more than 400 percent of the poverty level, you fell off the cliff and received no premium tax credit.
To put this in perspective, if your family was teetering on the subsidy cliff, one dollar more in income could cost you $10,000 or more premium tax credits.
Worse, the subsidy cliff disproportionately affects families and older adults.
The American Rescue Plan temporarily eliminated the subsidy cliff by making all households eligible for the premium tax credits regardless of income. From 2021 through 2025, no American family will pay more than 8.5 percent of their household income for their “benchmark” plan.
At LegUp Health, we’re in favor of removing the subsidy cliff permanently before the temporary suspension expires on January 1, 2026.
Note: When determining your premium tax credit, the IRS and the Marketplace use modified adjusted gross income (MAGI). When I write “income,” I’m referring to MAGI.