New federal tax credits were authorized in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 , as amended), to help certain individuals pay for health insurance coverage, beginning in 2014. The tax credits apply toward premiums for private health plans offered through "exchanges" (also referred to as health insurance marketplaces). ACA also establishes subsidies to reduce cost-sharing expenses. Background

ACA requires health insurance exchanges to be established in every state by January 1, 2014, either by the state itself or by the Secretary of Health and Human Services (HHS). Generally, exchange plans provide a comprehensive set of health services and meet all ACA market reforms, as applicable. Certain enrollees in the individual exchanges are eligible for premium assistance in the form of federal tax credits. The premium credit is an advanceable, refundable tax credit, meaning taxfilers need not wait until the end of the tax year in order to benefit from the credit, and may claim the full credit amount even if they have little or no federal income tax liability. Enrolled in an Individual Exchange

Premium credits are available only to individuals and families enrolled in a plan offered through an individual exchange; premium credits are not available through the small business ("SHOP") exchanges. Premium Credits in 2014

Premium tax credits to be used toward paying for health insurance in the exchanges became available in 2014. Reconciliation of Premium Credits

Under ACA, the amount received in premium credits is based on the prior year's income tax returns. These amounts are reconciled when individuals file tax returns for the actual year in which they receive premium credits. Cost-Sharing Subsidies

In addition to the premium credits, ACA establishes subsidies that are applicable to cost-sharing expenses. The cost-sharing assistance reduces the annual limit faced by eligible individuals with income between 100% and 250% FPL; greater reductions are provided to those with lower incomes.
New federal tax credits, authorized under the Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended), first became available in 2014 to help certain individuals pay for health insurance. The tax credits apply toward premiums for private health plans offered through "exchanges" (also referred to as health insurance marketplaces). ACA also establishes subsidies to reduce cost-sharing expenses.
Exchanges have been established in every state, either by the state itself or by the Secretary of Health and Human Services (HHS), as required under ACA. Exchanges are not insurers, but provide eligible individuals and small businesses with access to private health insurance plans. Generally, the plans offered through the exchanges provide a comprehensive set of health services and meet all ACA market reforms, as applicable.
The new premium credits established under ACA are advanceable and refundable, meaning taxfilers need not wait until the end of the tax year in order to benefit from the credit, and may claim the full credit amount even if they have little or no federal income tax liability. Premium tax credits are generally available to individuals who enroll in an exchange plan; are part of a tax-filing unit; have household income between specified amounts; are not eligible for other forms of comprehensive health coverage; and are U.S. citizens or lawfully present residents. This report provides examples of hypothetical individuals and families who qualify for the premium credits; the examples use actual 2014 premium and tax credit amounts.
The amounts received in premium credits are based on federal income tax returns. These amounts are reconciled in the next year and can result in overpayment of premium credits if income increases, which must be repaid to the federal government. ACA limits the amount of required repayments for lower-income enrollees.
In addition to premium credits, ACA authorizes new cost-sharing subsidies. Certain premium credit recipients will also be eligible for reductions in their annual cost-sharing limits. Moreover, certain low-income individuals will receive additional subsidies in the form of reduced cost-sharing requirements (e.g., lower deductible).