The advance premium tax credit (APTC) provided to a family is dependent upon their poverty level as determined from the federal poverty guidelines. The lower their family income and corresponding percentage of the federal poverty guidelines, the greater their APTC will be. Families with income between 100% and 400% of the federal poverty level qualify for an APTC provided they purchase their insurance from a Marketplace. Families below 100% of the federal poverty level qualify for Medicaid. Note: Some states have enhanced Medicaid and individuals may qualify for Medicaid at higher percentages of the poverty level.

The Federal Poverty Guidelines are posted annually in the Federal Register and reflect the income representing 100% of the poverty level in the continental U.S., Alaska and Hawaii and an add-on amount for each additional individual in the tax family.

We have done the math, and developed the table below, which represents a variety of poverty levels and family sizes for continental U.S.  However, this is for illustration purposes and the actual percent of poverty level must be computed using the values from the table above.

When determining a family’s percentage of the federal poverty level, the income level for 100% of the federal poverty level must be determined from the table above, based on family size, and then that income is divided into the family’s household income to find the actual poverty level percentage (this computation is performed in Part 1 of Form 8962).

Family Size

The family size is the same as the number of individuals for which the taxpayer would have been allowed an exemption deduction for the tax year if the TCJA hadn’t eliminated the deduction. Generally, this is the taxpayer, the taxpayer’s spouse if filing jointly, and the taxpayer’s dependents.

Household Income

The term household income includes the modified adjusted gross income (MAGI) of the taxpayer plus the sum of MAGIs of all individuals that were considered when determining the taxpayer’s family size and were required to file a tax return. For this purpose, the determination of whether there is a filing requirement is based solely on the taxpayer’s standard deduction (and prior to 2018 and after 2025, allowable filer exemption amounts).

Modified Adjusted Gross Income (MAGI)

The term MAGI for purposes of this credit means adjusted gross income increased by any foreign earned income exclusion, the excluded portion of Social Security and Railroad Retirement benefits, and tax-exempt interest income. (IRC Sec 36B(d)(2)(B)) 

Special Rounding Rules

As if things are not complicated enough, the instructions to Form 8962 require that when computing the poverty level, if the result is less than 1.00 or more than 3.99, round the result as follows:

Gambling Winnings May Impact Health Insurance Costs

Gambling winnings, even if there’s a net loss for the year, and game show winnings can increase the cost of health insurance premiums for low-income individuals or families who obtain their insurance through the Marketplace and, in some cases, those enrolled in Medicare coverage.

We all know that taxpayers, except under very special circumstances, cannot net their winnings and losses on their tax returns. The total gambling winnings are included in the adjusted gross income (AGI) for the year, while the losses are deducted as an itemized deduction and limited to an amount not exceeding the reported winnings for the year.

Thus, whether a taxpayer itemizes deductions and deducts their gambling losses, the full amount of the gambling winnings is included in their AGI; their AGI is used to determine their household income, which in turn is used to determine the amount of premium tax credit (PTC) to which the taxpayer is entitled. The higher the income, the lower the PTC, and the lower the PTC, the higher the insurance premiums. Similarly, if a taxpayer wins goods on a game show, the taxpayer may also receive a W-2G, adding to their AGI for the year. Even if they give some or all of the goods to charity, that would, like gambling losses, be an itemized deduction.

Although impacting very few, the scenario also applies to taxpayers on Medicare. An individual’s Medicare B and D premiums are based on their AGI from two years prior. Thus, a taxpayer who had gambling winnings from two years back could see increases in both their monthly Medicare B premiums and supplement for the Medicare D (prescription drug coverage).

Family Glitch Proposed Regulation Change

The original Premium Tax Regulations said that if an employer offers coverage for both the employee and the employee’s spouse, and the cost of the employee’s coverage does not exceed the year's affordability percentage of the taxpayer’s household income, then no matter the cost of the spouse’s coverage the taxpayer will not be eligible for the PTC. This is because the IRS’s interpretation was that the affordability test is based upon the employee’s self-only coverage premiums for purposes of the percentage of household income test, and if affordable for the employee, then it is considered affordable for all members of the taxpayer’s tax family offered coverage under the employer plan. If an individual’s coverage offered by an employer is considered affordable then the taxpayer is not eligible for a PTC. (Example Reg 1.36B-2(c)(3)(v)(D)) This is commonly referred to as the “family glitch.”

Revised Regulations - TD 9968 amends the earlier regulations regarding family eligibility for the premium tax credit.  As a result, starting with 2023, an eligible employer-sponsored plan is considered to be affordable for members of an employee’s tax family only if the portion of the annual premium the employee must pay for family coverage does not exceed the year’s affordability percentage of the household income (for example, 9.12% for 2023; 8.39% for 2024). Thus, if the employee’s required contribution for the family coverage exceeds 9.12% (2023) (8.39% 2024), then the spouse and dependents would be able to purchase their insurance from a health insurance marketplace, rather than through the employer’s plan, and be eligible to claim the PTC. As to whether the coverage for the employee is affordable, a separate determination must be made.

Example: Rick is married with 3 children, and has a household income of $80,000. His employer offers health insurance to Rick and his family at a cost to Rick of $2,500 for self-only coverage or $14,000 to include his family. The affordability percentage for the year is 9.12%. So, Rick’s self-only coverage would be affordable because it is 3.125% of the household income ($2,500 /$80,000). However, the family’s portion of the coverage cost would not meet the 9.12% affordability test ($14,000 – 2,500 = $11,500/$80,000 = 14.375%). Thus, Rick’s wife and children could be eligible for the PTC, provided their insurance is purchased through a marketplace.

Child Under 26 Issues Under an Employer Plan

If a child under 26 can be covered under a parent’s policy, can the child get lower costs on Marketplace insurance based on income if they apply themselves? It depends on whether the child is a dependent in the parent’s tax household. (Q&A Healthcare.gov).

Child Receiving Social Security Benefits

A child receiving SS benefits and no other income is likely not required to file a return. Thus, their MAGI that includes the non-taxable SS benefits is not required to be added to the family’s household income. However, should the child have a part time job and make over the standard deduction amount, they would be required to file a return and their non-taxable SS benefits would have to be added to their MAGI and their MAGI added to the family’s income.

Where a child has earned income, and the earned income puts them over the filing requirement, the child could contribute to a traditional IRA and possibly reduce their income below the required filing level (remember, for the PTC, the filing requirement through 2025 is based solely on standard deduction).

A child providing over half of his/her own support, would not be a qualifying child for dependency purposes, so then the child would file their own return and the child’s income wouldn’t be considered with the parents’ MAGI when figuring the PTC. However, the child may still need to have health care coverage, and if bought through a Marketplace, would be eligible for a PTC (unless below poverty level and Medicaid would kick in). Parents could still include the child on a policy purchased thru the employer but would not be eligible for the PTC because the plan was not bought thru the Marketplace.