The premium tax credit (PTC) is a tax expenditure designed to make purchasing health insurance through federal and state Marketplaces more affordable for Americans. Established by the Patient Protection and Affordable Care Act (ACA), the PTC first became available in 2014. In February 2025, 21.8 million of the 23.4 million Marketplace enrollees received PTCs.
The Joint Committee on Taxation estimated that PTC-related expenditures will cost the federal government $105 billion in 2026, a decrease from prior years due to the expiration of the COVID-19-related subsidy enhancement and expanded eligibility.
How Does the PTC Work?
To be eligible to receive the PTC, taxpayers must meet four criteria:
- be a U.S. citizen, national, or lawfully present person;
- not be currently incarcerated;
- not have access to subsidized health coverage, including affordable coverage offered through an employer-sponsored plan; and
- have an annual household income between 100 and 400 percent of the federal poverty level (FPL).
Taxpayers’ required contribution to their Marketplace healthcare plan (or their premium) is measured as a percentage of their household income and set based on the household’s income relative to the FPL. For example, in 2026, a household with income that is 200 percent of the FPL will have a required premium contribution equal to 6.60 percent of its income. When purchasing a plan through the Health Insurance Marketplace, Americans can choose between four tiers, or “metal levels,” of cost-sharing: Bronze (lowest), Silver, Gold, and Platinum (highest). Plan levels correspond to the degree of cost-sharing between the insured and the plan. Tiers do not affect the quality of care covered by the plan. Higher plans generally have higher premiums but lower cost-sharing for covered individuals and lower deductibles. For example, a Bronze plan may pay 60 percent of a covered service, while a Platinum plan may pay 90 percent.
The amount of a taxpayer’s PTC is determined by the difference between the premium for the “benchmark plan” and their required premium contribution. The benchmark plan is the second-lowest cost Silver plan available on the Marketplace for the taxpayer. If the premium for the benchmark plan exceeds a taxpayer’s required premium contribution, they receive the difference as the premium tax credit.
In response to the COVID-19 pandemic, lawmakers enhanced the PTC subsidy and removed the eligibility cap of 400 percent of the FPL. Lawmakers later extended the PTC enhancements through the end of December 2025. At the start of 2026, the PTC subsidy and income limit returned to pre-pandemic rules.
Taxpayers can choose to receive the PTC in one of two ways. First, taxpayers can elect for monthly advance payments, which are transferred from the federal government directly to insurance providers and reduce the premium providers charge to households. These payments are referred to as the advance premium tax credit (APTC). Taxpayers may also choose to wait to claim the PTC until filing individual income taxes at the end of the year, reducing the household’s tax liability and potentially receiving a tax refund if credits exceed liability. According to Internal Revenue Service (IRS) data, the vast majority of PTC expenditures are paid as APTC.
Who Benefits from the PTC?
Most of the benefits from the PTC go to households making less than $50,000. According to the most recently available data from the IRS, such households received 75 percent of total PTC expenditures in 2022, making up a similar share of PTC recipients. The average total PTC for those making $50,000 or less in 2022 was $6,943.
Only taxpayers enrolled in a Marketplace insurance plan are eligible for the premium tax credit. From 2015 through 2021, the number of people enrolled in Marketplace plans remained relatively stable — between 11.4 to 12.7 million people. Since the income eligibility limit of 400 percent of the FPL was removed, the number of people enrolled in plans increased significantly, reaching 24.3 million in 2025 — but enrollment is expected to drop in 2026 now that the 400-percent-FPL limit has been reinstated.
How Much Does the PTC Cost the Federal Government?
According to the Joint Committee on Taxation, the PTC was the fourth largest tax expenditure in 2025. Since 2015, the first full year it was available, federal expenditures for the credit have grown. According to the most recent available data from the IRS, inflation-adjusted expenditures for the PTC grew from $22 billion in 2015 to $54 billion in 2022, an increase of 145 percent. Over the same period, the number of tax returns benefiting from the PTC increased 57 percent: from 5.0 million to 7.9 million. That increase is driven by growth in the underlying cost of healthcare in America as well as the temporary COVID-related enhancement of benefits and expansion of income eligibility.
Beyond the increase in taxpayers utilizing the tax credit due to expanded eligibility and higher federal expenditures from lower expected premium contributions from households, PTC expenditures have increased as ACA Marketplace benchmark-plan premiums have risen. The benchmark-plan premium is one of two factors that determine a taxpayer’s premium tax credit, meaning that, as premiums for those plans increase, federal PTC expenditures also rise. From 2014 through 2025, average, inflation-adjusted benchmark premiums increased 37 percent across the United States, according to KFF.
Compared to other major health programs, expenditures for the PTC are relatively small. For example, in 2024, spending for Medicare totaled $894 billion, and Medicaid spending was $631 billion, while expenditures for the PTC were $109 billion, according to the Treasury’s Office of Tax Analysis. Expenditures for the PTC are also lower compared to the other major health-related tax expenditure, the employer-sponsored health insurance tax exclusion, which amounted to $253 billion in 2024.
Conclusion
The premium tax credit is a tax expenditure that reduces the cost of health insurance for millions of Americans. It is also one of the largest federal tax expenditures, and the PTC’s costs have grown markedly since it was established in 2014. Looking at the overall fiscal condition, rising healthcare costs are a key driver of the national debt, and it is important for policymakers to have the federal budget in mind as they consider healthcare policy changes in the future.
Photo by Joe Raedle/Getty Images
Further Reading
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Energy Tax Policy Under the OBBBA
As part of the OBBBA, lawmakers rolled back existing energy tax incentives in order to partially offset the bill’s deficit impact.
What Are Refundable Tax Credits?
The cost of refundable tax credits has grown over the past several years, with the number and budgetary impact of the credits increasing.