Under pre-American Rescue Plan Act (ARPA) law, individuals with household income above 400% of the federal poverty line (FPL) weren’t eligible for the Premium Tax Credit (PTC).

Under ARPA, for 2021 and 2022, the premium tax credit is available to taxpayers with household incomes that exceed 400% of the federal poverty line. This change will have the effect of increasing the number of people who are eligible for the premium tax credit.

Illustration: A 45-year-old single individual with income of $58,000 (450% of federal poverty line) in 2021 wouldn’t have been eligible for the premium tax credit under pre-ARPA law. Under ARPA, that individual is eligible for a premium tax credit of about $1,250.

New Percentage Tables Will Increase Premium Tax Credit for 2021 and 2022

The premium tax credit is computed on a sliding scale based on household income, expressed as a percentage of the federal poverty line. The amount of the premium tax credit is limited to the excess of the premiums for the applicable benchmark plan over the taxpayer’s required share of those premiums.

The required share comes from a table that is divided into income tiers.

Because the required share is less under the new tables for 2021 and 2022 than it otherwise would have been, the premium tax credit will be greater. Under pre-ARPA law, a taxpayer might have had to spend as much as 9.83% of household income in 2021 on health insurance premiums. Under ARPA, that amount is capped at 8.5% for 2021 and 2022.

Illustration: Under pre-ARPA law, a 21-year-old with income at 150% of federal poverty line in 2021 would have been eligible for a premium tax credit of about $3,500. Under ARPA, that individual’s premium tax credit will be about $4,300.

Premium Tax Credit Increased for Taxpayers Receiving Unemployment Compensation in 2021

If you receive, or are approved to receive, unemployment compensation for as little as one week during 2021, you qualify for special premium tax credit rules for the entire year. Under these rules:

• You are automatically treated as an “applicable taxpayer” who qualifies for the premium tax credit. You still won’t be able to claim the premium tax credit, however, if you are eligible for affordable employer-sponsored insurance.
• Your household income in excess of 133% of the federal poverty line for a family of the size involved isn’t taken into account in figuring your premium tax credit.

As a result of the second rule, if your household income for 2021 exceeds 133% of federal poverty line, your premium tax credit will be calculated as if the income was 133% of federal poverty line. This will increase your premium tax credit, since your required share of the premiums will be lower.

No Repayment of Excess Advance Premium Tax Credit Payments for 2020

Many taxpayers arrange to have advance payments of their premium tax credit made in advance directly to the insurer. The amount of these payments is based on income estimated from tax returns for prior years.

If your actual premium tax credit turns out to be more than the advance payments, you will receive a refundable income tax credit for the excess. But if your advance payments exceed your premium tax credit, you generally must pay back the excess as additional income tax, subject to a repayment cap based on your household income.

However, a special rule applies for 2020 under ARPA. Under that rule, if you file a 2020 return reconciling your advance premium tax credit payments with your actual premium tax credit, no additional income tax will be imposed if the advance payments are greater. You can retain the benefit of the advance payments even though they exceed the premium tax credit to which you are entitled.

Note: Currently, the IRS is telling taxpayers who’ve already filed 2020 returns and paid the excess credit back as additional tax not to file amended returns to claim a refund. The IRS has said it will provide more details on how to claim a refund of additional tax soon.