Premium Tax Credits (PTCs) are subsidies that help eligible individuals and families pay for Individual and Family Plan (IFP) health insurance purchased through the Health Insurance Marketplace (Exchange), such as Covered California, Nevada Health Link, etc. While they apply to the individual market, they’re highly relevant to employers because an eligible full-time employee receiving a PTC can trigger penalties for an Applicable Large Employer (ALE) under the ACA’s Employer Shared Responsibility (“employer mandate”) provisions.
Purpose of PTCs
- PTCs lower the monthly premium cost for Marketplace coverage, making individual health insurance more affordable for lower- and moderate-income individuals.
- They are advanceable (paid directly to insurers) and refundable (individuals can claim them when filing taxes if eligible).
Who Qualifies
To qualify for a Premium Tax Credit, an individual must:
- Enroll in an Individual or Family Plan (IFP) through a state Marketplace / Exchange.
- Have household income within the required limits.
- Not be eligible for other minimum essential coverage (MEC), such as affordable, minimum value employer-sponsored coverage, Medicare, or Medicaid.
- File a federal tax return.
Relevance for Employers
Premium Tax Credits are a key factor in determining whether an ALE may owe a penalty under the Employer Shared Responsibility rules:
- If an ALE fails to offer coverage to at least 95% of full-time employees, any full-time employee who receives a PTC can trigger a 4980H(a) penalty.
- If the ALE does offer coverage, but it is not affordable or does not provide minimum value, a full-time employee who declines the offer and qualifies for a PTC can trigger a 4980H(b) penalty.
- The IRS identifies these employees through Marketplace data and lists them on Form 14765 when assessing potential penalties.
Key Takeaway
Even though PTCs apply to individual market coverage, they’re the mechanism that links Individual and Family Plans (IFP) Marketplace coverage to employer penalties. Employers should understand how PTC eligibility works, especially affordability and minimum value rules, to minimize exposure to IRS assessments.