Premium Tax Credit (PTC)
HR Glossary for HR Professionals
Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.
Premium Tax Credit (PTC)
What is the Premium Tax Credit (PTC)?
The premium tax credit (PTC) is a refundable credit that eligible individuals and families can use to help pay for health insurance premiums when purchasing coverage through the Health Insurance Marketplace.
Who Qualifies for the Premium Tax Credit (PTC)?
For individuals and families to qualify for the premium tax credit (PTC), they must meet several requirements, including:
- A household income that falls within a specified range
- Married couples that do not file tax returns with the status of Married Filing Separately
- People who aren’t already claimed as a dependent by another person
- In the same month, a person or family member:
- Has health insurance through a Health Insurance Marketplace
- Cannot get affordable coverage through an eligible employer-sponsored plan that provides minimum value
- Isn’t eligible for coverage through a government program, such as Medicaid, Medicare, CHIP, or TRICARE
- Pays the share of premiums not covered by advance credit payments
How Does the Premium Tax Credit (PTC) Apply to Employer Shared Responsibility Payments?
An applicable large employer (ALE) will owe the first type of employer shared responsibility payment—or, in other words, penalty—if it doesn’t provide minimum essential coverage (MEC) to at least 95% of its full-time staff, and at least one full-time employee qualifies for the premium tax credit (PTC) for purchasing coverage through the government marketplace.
On the other hand, even if an ALE offers MEC to at least 95% of its staff, it could owe the second type of employer shared responsibility payment for every full-time employee who receives the PTC for purchasing coverage through the government marketplace.
The IRS clarifies three instances in which employees may qualify for the PTC:
- The employer-provided MEC isn’t affordable, as determined by Form W-2 wages, an employee’s rate of pay, or the federal poverty line
- The employer-provided MEC doesn’t provide minimum value, meaning that it doesn’t cover at least 60% of total allowed cost of benefits that can be expected to be incurred under the plan
- The employee is part of the 5% of a full-time workforce that isn’t offered MEC
For more information on minimum value and affordability in healthcare coverage, go to irs.gov.