With the passage of the American Rescue Plan Act of 2021 (ARPA), Congress has temporarily abolished the health insurance premium tax credit “subsidy cliff.”
Before 2021
Until 2021, you were required to pay up to 9.83 percent of your MAGI for PTC coverage (based on the cost of a silver benchmark plan), and the PTC would pay for the rest. But the PTC was available only for enrollees whose MAGI was 100 percent to 400 percent of the federal poverty level (FPL). If your MAGI was one dollar over 400 percent of the FPL for a family your size, you get no tax credit—instead, you suffer a “subsidy cliff.
New Law
With the passage of the American Rescue Plan Act of 2021 (ARPA), Congress has temporarily abolished the PTC subsidy cliff.
For 2021 and 2022, Americans who earn over 400 percent of the FPL are required to pay no more than 8.5 percent of their MAGI for PTC health insurance. Regardless of how high their income, they are entitled to a PTC to the extent the cost of the silver benchmark plan exceeds 8.5 percent of MAGI.
Biggest Beneficiaries
The biggest beneficiaries of this change are older people who must pay up to three times more for PTC coverage than younger enrollees. Those with incomes just above 400 percent of the FPL will get the largest subsidies. The benefit gradually phases out at higher incomes, as the benchmark silver premiums no longer cross the 8.5-percent-of-income threshold.
Example. If the benchmark silver premium for a family is $21,250 per year, the family would be entitled to no PTC if their MAGI exceeds $250,000 (8.5 percent x $250,000 = $21,250).
For 2020 and 2021, self-employed and small-business owners and other individuals who must purchase individual health insurance may qualify for premium tax credit health insurance subsidies even if their income far exceeds the old limit of 400 percent of the federal poverty level (FPL).
To take advantage of the government subsidy, go to the health insurance marketplace (federal marketplace or state exchange) before August 15, 2021. The government expanded the open enrollment period. You can’t be turned down.
Let’s take a look at Al and Alice. They are a self-employed, married couple who live in Seattle. Both are 62 years old. The annual cost for them of the benchmark silver plan in their area is $21,000. Their MAGI is $150,000.
For 2021 and 2022, they are required to pay no more than $12,750 for PTC health insurance (8.5 percent x $150,000 = $12,750). Thus, they are entitled to a PTC of $8,500 ($21,000 – $12,500 = $8,500).
If their MAGI was $200,000, they would have to pay $17,000 for PTC coverage and would still be entitled to a $4,000 tax credit ($21,000 – $17,000 = $4,000).
Takeaways
Here are five takeaways from this article:
- ARPA temporarily abolishes the PTC health insurance subsidy cliff.
- During 2021 and 2022, self-employed individuals, business owners, and others who can’t obtain health coverage through an employer are required to pay no more than 8.5 percent of their household income for PTC coverage.
- The government will pay PTCs to all PTC enrollees during 2021-2022 to the extent midlevel silver PTC coverage exceeds 8.5 percent of their income.
- To obtain the premium subsidies, you must obtain your health insurance through the health insurance marketplace (federal marketplace or state exchange).
- The health insurance marketplace (federal marketplace or state exchange) has established a special enrollment period through August 15, 2021, for individuals to enroll and take advantage of the PTC.
If you are looking for a possible reduction in your health insurance cost, I suggest checking out www.healthcare.gov. The government will direct you to the proper place (federal marketplace or state exchange).
If you would like to discuss this in more detail, please call me on my direct line at 509-543-7600 or send a request HERE.
April 2021
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