How to Qualify for Health Insurance Tax Credits for 2025

Health insurance tax credits are a valuable tool to help lower your health insurance premiums. Whether you’re self-employed, managing a small business, or buying coverage through the ACA marketplace, understanding how to qualify for these credits can make a big difference in your overall costs. This article breaks down everything you need to know, from eligibility criteria to the types of credits available and the steps to apply.

In this guide, we’ll cover:

• The key eligibility requirements for health insurance tax credits.
• How businesses and individuals can take advantage of these credits.
• Common mistakes you’ll want to avoid during the application process.

Now, let’s take a closer look at how you can reduce your premiums with health insurance tax credits.

Introduction to Health Insurance Tax Credits

Health insurance tax credits are a straightforward way to lower the cost of your monthly premiums.

These credits, available through the Affordable Care Act (ACA) marketplace, are designed to make health insurance more affordable for a wide range of people and businesses. By applying them directly to your premiums, you can reduce what you owe out of pocket each month.

Who benefits?

Several groups can take advantage of these credits:

• Self-employed individuals who purchase their own insurance through the ACA marketplace.
• Small businesses with fewer than 25 full-time employees may be eligible for credits to help cover a portion of employee premium costs.
• Individuals and families with incomes that fall within certain limits and who purchase health insurance through the ACA marketplace.

These tax credits are meant to increase access to affordable healthcare, helping both individuals and businesses comply with regulations while keeping costs manageable.

Eligibility Requirements

To qualify for health insurance tax credits, you must meet certain criteria to assist individuals and families in accessing affordable healthcare coverage.

Income Limits for Tax Credits

Your eligibility for premium tax credits is based on your household income in relation to the federal poverty level (FPL). For 2025, individuals with incomes between 100% and 400% of the FPL qualify for these credits, offering meaningful savings on health insurance premiums.

Recent changes have temporarily expanded eligibility beyond 400% of the FPL through 2025. This update ensures that no one will have to spend more than 8.5% of their household income on premiums for the benchmark health plan, providing additional relief for those with higher incomes.

Coverage Requirements

To be eligible for the premium tax credit:

• Marketplace Purchase: You must enroll in a health insurance plan through the ACA Marketplace. 
• Lack of Other Coverage: You must not have access to affordable health coverage through other means, such as an employer-sponsored plan, Medicaid, or Medicare.

Ensuring you meet these criteria is essential to qualify for health insurance tax credits and reduce your premium costs.

Types of Health Insurance Tax Credits

Health insurance tax credits come in different forms, depending on whether you’re an individual, family, or small business. Understanding these distinctions can help you determine which credits you’re eligible for and how much you can save.

Premium Tax Credits for Individuals

Premium tax credits are designed to lower the cost of health insurance premiums for individuals and families who purchase their coverage through the ACA marketplace. The amount of the credit is based on factors like household size, income, and the cost of plans in your area. Importantly, the credits are intended to ensure that eligible individuals do not spend more than 8.5% of their household income on premiums for the benchmark Silver plan, a provision that has been extended through 2025 under the American Rescue Plan Act (ARPA) and further extended by the Inflation Reduction Act.

This means that, regardless of income, the premium tax credit caps your premium costs at 8.5% of your income, with the size of the credit decreasing as your income increases​

Small Business Health Care Tax Credits

Small businesses can also benefit from specific tax credits to help offset the cost of providing health insurance to their employees. To qualify for the small business healthcare tax credit, businesses must meet the following criteria:

• Have fewer than 25 full-time employees.
• Pay an average wage of less than $56,000 annually (as of 2024).
• Contribute at least 50% of the premiums for employee coverage.

Eligible businesses can claim a tax credit of up to 50% of their contributions toward employee premiums. This credit can help small businesses offer competitive benefits while lowering their overall tax burden.

Related: ICHRA and tax credits

How to Apply for Health Insurance Tax Credits

Applying for health insurance tax credits requires following specific processes, depending on whether you’re an individual, family, or small business. Ensuring you complete all the necessary steps correctly is crucial for securing these valuable savings.

Filing Process for Individuals (ACA)

If you’re applying as an individual or family, the process for receiving premium tax credits is relatively straightforward:

1. Apply through the ACA Marketplace: During the open enrollment period, you must sign up for a health insurance plan via the ACA marketplace at HealthCare.gov. As part of the application, you’ll be asked for information about your household size, income, and employment status.
2. Estimate Your Household Income: The premium tax credit is based on your estimated income for the year. Be as accurate as possible when reporting your income to avoid under- or overpaying your tax credits.
3. Receive Immediate Credits: Once approved, the tax credit will be applied directly to your monthly premiums, lowering out-of-pocket costs.
4. Reconcile at Tax Time: When you file your taxes, you’ll reconcile the premium tax credit based on your income. If your income was higher or lower than estimated, you may owe some money back or receive additional credits.

Application for Small Businesses

Small businesses must follow a slightly different process to apply for the Small Business Health Care Tax Credit:

1. Determine Eligibility: Use tools on the IRS or ACA websites to check your eligibility based on the number of employees, average wages, and contribution to premiums.
2. File Form 8941: To claim the credit, you must file IRS Form 8941 when submitting your business taxes. This form calculates the credit based on your business’s size, employee wages, and contributions toward health insurance premiums.
3. Work with a Tax Professional: Given the complexities of small business taxes, consulting with a tax professional is often helpful to ensure you’re correctly applying for and receiving the full credit.

Completing these steps ensures that individuals and small businesses can take full advantage of the health insurance tax credits available.

Maximizing Your Tax Credits

To make the most of your health insurance tax credits, it’s important to understand how certain financial strategies can increase the credits you receive and prevent potential issues when reconciling your taxes.

Understanding Income Adjustments

Your income plays a key role in determining the amount of tax credits you’re eligible for, and making certain adjustments can maximize your credits. For example, if you expect your income to decrease due to a job change, early retirement, or other life circumstances, you may qualify for a larger premium tax credit. Be sure to update your income information with the ACA marketplace as soon as changes occur, as this can adjust your credits mid-year and help you avoid owing money when tax time arrives.

Reporting Mid-Year Changes

It’s crucial to report any significant changes to your income or household size throughout the year. These changes can impact the size of your tax credits and ensure that you’re receiving the correct amount:

• Income Changes: If your income increases or decreases significantly, report it to avoid a large tax bill or missing out on extra credits.
• Household Changes: Adding a new family member, such as through marriage, birth, or adoption, may change your eligibility for tax credits. Updating the ACA marketplace with this information ensures you receive the appropriate credit adjustments.

By staying proactive and keeping your information current, you can maximize your savings and avoid surprises during tax season.

Common Mistakes to Avoid

When applying for health insurance tax credits, it’s easy to make errors that can lead to losing credits or owing money at tax time. Here are some of people’s most common mistakes—and how to avoid them.

Incorrect Income Reporting

One of the most frequent mistakes when applying for tax credits is incorrectly estimating your income. Since premium tax credits are based on your projected income for the year, overestimating or underestimating your earnings can lead to issues when reconciling your taxes. If your actual income is higher than what you reported, you may owe back some or all of the credits you received. Conversely, you could be entitled to additional credits if your income is lower than estimated.

How to avoid this mistake: Be as accurate as possible when estimating your income, and report any significant changes to the ACA marketplace throughout the year. It’s better to update your information immediately to ensure you get the right amount of credits.

Failing to Update Household Information

Another common issue is failing to report changes in your household, such as a marriage, divorce, birth, or adoption. These life events can affect your eligibility for tax credits and the amount you receive. If you don’t update your household information, you might receive too much or too little in tax credits, which could lead to financial headaches during tax season.

How to avoid this mistake: Regularly update your household information with the ACA marketplace as soon as changes occur. This will ensure that your tax credits reflect your current situation and prevent any over- or underpayment.

By avoiding these mistakes, you can ensure that your tax credits are applied correctly and prevent future financial surprises.

Self-Employed Individuals and Health Insurance Tax Credits

Self-employed individuals have unique opportunities regarding health insurance tax credits. They can qualify for premium tax credits through the ACA marketplace and deduct their health insurance premiums from their taxable income, providing additional savings.

How to Deduct Health Insurance Premiums

If you’re self-employed, you can deduct the cost of your health insurance premiums from your taxable income. Whether you itemize deductions or not, this deduction is available and can be claimed on your personal tax return. Deducting these premiums effectively lowers your taxable income, which can lead to significant tax savings.

The key benefit here is that this deduction can be claimed in addition to any premium tax credits you receive through the ACA marketplace. However, the deduction is only available for months when you were not eligible for employer-sponsored health insurance, including through a spouse.

Combining Deductions with Tax Credits

Self-employed individuals can maximize their savings by combining the premium tax credit with the self-employed health insurance deduction. Here’s how it works:

• First, your premium tax credit is applied to lower your monthly premium.
• Then, you can deduct the remaining amount you paid for your health insurance premiums (after the tax credit) from your taxable income.

By taking advantage of the premium tax credit and health insurance deduction, self-employed individuals can significantly reduce their healthcare costs and tax liabilities.

How to Qualify for Health Insurance Tax Credits

Qualifying for health insurance tax credits can significantly affect your healthcare costs, whether you’re an individual, small business owner, or self-employed. You can maximize your savings by understanding the income and coverage requirements, applying for the right credits, and avoiding common mistakes. Small businesses can also benefit by offering competitive employee health plans while reducing their tax liabilities. The key to making the most of these credits is staying informed, reporting changes promptly, and consulting with tax professionals when needed.

Exploring your eligibility for health insurance tax credits can provide substantial financial relief, so don’t hesitate to look into the options available through the ACA marketplace or for small businesses.