Health insurance rules have shifted in recent years, and one of the biggest changes has been how the Premium Tax Credit (PTC) affects affordability on the Marketplace. With expanded eligibility and temporary extensions now set to expire soon, it’s important for both employees and employers to understand what these changes mean heading into 2026.
Key Takeaways
- The Premium Tax Credit (PTC) amount depends on household income (MAGI), family size, and the local cost of the Second-Lowest-Cost Silver Plan (SLCSP).
- Through 2025, no eligible household has to pay more than 8.5% of its income toward the benchmark plan, even above 400% of the Federal Poverty Level (FPL).
- These expanded provisions are set to expire after 2025. If no further action is taken, prior eligibility limits, including the 400% FPL cap, will return in 2026.
Understanding the Premium Tax Credit
The Premium Tax Credit (PTC) is a federal subsidy that helps individuals and families afford Marketplace health insurance. It’s available nationwide, whether coverage is purchased through HealthCare.gov or a state-run exchange.
The amount of the credit depends on household income (MAGI), family size, and the cost of the Second-Lowest-Cost Silver Plan (SLCSP) in the enrollee’s area. Under current law, the PTC ensures that no eligible household pays more than 8.5% of its income toward that benchmark Silver plan, with the credit covering the difference.
Applicants can apply the credit in advance to reduce monthly premiums and later reconcile it at tax time based on actual income—receiving more credit or repaying some if their income differs from estimates.
Originally, eligibility was limited to households earning between 100% and 400% of the Federal Poverty Level (FPL), creating a sharp “subsidy cliff” for anyone just above that range. The American Rescue Plan Act (ARPA) removed this cap, allowing many middle-income households to qualify for help for the first time.
What Changed Under the American Rescue Plan Act
Passed in 2021 as part of the federal COVID-19 relief package, ARPA temporarily expanded the PTC to make Marketplace coverage more affordable.
It removed the 400% FPL cap, allowing more middle-income households to qualify for help, and ensured that no eligible household pays more than 8.5% of its income toward the benchmark SLCSP—eliminating the “subsidy cliff” that previously cut off eligibility for those earning just above the limit.
What “Extended” PTC Means
When ARPA passed in 2021, it expanded the PTC for the 2021 and 2022 tax years by removing the 400% FPL income cap and capping benchmark plan costs at 8.5% of household income.
These enhanced subsidies were originally set to expire at the end of 2022. However, the Inflation Reduction Act (IRA) extended them through 2025, preserving the expanded eligibility and affordability rules for three additional years.
If Congress doesn’t act again, the PTC will revert to pre-ARPA rules in 2026, restoring the 400% FPL limit and reducing subsidy amounts for many households.
Why It Matters in 2025
The expanded PTC remains in effect through the end of 2025, continuing to make Marketplace coverage more affordable for individuals and families across a wide range of income levels—including those earning above 400% of FPL.
If Congress does not extend these provisions, the 2026 Marketplace open enrollment will return to the original rules. That means households with incomes above 400% of FPL could lose access to subsidies, and others may see smaller tax credits and higher monthly premiums.
For employees and employers alike, understanding these potential changes is important when planning health coverage and budgeting for the year ahead.
What Employees Should Know
If you buy health insurance through the Marketplace, now is a good time to review your eligibility. Even if your income is higher than in past years, you may still qualify for a subsidy under the expanded rules.
As 2025 ends, keep in mind that your eligibility could change for 2026. Watch for updates from HealthCare.gov or the IRS, and report income changes promptly to avoid surprises during tax time.
What Employers Should Know
Employers offering QSEHRA or ICHRA benefits should understand how PTC changes affect employee choices. When Marketplace subsidies are generous, employees may prefer individual coverage. If those subsidies expire, HRAs or employer-sponsored options could become more appealing again.
Monitoring federal updates will help employers adjust their benefits strategies and communicate changes clearly to employees.
