Healthcare subsidies are financial assistance from the federal government (and sometimes state governments) that lower the cost of health insurance purchased through the Affordable Care Act Marketplace. They come in two main forms: premium tax credits, which reduce your monthly insurance bill, and cost-sharing reductions, which lower what you pay when you actually use care. Most people who buy Marketplace insurance qualify for at least one of these.
Premium Tax Credits
Premium tax credits directly reduce the monthly premium you pay for a Marketplace plan. The government calculates your credit by comparing your household income to the cost of the second-lowest-price Silver plan available in your area, known as the benchmark plan. The difference between what you’re expected to pay (based on income) and the benchmark plan’s full price is your subsidy. You can apply this credit to any metal tier of plan, not just Silver.
To qualify, your household income generally needs to fall between 100% and 400% of the federal poverty level (FPL). For a single person in 2025, that’s roughly $15,650 to $62,600 in most states. However, enhanced subsidies passed through the American Rescue Plan and extended by the Inflation Reduction Act temporarily removed the 400% FPL cap for tax years 2021 through 2025. Under these enhanced rules, no one pays more than about 8.5% of household income for the benchmark Silver plan, regardless of how much they earn. Whether this cap continues into 2026 depends on Congressional action.
Most people choose to receive their credit in advance, paid directly to their insurance company each month so that the bill they see is already reduced. You can also claim the full credit when you file your taxes, though that means paying the full premium throughout the year.
Cost-Sharing Reductions
Cost-sharing reductions (CSRs) work differently from premium tax credits. Instead of lowering your monthly bill, they reduce the out-of-pocket costs you face when you visit a doctor, fill a prescription, or go to the hospital. This means lower copays, smaller deductibles, and reduced coinsurance.
There’s one important catch: you only get cost-sharing reductions if you enroll in a Silver-tier plan. CSRs essentially upgrade your Silver plan’s coverage without changing its sticker price. Your income determines how much of a reduction you receive, with lower-income households getting the most generous cost-sharing benefits. You apply through the Marketplace using the same application you’d use for premium tax credits, and your eligibility is determined automatically based on the household and income information you provide.
Who Qualifies
Eligibility for both types of subsidies hinges on a few factors. You need to purchase your plan through the ACA Marketplace (not directly from an insurer). You need to file taxes. And you generally cannot have access to affordable employer-sponsored coverage or be eligible for Medicare or Medicaid.
The employer coverage piece trips some people up. If your employer offers a plan that meets two criteria, covering at least 60% of expected healthcare costs and costing you no more than a set percentage of your household income for employee-only coverage, you won’t qualify for Marketplace subsidies. But if your employer’s plan fails either test, you may be eligible even though coverage is technically available to you.
Income is measured as modified adjusted gross income for your entire household, not just one person’s wages. That includes earnings from all household members who file on your tax return.
Reconciling Credits at Tax Time
If you receive advance premium tax credits during the year, you’re required to reconcile them when you file your federal tax return using IRS Form 8962. This step compares the advance payments made on your behalf to the credit you actually qualify for based on your real income that year.
If your income came in lower than expected, you’ll get additional credit back as part of your refund. If your income was higher than projected, you may owe some or all of the advance payments back. For households under 400% FPL, the IRS caps the repayment amount, limiting the financial hit. For those above 400% FPL (in years without the enhanced subsidy), the full amount could be owed back. This is why updating your Marketplace application when your income changes mid-year is important: it keeps your advance payments aligned with reality and helps you avoid a surprise at tax time.
State-Level Subsidies
Ten states currently offer their own subsidies on top of federal assistance: California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, New York, Vermont, and Washington. These vary widely in structure. Some states add extra premium help for people who already receive federal credits. Others extend assistance to higher income levels. New Jersey, for example, provides premium subsidies to individuals with incomes up to 600% of the federal poverty level. Maryland targets young adults ages 18 to 37 with premium assistance.
A few states also fund coverage for immigrants who don’t qualify for federal premium tax credits. Colorado, New Mexico, and Washington all have programs designed to fill this gap, offering premium and sometimes cost-sharing assistance to residents who are otherwise ineligible for federal help. If you live in a state with its own marketplace, it’s worth checking whether additional state subsidies apply to your situation, as they can meaningfully reduce costs beyond what federal credits alone provide.
Why the 2025 Deadline Matters
The enhanced premium tax credits that removed the 400% FPL income cap are currently set to expire after the 2025 tax year. If Congress does not extend them, subsidies will revert to their original structure in 2026. That would mean people earning above 400% FPL lose eligibility entirely, and many people below that threshold would see smaller credits. Estimates suggest millions of enrollees would face significantly higher premiums if the enhanced credits lapse, making this one of the most consequential pending decisions in health insurance affordability.