Premium tax credits, and how the amount is actually worked out
The credit is the gap between what you are expected to afford and what the benchmark plan in your county costs. Here is each number in that sentence.
A premium tax credit is not a discount and it is not a rebate. It is the difference between two numbers: what the government has decided your household can afford to pay, and what the benchmark plan in your area actually costs. If the benchmark costs more than your affordable share, the credit pays the rest.
The four steps
- Work out your household income as a percentage of the poverty guideline for your household size.
- Look up the applicable percentage for that position in the 2027 table below.
- Multiply. Income × applicable percentage = what you are expected to contribute for the year.
- Subtract that from the annual cost of the benchmark plan in your county. What is left is your credit.
A worked example
A single person earning $40,000. The 2026 poverty guideline for a household of one is $15,960, so this household is at 251% of it. That falls in the 250–300% band, giving an applicable percentage of 8.68%.
$40,000 × 8.68% = $3,472 a year, or $289 a month. That is what this person pays toward the benchmark plan. Whatever the benchmark costs above that is covered by the credit — and the more expensive their county, the larger the credit.
The 2027 applicable percentage table
| Household income (% of poverty guideline) | Initial | Final |
|---|---|---|
| 0% – 133% | 2.15% | 2.15% |
| 133% – 150% | 3.23% | 4.30% |
| 150% – 200% | 4.30% | 6.78% |
| 200% – 250% | 6.78% | 8.66% |
| 250% – 300% | 8.66% | 10.22% |
| 300% – 400% | 10.22% | 10.22% |
Source: IRS Revenue Procedure 2026-26, section 3.01. Within each band the percentage moves in a straight line from the initial to the final figure, so a household near the top of a band pays a higher share than one near the bottom.
The table stops at 400%. That is not an omission. Above 400% of the poverty guideline there is no applicable percentage, because there is no credit at all. See the subsidy cliff.
Which year's poverty guidelines apply
This trips up a great deal of published writing, including some of it on sites that ought to know better. Eligibility for a coverage year uses the poverty guidelines in effect on the first day of that year's Open Enrollment. Open Enrollment for 2027 coverage opens November 1, 2026 — so 2027 coverage is worked out against the 2026 guidelines. The 2027 guidelines will not exist until January 2027, and do not apply to this year's plans.
If you live in Alaska
Alaska and Hawaii have their own poverty guidelines, and they are substantially higher. For a single person in Alaska the 2026 guideline is $19,950 rather than $15,960 — which moves the top of the subsidy range to $79,800 and the monthly cap to $680. Any calculator or article quoting the 48-state figure is giving Alaskan readers the wrong number.
What "benchmark plan" means
The benchmark is the second-lowest-cost silver plan available in your rating area. It is a reference point for the arithmetic, not a recommendation — you can put the credit toward any metal tier you like. But the amount of the credit is fixed by the benchmark, which is why choosing a different tier changes what you pay without changing what you receive.
Common questions
Do I have to wait until I file taxes to get it?
No. You can take it in advance, month by month, paid straight to the insurer so your bill is lower. You then reconcile it on your tax return against what you actually earned. If you earned more than you estimated, you may owe some back.
What if my income changes mid-year?
Report it to the marketplace when it happens rather than waiting. The credit is adjusted going forward, which is much less painful than a reconciliation bill in April.
Does the credit depend on my health?
No. Neither the credit nor the premium may be set on health status, medical history, or a pre-existing condition.