# How do ACA premium tax credits work?

As a "What if I lost my job?" budgeting exercise, I went to https://www.healthcare.gov/apply-and-enroll/health-insurance-plans-estimator-overview/ and punched in the numbers for me and my children with the assumption that I lost my job in the middle of the year.

The site says that my "Estimated premium tax credit" is "\$999 per month", while the monthly premiums are anywhere from \$123 to \$1908.

If I chose a plan with a \$500 premium, seemingly the government would (on my tax return) pay me \$499/month * 12 months = \$5,988 (presumably for the purpose of paying for deductibles, etc) making the cost essentially free.

Am I reading this correctly, or fundamentally misunderstanding it?

Thanks

• "while the monthly premiums are anywhere from \$123 to \$1908." Are you sure that those numbers aren't the remaining premium you have to pay after the advance payment of the premium tax credit has been subtracted? Commented Apr 2, 2018 at 17:15
• @user102008 no, I'm not. That's why I think I might be misunderstanding something. Commented Apr 2, 2018 at 17:33

I helped someone with this a few years ago and AFAIK, the process is still the same.

You answered the basic questions and they indicated that you are eligible for a \$999 per month "Estimated premium tax credit". If you look at the available plans for your county, it will say "Estimated monthly premium" and a dollar amount after that. That represents your out of pocket cost with a floor of zero cost if the estimated credit exceeds the cost of the plan. For example, with \$999 credit, an \$1,100 a month plan would look like this:

Estimated monthly premium: \$101 Was: \$1,100

If the plan cost less than \$999, it would look like this:

Estimated monthly premium: \$0.00 Was: \$500

When you file your tax return the following year, your income is then compared with the estimated income you indicated when applying and any difference is reconciled and adjusted on the return (the ACA credit).

Since it is a tax credit, if your plan costs less than the adjusted credit then the excess is applied to your return. I do not know what the thinking was in providing this as a tax credit that could exceed premium cost ( --> "presumably for the purpose of paying for deductibles, etc., making the cost essentially free").