Summary: The expiration of the enhanced Premium Tax Credits at the end of 2025 could lead to higher health insurance premiums and increased tax bills for millions of Americans. Without congressional action, the number of eligible taxpayers will shrink, and many families may lose financial assistance for coverage. Taxpayers should monitor income, update marketplace information, and plan ahead to avoid unexpected costs and penalties in 2026.
Overview: The Upcoming Expiration of Enhanced Premium Tax Credits
The enhanced Premium Tax Credits (PTC) is set to expire on December 31, 2025. This expiration could result in higher tax liabilities and increased healthcare premium costs starting in 2026, affecting families and individuals who rely on these credits to offset insurance expenses.
Historical Background of PTC
The Affordable Care Act (ACA) of 2014 introduced the PTC as a fundamental tool for providing reduced healthcare costs to qualifying individuals. The PTC is a refundable tax credit that helps eligible individuals and families reduce the cost of health insurance premiums purchased through the Health Insurance Marketplace and was expanded as part of the American Rescue Plan Act (ARPA) to remove income caps when determining eligibility for the PTC.
This enhancement was extended through 2025 in the Inflation Reduction Act. Unless Congress acts, eligibility rules will revert to their pre-ARPA form once the expanded credits expire at the end of 2025.
Understanding Premium Tax Credit Eligibility
Eligibility for pre-ARPA PTC is based on family size, and income. The amount of PTC a taxpayer can claim is determined based on the type of healthcare plan they obtain, using second silver tier healthcare plans as a benchmark. A silver tier plan is a qualified healthcare plan that covers approximately 70% of the average enrollee’s healthcare costs, with the enrollee responsible for the remaining costs through out-of-pocket expenses. The PTC uses the second lowest silver tier plan available in a taxpayer’s area to calculate the PTC, making silver plans central to how much financial assistance a taxpayer can receive for health insurance premiums.
For 2025, the poverty level for a single individual is $15,650 and increases by $5,500 for each additional family member, including spouses and dependents. Families with modified adjusted gross incomes between 100% and 400% of the federal poverty line are eligible to claim PTC for plans under the Health Insurance Marketplace. For example, a family of four in 2025 can earn up to $128,600 before losing eligibility under the pre-ARPA rules. For residents of Hawaii and Alaska, the poverty line is even higher.
ARPA Enhancements and Projected Impacts of Expiration
Under ARPA, the percentage of income spent on premiums was capped at 8.5%. This means that families whose insurance premiums exceeded 8.5% of their annual income may be eligible to receive PTC. Even if their annual income was above 400%, they remain eligible for PTC as long as their health insurance costs would have exceeded the 8.5% before the credits are applied. If the enhanced credits expire, families earning above the 400% threshold will become ineligible for credits regardless of healthcare cost, and the 8.5% cap will be removed. For those in the upper 300%-400% FPL range, the premium rate will increase to 9.96% for 2026 and indexed annually.
If Congress does not extend the enhanced PTCs, families that previously had their premiums capped at 8.5% may now face significant increases to their out-of-pocket premium costs. The Congressional Research Service estimates that premiums could rise by an average of 26%, with some individuals experiencing even greater increases. For many, this shift means that coverage that was once within reach may suddenly become unaffordable, forcing difficult choices about health and household budgets.
The State of Play: Congressional Debate and the Legislative Landscape
With the enhanced credits set to expire on December 31, 2025, and healthcare costs set to rise dramatically, especially for small business owners and middle-income families receiving coverage through the Marketplace, the issues have become a focal point in Congress. Lawmakers are considering alternative healthcare options but so far have been unable to reach a consensus on how to deal with the expiring credits before year end.
Although the enrollment deadline passed on December 15, the future of these credits remains a major topic of debate among lawmakers. If these credits lapse, it is expected to affect up to 24 million Americans, with an estimated 5 million expected to lose coverage entirely.
Proposed Solutions and Legislative Efforts
Currently Congress has multiple proposed solutions for the expiring credits. While it is unclear what the ultimate solution may be, below are some of the notable proposals on the table:
- Democratic Proposals: The Health Care Affordability Act, aimed to extend the enhanced PTCs for three years and leave the 8.5% rate cap in place, allowing taxpayers with income in excess of the 400% threshold eligible for coverage for the duration of the extension. Such an extension would have established a defined timeframe for Congress to evaluate and potentially pursue broader, bipartisan healthcare reforms, offering an opportunity for more comprehensive policy discussions. The most recent led democratic effort is the Protecting Health Care and Lowering Costs Act (S. 2556/H.R. 4849). This bill proposes a permanent extension of the enhanced ACA PTC, which are set to expire at the end of 2025. The bill has been introduced in both the Senate and House but has not advanced to a floor vote in either chamber. These plans would maintain current levels of the number of insured but at a relatively high cost for the federal government.
- Republican Proposals: Senator Bill Cassidy’s plan and a related House bill suggest replacing PTCs with pre-funded Health Savings Accounts (HSAs). The primary elements of these and other Republican proposals to address this issue are expanded HSA accounts that would allow taxpayers to use funds in their accounts to pay premiums. These proposals also frequently include changes making it easier for people to access lower cost plans (including access to Bronze plans that provide less coverage and association healthcare plans that are not subject to benefit mandates). However, these plans generally do not call for an extension of the current expanded PTCs. These plans are generally lower cost to the federal government but would result in higher costs to consumers in some cases and a loss of coverage in others.
- Bipartisan Proposals: Some bipartisan bills propose one-to-two-year extensions of the current expanded PTCs paired with limits on eligibility, minimum premiums, and in some cases expanded HSAs. One way these bipartisan bills could see a vote in the House is through a mechanism called a discharge petition. A discharge petition is a procedural tool in the U.S. House of Representatives that allows a majority of members to bring a bill directly to the floor for a vote, bypassing committees and the ability of House leaderships to block a vote. A discharge petition requires 218 signatures, a majority of the house, to force a bill to the floor for a vote. This process can be significant for major legislation, such as healthcare reform because it gives rank-and-file members a way to force action on bills that have broad support but are not advancing through the usual legislative channels. While rarely used due to the political risks involved, a successful discharge petition ensures that a bill receives consideration and a vote, bypassing procedural obstacles. A few discharge petitions have been filed but due to the timing of their filing they will not see a vote by the end of the year.
Final Thoughts: What Should Individuals Do?
If the ARPA enhancements expire, eligibility for the PTC will revert to pre-ARPA rules, limiting the credit to households whose income is between 100% and 400% of the federal poverty line. For those above the 400% threshold, the credit provided by the PTC will disappear and they will now be responsible for the full cost of their health insurance premiums. This change could be particularly burdensome for small business owners who have come to rely on these credits to make health coverage affordable. Additionally, individuals who received PTC during the year but ultimately earned above the eligibility threshold will be required to repay the entire amount of the credit, which could result in a substantial and unexpected tax obligation.
It is recommended that individuals who receive health insurance through the marketplace consult with a tax advisor to update quarterly estimates and projections as needed. While it is unclear how Congress will ultimately handle these credits, an advisor can help model a range of costs to provide the upper and lower limits of credit reimbursement and the risk presented to taxpayers and their families. These services can include projections of income and estimates, eligibility requirements, and calculating credits based on the pre-ARPA regime and the current regime.
