“The premium tax credit works by limiting the amount an individual must contribute toward the premium for the “benchmark” plan – or the second-lowest cost silver plan available to the individual in their Marketplace. This “required individual contribution” is set on a sliding income scale. In 2024, for individuals with income up to 150 percent FPL, the required contribution is zero, while at an income of 400 percent FPL or above, the required contribution is 8.5 percent of household income.”
Question: If MAGI is greater than 400% FPL, can I select any plan and still pay a maximum of 8.5% of MAGI?
Example:
MAGI $175k for a family of 5.
8.5% is approximately $14,875 (self employed so it’s circular).
The second lowest cost Silver plan available is $28,603, costing me $14,563. This has none of our current providers.
Can I select a Silver plan costing $35,772 and still only pay about $14,875 (8.5%)?
Could I even select a Gold plan costing $54,222 and still only pay $14,875?
No. If you select a Gold plan, you might pay more than 8.5% of MAGI. The PTC subsidy is based on the Silver plan, and so the subsidy is not affected by what plan you choose.
I would agree with @laffisloon that if you choose a plan other than the 2nd lowest Silver plan, you may pay more (or less) than 8.5% - depending on the cost of the plan you choose. I would also point out that under current law, the 8.5% subsidy calculation is only effective through 2025. Under current law, beginning in 2026, the 400% FPL cliff for subsidies will become the calculation again.
I would point out that there is a whole section in IRS Pub 974 2022 Publication 974 (irs.gov) starting on page 47 for dealing with self-employment and the tax credit:
For anyone who is self-employed and is eligible for both the Premium Tax Credit and the self-employment health insurance deduction, it’s probably useful to go through this section to determine what the optimum solution is for your specific circumstances, since, as you say, it’s circular.
Yes, thanks both of you. I was having a brain malfunction this morning.
For us to keep all our doctors we will stick with our Bronze plan, which costs almost as much as the benchmark silver.
