A health insurance subsidy is financial assistance from the federal government that lowers the cost of health coverage you buy through the Marketplace (also called the exchange). There are two types: one reduces your monthly premium, and the other reduces what you pay out of pocket when you actually use care. Most people who buy Marketplace plans qualify for at least one.
The Two Types of Subsidies
The first type is the premium tax credit, which lowers your monthly insurance bill. The government calculates how much you can reasonably afford based on your income, then covers the gap between that amount and the cost of a benchmark plan in your area (specifically, the second-lowest cost silver plan). If that benchmark plan costs $500 a month and you’re expected to contribute $150 based on your income, the premium tax credit covers the remaining $350. You can apply this credit in advance so your monthly bill drops right away, or claim it as a lump sum when you file taxes.
The second type is the cost-sharing reduction, which lowers your deductibles, copayments, and out-of-pocket maximums. These savings only kick in if you choose a silver-tier plan. With a cost-sharing reduction, a silver plan that normally has a $750 deductible might drop to $300 or $500, a $30 doctor visit copay might become $15 or $20, and a $5,000 annual out-of-pocket maximum could fall to $3,000. The lower your income, the more generous these reductions become.
Who Qualifies
Eligibility is based on your household income relative to the federal poverty level (FPL). For 2025, the poverty level is $15,650 for a single person, $21,150 for a household of two, and $32,150 for a family of four. If your income falls between 100% and 400% of FPL, you qualify for premium tax credits in every state. For a single person, that’s roughly $15,650 to $62,600.
Under rules extended through the Inflation Reduction Act, there is currently no hard income cutoff for premium tax credits. The old “subsidy cliff” at 400% FPL, where earning one dollar too much meant losing all assistance, was eliminated starting in 2021 and extended through 2025. People above 400% FPL can still receive credits that cap their premium contribution at 8.5% of household income, though the subsidy amount shrinks as income rises.
Cost-sharing reductions have a stricter threshold. You generally need household income between 100% and 250% of the federal poverty level, and you must enroll in a silver plan to receive them. If your income is below 100% FPL, you likely won’t qualify for Marketplace subsidies at all, but you may be eligible for Medicaid instead.
When Employer Coverage Changes the Picture
If your employer offers health insurance, you can still qualify for a Marketplace subsidy, but only under specific conditions. The employer plan must either be “unaffordable,” meaning the employee’s share of the premium exceeds a set percentage of household income, or it must fail to meet minimum value standards by covering less than 60% of average health care costs. If your employer plan meets both affordability and minimum value thresholds, you won’t be eligible for premium tax credits even if a Marketplace plan would cost you less overall.
This is worth checking carefully. Many people assume employer coverage automatically disqualifies them, but a plan that’s technically available isn’t the same as one that’s genuinely affordable for your household.
How the Subsidy Works at Tax Time
Most people take their premium tax credit in advance, meaning it’s applied to their monthly bill throughout the year. But the amount is based on your estimated income when you enroll. If your actual income for the year turns out different from what you estimated, you’ll need to reconcile the difference when you file your tax return using IRS Form 8962.
If you earned more than expected, you may have received too much in advance credits and will need to repay some of it. For households under 400% FPL, the repayment amount is capped, so the hit is limited. If you earned less than expected, you’ll get a larger credit back as part of your tax refund. Either way, reconciliation is required. If you skip it, you lose eligibility for advance credits and cost-sharing reductions the following year.
States That Offer Extra Help
Ten states currently provide their own subsidies on top of federal assistance: California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, New York, Vermont, and Washington. These state programs vary in structure. Some extend premium help to income levels above what federal credits cover, while others fill gaps for populations that fall just outside federal eligibility. If you live in one of these states, it’s worth checking your state exchange for additional savings beyond what the federal calculator shows.
How to Get Your Subsidy
You apply for subsidies when you enroll in a Marketplace plan at HealthCare.gov or through your state’s exchange. The application asks for your estimated household income and family size, then tells you what you qualify for. Your eligibility notice will specify whether you can receive premium tax credits, cost-sharing reductions, or both. If it mentions codes (04), (05), or (06) next to a line about lower copayments and deductibles, that confirms you qualify for cost-sharing reductions, but only if you select a silver plan.
One practical detail people often miss: premium tax credits can be applied to any metal tier (bronze, silver, gold, or platinum), but cost-sharing reductions only work with silver plans. If you qualify for both types of assistance, choosing silver typically gives you the most total value. A silver plan with cost-sharing reductions can end up covering as much as a gold or platinum plan at a fraction of the sticker price.