How Covered California Subsidies Work in 2025

How Premium Tax Credits (Subsidies) Work

Premium tax credits, commonly called "subsidies," are financial assistance from the federal government that help lower your monthly health insurance premium. When you enroll through Covered California, these subsidies are calculated based on your household income and size.

The Basics

• Automatic Calculation: Covered California automatically calculates your subsidy when you apply—no complex math required
• Paid Directly to Insurer: The subsidy goes straight to your insurance company, lowering your monthly bill
• Advance Payments: Most people receive subsidies as "advance premium tax credits" (APTC) paid monthly throughout the year
• Based on Benchmark Plan: Your subsidy is calculated using the cost of the second-lowest-cost Silver plan in your area
• Use on Any Metal Tier: You can apply your subsidy to Bronze, Silver, Gold, or Platinum plans

How It Lowers Your Premium

Here's a simple example:

The subsidy amount depends on your income compared to the Federal Poverty Level (FPL) for your household size. Lower incomes receive higher subsidies, and there's no upper income limit for eligibility.

2025 Income Limits & Eligibility

To qualify for premium tax credits through Covered California, your household income must be at least 138% of the Federal Poverty Level. There is no upper income limit—everyone pays no more than 8.5% of their income for health insurance.

2025 Federal Poverty Level (FPL) Guidelines

Note: For households with more than 6 people, add $5,380 per additional person to the 100% FPL amount.

Who Qualifies for Subsidies?

You may qualify for premium tax credits if you:

• Have household income between 138% and 600%+ of FPL
• Are a California resident
• Are a U.S. citizen or lawfully present immigrant
• Are not eligible for Medicare or Medi-Cal
• Are not offered affordable employer coverage (premiums over 9.12% of household income)
• Are not incarcerated

Enhanced Subsidies Through 2025

Thanks to the American Rescue Plan Act (ARPA) and the Inflation Reduction Act (IRA), subsidies have been significantly enhanced through 2025. These improvements save most families hundreds of dollars per month compared to pre-2021 subsidy levels.

Key Improvements

• $0 Premiums: Households earning up to 150% FPL pay $0 for the benchmark Silver plan
• No Subsidy Cliff: The 400% FPL income cutoff has been eliminated—everyone is now eligible
• 8.5% Cap: No one pays more than 8.5% of household income for the benchmark Silver plan, regardless of income
• Lower Contribution Rates: Maximum contribution percentages reduced at every income level

Savings Comparison: Old vs. New Subsidy Rules

Premium Contribution Percentages for 2025

Your subsidy is calculated so that you pay no more than a specific percentage of your household income for the second-lowest-cost Silver plan (the "benchmark" plan). The percentage you pay depends on your income level as a percentage of the Federal Poverty Level.

2025 Maximum Premium Contribution Table

How This Works in Practice

Let's say the benchmark Silver plan in your area costs $600/month, and you earn 250% of FPL ($41,000 for a single person):

You can use your $463 subsidy on any Covered California plan—Bronze, Silver, Gold, or Platinum. If you choose a cheaper Bronze plan at $400/month, you'd only pay $0 out of pocket (you can't receive cash back). If you choose a Gold plan at $700/month, you'd pay $237/month ($700 - $463 subsidy).

Cost-Sharing Reductions (CSR)

In addition to premium subsidies, if your income is between 138% and 250% of FPL, you may qualify for Cost-Sharing Reductions (CSRs). These reduce your out-of-pocket costs when you use healthcare services—lowering deductibles, copays, and coinsurance.

Important: CSRs Only Available on Silver Plans

To receive Cost-Sharing Reductions, you must enroll in a Silver plan. CSRs are not available on Bronze, Gold, or Platinum plans. For lower-income households, this often makes Silver plans the best value, even though they may seem more expensive than Bronze at first glance.

CSR Levels by Income

What CSRs Reduce

Cost-Sharing Reductions lower these out-of-pocket expenses:

• Deductibles: The amount you pay before insurance kicks in (often $0 with Silver 94)
• Copayments: Fixed amounts you pay for doctor visits, prescriptions, etc.
• Coinsurance: Percentage you pay for services after meeting your deductible
• Out-of-Pocket Maximum: The most you'll pay in a year (significantly lower with CSRs)

What Counts as Income (MAGI)

Covered California uses Modified Adjusted Gross Income (MAGI) to determine subsidy eligibility. MAGI is based on your federal tax return and includes most forms of taxable income.

Income That IS Counted (Included in MAGI)

• Wages, salaries, and tips (W-2 income)
• Self-employment income (net profit from business)
• Interest and dividends from investments
• Capital gains from selling investments or property
• Retirement account distributions (401k, IRA withdrawals)
• Pension and annuity income
• Unemployment compensation
• Social Security benefits (taxable portion)
• Alimony received (for divorces finalized before 2019)
• Rental income (net after expenses)
• Royalties

Income That Is NOT Counted (Excluded from MAGI)

• Gifts and inheritances
• Child support payments received
• Veterans benefits (VA disability, education benefits)
• Workers' compensation
• Federal tax refunds
• Supplemental Security Income (SSI)
• Life insurance proceeds
• Foster care payments
• Scholarships and grants (when used for education expenses)
• Qualified withdrawals from Roth IRAs

Special Considerations for Self-Employed

If you're self-employed, your MAGI includes your net profit after business expenses (from Schedule C on your tax return). Key points:

• Business expenses reduce your MAGI (vehicle, supplies, home office, etc.)
• Self-employment tax (15.3%) is paid in addition to income tax, but only half is deductible
• You may need to estimate income if your business is new or income varies
• Consider working with a tax professional to maximize deductions and minimize MAGI

Reporting Income Changes

Your subsidy is based on your estimated annual income for the coverage year. If your income changes during the year—due to a job change, raise, bonus, or other factors—you should report it to Covered California to keep your subsidy accurate.

When to Report Income Changes

You must report changes within 30 days if:

• Your income increases or decreases by more than 10%
• You start or lose a job
• You receive a significant raise or bonus
• Your work hours change substantially
• You start or close a business
• Your household size changes (marriage, birth, adoption, divorce)
• You become eligible for other coverage (employer, Medicare, Medi-Cal)

Why Reporting Changes Matters

Income Increases: If you don't report an income increase, you may receive too much subsidy and have to pay it back at tax time (potentially hundreds or thousands of dollars).

Income Decreases: If you don't report an income decrease, you'll receive less subsidy than you're entitled to, meaning you're overpaying for coverage all year.

Special Rule: Unemployment Benefits (2025)

How to Update Your Income

1. Log in to your Covered California account at CoveredCA.com
2. Go to "Report a Change"
3. Update your income estimate for the year
4. Review your new subsidy amount
5. Submit the change

Your subsidy will adjust for the remainder of the coverage year. Covered California will send you a notice confirming the change.

Tax Reconciliation: What Happens at Tax Time

When you file your federal tax return, you'll reconcile the subsidies you received with your actual income for the year using IRS Form 8962. This ensures you received the correct subsidy amount.

Three Possible Outcomes

Repayment Caps (Protection Limits)

If you received too much subsidy, the amount you must repay is capped based on your income level:

Tips to Avoid Large Repayments

• Estimate your income conservatively (slightly higher than expected)
• Report income changes promptly (within 30 days)
• Consider one-time income events (bonuses, stock sales, retirement withdrawals)
• If income is uncertain, choose to receive less subsidy upfront
• Keep documentation of income throughout the year

How to Apply for Subsidies

Applying for subsidies happens automatically when you apply for health insurance through Covered California. There's no separate subsidy application—the system calculates your eligibility based on the information you provide.

Step-by-Step Application Process

1. Create an Account: Visit CoveredCA.com and create your online account
2. Enter Household Information: List everyone in your household and their relationship to you
3. Estimate Annual Income: Provide your best estimate of 2025 household income (MAGI)
4. Review Eligibility: The system automatically determines if you qualify for subsidies or Medi-Cal
5. See Your Subsidy Amount: View your monthly subsidy and contribution amount
6. Compare Plans: Browse plans with your subsidy applied—see actual costs you'll pay
7. Choose a Plan: Select Bronze, Silver, Gold, or Platinum based on your needs and budget
8. Enroll and Pay: Complete enrollment and pay your first month's premium (after subsidy)

Documents You May Need

• Social Security numbers for all household members
• Immigration documents (if applicable)
• Recent pay stubs or W-2 forms
• Tax returns from previous year (for reference)
• Self-employment income records (profit and loss statement)
• Employer coverage information (if offered insurance at work)

Get Free Help from Certified Counselors

Certified enrollment counselors can help you:

• Estimate your income accurately
• Complete your application
• Calculate your subsidy amount
• Compare plans and understand your options
• Answer questions about eligibility
• Enroll in coverage

Real-World Examples & Scenarios

See how subsidies work for different household situations with realistic examples:

Example 1: Single Person, Low Income

Example 2: Family of 4, Middle Income

Example 3: Self-Employed Couple, Higher Income

Example 4: Single Parent, Very Low Income