Do You Have to Pay Back the Tax Credit for Health Insurance?

The Premium Tax Credit (PTC) helps eligible individuals and families cover premiums for health insurance purchased through the Health Insurance Marketplace. When enrolling, you can have the credit paid in advance to your insurance company, which lowers your monthly payments; this is known as the Advance Premium Tax Credit (APTC). Alternatively, you can pay your full premium and claim the entire credit when you file your federal income tax return, which can result in a larger tax refund. Choosing to receive the credit in advance requires you to verify your eligibility after the year ends, which can lead to a repayment.

Understanding the Reconciliation Process

A repayment situation may arise because the advance credit is based on estimates. When you apply for coverage, you provide your expected household income and family size for the upcoming year. The Marketplace uses this projection to calculate your monthly APTC, making insurance more affordable in real-time.

At the end of the year, you must perform a reconciliation on your tax return. This process involves comparing the estimated income and family size you provided to the Marketplace with the actual figures from your tax return. This comparison determines the final amount of the Premium Tax Credit you were entitled to for the year.

Discrepancies between your estimates and final numbers are often caused by life events. Getting a new job, receiving a pay raise, or starting a side business can increase your income above your projection, while losing a job could decrease it. Changes in household composition also affect the credit. Getting married or divorced alters your tax filing status and household size, and the birth or adoption of a child increases your family size. Gaining other health coverage, like through a new employer or Medicare, can also impact your PTC eligibility for part of the year.

Required Information and Forms for Reconciliation

To reconcile your advance payments, you will need Form 1095-A, Health Insurance Marketplace Statement. The Marketplace is required to send this form by January 31 of the year following the coverage year. If you do not receive it, log into your Marketplace account to access a copy or contact the Marketplace directly, as the IRS cannot issue this form.

Form 1095-A provides a monthly summary of your health plan enrollment. Part III lists your total monthly premium, the premium of the applicable second lowest cost silver plan (SLCSP), and the amount of APTC paid on your behalf. You must ensure the information on this form, especially the premium amounts and coverage months, is correct before you file.

You will also need Form 8962, Premium Tax Credit (PTC), which you attach to your Form 1040 to perform the reconciliation. You will use the information from your Form 1095-A to complete Form 8962.

You will also need your final income and family size for the year. The calculation uses your modified adjusted gross income (MAGI), which is your adjusted gross income with certain deductions and exclusions added back. Your final tax family size includes yourself, your spouse if filing jointly, and any dependents you claim.

Calculating the Amount Owed or Refunded

The calculation on Form 8962 determines your final Premium Tax Credit. This results in one of two outcomes: you either have to repay a portion of the credit you received, or you are due an additional credit.

An Excess Advance Premium Tax Credit Repayment occurs if the total advance payments made on your behalf were greater than the final credit you were eligible for. This excess amount is carried from Form 8962 to Schedule 2 of your Form 1040. This amount is added to your total tax liability, which will increase the tax you owe or reduce your expected refund.

A Net Premium Tax Credit occurs if the advance payments you received were less than the final credit you qualify for, or if you received no advance payments. The additional credit you are entitled to is calculated on Form 8962 and carried to Schedule 3 of your Form 1040. This refundable credit increases your tax refund or decreases the tax you owe.

Limits on Repayment Amounts

If your reconciliation shows that you received excess advance payments, the amount you must repay may be limited based on your household’s income. These repayment caps are determined by your modified adjusted gross income (MAGI) as a percentage of the federal poverty line (FPL) for your family size.

For taxpayers with a household income less than 400% of the FPL, the law limits the repayment amount. For instance, a single filer with a final MAGI between 200% and 300% of the FPL has their repayment limited to a specific dollar figure. These limitations are adjusted annually and increase as income approaches the 400% FPL threshold.

A temporary change affects households with income at or above 400% of the FPL. Through the 2025 tax year, the rule requiring full repayment of excess credits for this group is suspended. Instead, their required contribution toward health insurance premiums is capped at 8.5% of their household income. This provision allows households in this income bracket to still qualify for a subsidy and is scheduled to expire in 2026 unless extended by Congress.