How Does the Advanced Payment of the Premium Tax Credit Work?
Learn how your projected income affects the advance credit for your health plan and how it's reconciled with your final numbers when you file your taxes.
The Advanced Payment of the Premium Tax Credit (APTC) is a tax credit designed to make health insurance more affordable. It works by lowering the monthly premium for health plans purchased through the Health Insurance Marketplace, with the government sending the payment directly to your insurer. This reduces the amount you have to pay out-of-pocket each month.
The size of the credit is based on an estimate of your income for the upcoming year. Because the amount you receive is an estimate, the final credit is determined after the year is over based on your actual income. This means the initial amount could be adjusted when you file your taxes.
Eligibility Requirements for the APTC
To qualify for the APTC, your household’s modified adjusted gross income (MAGI) must be between 100% and 400% of the federal poverty line (FPL) for your family size. Legislative changes, such as the Inflation Reduction Act, have temporarily expanded eligibility for those with incomes above 400% of the FPL through 2025.
You must also purchase your health insurance through the Health Insurance Marketplace. You are ineligible for the APTC if you have access to other forms of minimum essential coverage, such as an affordable employer-sponsored health plan, Medicare, or Medicaid. An employer’s plan is considered “affordable” if the employee’s share of the premium is no more than a certain percentage of their household income, a figure which is updated annually.
Your tax filing status is another factor in eligibility. If you are married, you must file a joint tax return to receive the APTC. You also cannot be claimed as a dependent on someone else’s tax return and qualify for the credit.
Applying for Advance Payments
When applying, you must project your household income for the entire coverage year. This estimate should include all expected income for every member of your tax household, which includes wages, self-employment income, unemployment compensation, and taxable distributions from retirement accounts. An accurate projection is necessary for receiving the correct credit amount.
You must also accurately determine your household size for tax purposes. This includes yourself, your spouse if you file a joint return, and any individuals you will claim as dependents. The number of people in your household directly impacts the federal poverty level guidelines used to determine your eligibility and credit amount.
You can complete the application on the Health Insurance Marketplace website during the annual Open Enrollment Period. You may also apply during a Special Enrollment Period if you experience a qualifying life event, such as losing other health coverage, getting married, or having a baby. The Marketplace uses the income and household details you provide to determine your eligible APTC amount.
Reporting Life and Income Changes
Receiving the APTC comes with the ongoing responsibility to report significant life and income changes to the Health Insurance Marketplace as they occur. These changes can affect your eligibility and the amount of credit you receive. Events you are required to report include increases or decreases in household income, getting married or divorced, the birth or adoption of a child, or a change in dependents. Gaining or losing eligibility for other health coverage must also be reported.
Promptly reporting these events allows the Marketplace to adjust your APTC for the remaining months of the year. If your income goes down, you might qualify for a larger credit, while an income increase will likely decrease your credit amount. Reporting this change helps prevent you from receiving too much assistance and facing a significant repayment obligation when you file your taxes.
You can report changes by logging into your account on the Health Insurance Marketplace website. Once logged in, you can update your application with the new information regarding your income, household size, or other relevant life events to ensure your credit is accurate.
Reconciling the APTC on Your Tax Return
At the end of the year, anyone who received advance payments must reconcile them when filing their federal income tax return. This requires completing and attaching Form 8962, Premium Tax Credit (PTC), to your Form 1040. The Marketplace will send you Form 1095-A, Health Insurance Marketplace Statement, by early February, which provides the necessary information to complete Form 8962.
The reconciliation process compares the total amount of APTC paid to your insurer with the actual premium tax credit you qualify for. This second figure is calculated on Form 8962 based on your final, actual household income and family size for that tax year. This calculation determines whether the advance payments you received were too high or too low.
If the premium tax credit you are eligible for is greater than the APTC you received, the difference is a Net Premium Tax Credit. You will claim this additional amount as a refundable credit on your tax return, which can increase your refund or lower the amount of tax you owe.
If the APTC you received is more than the actual credit you qualify for, you have an excess amount that must be repaid with your tax return. The amount you are required to repay may be limited, with caps based on your household income’s percentage of the FPL and your tax filing status. If your income is 400% of the FPL or higher, you must repay the entire excess amount without a limit.