Premium Tax Credit Usage: How It Affects Your Taxes

The Premium Tax Credit (PTC) is a refundable tax credit that lowers the monthly premiums for health coverage purchased through the Health Insurance Marketplace. The credit can be paid in advance directly to your insurance company to reduce your monthly payments, or you can claim it in full when you file your annual tax return.

Determining Your Eligibility

To qualify for the Premium Tax Credit, your household income must fall within a certain range of the federal poverty line (FPL). This range is generally between 100% and 400% of the FPL, though legislative changes have temporarily removed the upper income cap through 2025, making more households eligible. Your household income for this purpose is your Modified Adjusted Gross Income (MAGI), which includes wages, salaries, interest, and Social Security benefits.

You must also purchase your health coverage through the Health Insurance Marketplace and cannot be eligible for other forms of minimum essential coverage. This includes government programs like Medicare, Medicaid, or TRICARE, as well as affordable, minimum-value coverage from an employer.

Employer-sponsored coverage is considered “affordable” if the employee’s contribution for self-only coverage does not exceed 9.02% of household income for 2025. A plan provides “minimum value” if it is designed to pay at least 60% of the total cost of medical services for a standard population.

Finally, your tax filing status is a factor, as you generally cannot file as “Married Filing Separately.” You also cannot be claimed as a dependent on another person’s tax return.

How the Premium Tax Credit is Calculated and Paid

The amount of your Premium Tax Credit is based on a formula that balances your household income against the cost of health insurance in your area. The calculation uses the premium for the “second-lowest cost Silver plan” (SLCSP), or benchmark plan, available to you. The PTC is designed to cover the portion of this benchmark plan’s premium that exceeds a certain percentage of your income.

You have two options for receiving the credit. The most common method is through advance payments of the premium tax credit (APTC), where the Marketplace sends payments directly to your insurer each month. These payments lower your out-of-pocket premium costs.

The alternative is to pay the full monthly premium yourself and then claim the entire eligible credit as a lump sum when you file your federal income tax return. This results in either a larger tax refund or a lower amount of tax owed.

Information and Forms for Reconciliation

When filing your taxes, you will need Form 1095-A, Health Insurance Marketplace Statement, which you will receive from the Marketplace by mid-February. This form provides essential information for your tax return.

Form 1095-A details your coverage on a monthly basis. Part III is particularly important, as it lists the monthly premium for your plan, the premium for the applicable SLCSP in your area, and the amount of any APTC paid on your behalf.

The information from Form 1095-A is used to complete Form 8962, Premium Tax Credit (PTC). The purpose of Form 8962 is to reconcile the advance credit payments you received with the actual credit you qualify for based on your final income for the year. You will transfer the monthly figures from Part III of Form 1095-A to Form 8962.

The Reconciliation Process on Your Tax Return

You must file the completed Form 8962 with your Form 1040 tax return. The reconciliation calculation on this form will directly impact your tax refund or the amount you owe.

If the actual PTC you are eligible for is greater than the APTC you received, the difference is a net Premium Tax Credit. This amount is added to your tax refund or subtracted from your tax liability.

Conversely, if the APTC you received is more than the actual credit you qualify for, you will have to repay the difference. This is known as an excess advance premium tax credit repayment, and it will reduce your refund or increase your tax due. For taxpayers with household income below 400% of the FPL, repayment limits apply.

For the 2024 tax year, these limits for single filers are $375 for incomes under 200% FPL, $950 for incomes between 200% and 300% FPL, and $1,575 for incomes between 300% and 400% FPL. For all other filing statuses, these limits are doubled.

Reporting Life Changes to the Marketplace

It is important to report any significant life changes to the Health Insurance Marketplace as they occur. The primary reason is to ensure the advance premium tax credit payments made on your behalf are as accurate as possible. Promptly updating your information helps prevent owing a large amount back at tax time or ensures you receive the maximum benefit you are eligible for each month.

Reportable life events include:

• Changes in your household income
• Changes to your household size from marriage, divorce, birth, or adoption
• Gaining or losing eligibility for other health coverage
• Moving to a new residence

You can report these changes by logging into your account on HealthCare.gov or your state’s Marketplace website, or by calling the Marketplace call center. This allows the Marketplace to adjust your APTC amount for the remainder of the year, aligning your assistance with your new circumstances.