What Is the Advanced Premium Tax Credit?

The Advanced Premium Tax Credit (APTC) is a financial assistance program designed to help individuals and families reduce the cost of health insurance coverage. This credit is available to those who purchase a health plan through the Health Insurance Marketplace.

Understanding the Advanced Premium Tax Credit

The Advanced Premium Tax Credit is a refundable tax credit that lowers health insurance premiums. The APTC can be paid directly to the insurance company. This direct payment reduces the monthly out-of-pocket premium costs for the enrollee. The amount of this credit is initially determined based on an estimate of the enrollee’s household income and family size for the year they seek coverage.

Determining Your Eligibility

Eligibility is primarily based on household income relative to the Federal Poverty Line (FPL). Individuals and families qualify if their household income falls between 100% and 400% of the FPL for their family size. For coverage years through 2025, the income cap at 400% FPL is temporarily suspended, allowing those with higher incomes to qualify if their benchmark plan premiums exceed 8.5% of their household income. Household size is also a determining factor, as it directly influences the applicable FPL threshold.

To receive the APTC, individuals must enroll in a health plan through a state or federal Health Insurance Marketplace. Eligibility also requires individuals are not offered other forms of minimum essential coverage deemed affordable. This includes employer-sponsored health coverage, Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP). An employer-sponsored plan is considered affordable for 2025 if the employee’s contribution for self-only coverage does not exceed 9.02% of their household income.

Receiving the Credit in Advance

Once eligibility is established through the Health Insurance Marketplace application, individuals can choose to have the estimated credit paid directly to their health insurance company. This arrangement is made monthly, lowering the amount the enrollee pays out of pocket for premiums. The Marketplace utilizes the projected income and household information provided by the applicant to calculate the estimated advance payment.

Reconciling the Credit on Your Tax Return

Individuals who receive the Advanced Premium Tax Credit must reconcile it annually by filing a federal income tax return. This reconciliation requires attaching Form 8962, Premium Tax Credit (PTC), to their return. The Health Insurance Marketplace provides Form 1095-A, Health Insurance Marketplace Statement, which contains the necessary information for this reconciliation. The actual premium tax credit amount is calculated based on the taxpayer’s actual household income and family size for the tax year, not the initial projections.

This reconciliation has two outcomes. If the advance payments received were less than the actual credit for which the taxpayer was eligible, the difference will be provided as a refundable tax credit. Conversely, if the advance payments exceeded the actual credit, the taxpayer may be required to repay some or all of the excess APTC. For the 2025 tax year, repayment limits apply if the household income is below 400% of the FPL. If the actual household income is 400% or more of the FPL, there is generally no cap on the amount of excess APTC that must be repaid.