The premium tax credit (PTC) is a type of health insurance subsidy that lowers the cost of your monthly health insurance premiums. You can receive it when you file your tax return after the end of the year or you can receive it in advance throughout the year and apply it directly to each of your monthly premium payments. What you take in advance is called the advance premium tax credit (APTC).
You can only claim the APTC if you get a plan through a health insurance marketplace, also called an exchange, or through a certified enrollment partner. You usually aren’t eligible to use the tax credit if you have health insurance through your employer. (Learn more about how to apply for marketplace plans.)
Whether or not you qualify for the APTC depends primarily on how your household income compares to the federal poverty level (FPL). If your projected income is between 100% and 400% of the poverty level, you likely qualify. The poverty levels themselves are based on your state of residence and how many people live in your household.
How the advance premium tax credit works
You can apply for the APTC through the marketplace when you buy a health insurance plan. The APTC application is part of the purchase process. When you claim the APTC, your marketplace will calculate your credit amount, notify your insurance company, and automatically apply the credit to your monthly premiums. The premiums you actually have to pay during the year will be the reduced amount.
While buying your insurance plan and applying for the APTC, you will need to provide your income for the upcoming year to prove that you qualify. You only need to estimate your income. It’s fine if you don’t know what your exact income will be, but a more accurate estimate will prevent you from not getting enough credit or from getting too much (and having to pay back the extra when you file your taxes).
At the end of the year, you need to fill out Form 8962 with your annual tax return to ensure you received the proper credit based on what your actual income was. (There are instructions for the form later in this article.) If your APTC was too much or too little, you may receive a refund or owe money. Even if you don’t usually need to file a tax return, you need to file one if you received the APTC.
Who qualifies for the APTC?
You can only qualify for the APTC if you meet the following criteria:
You have a health plan through the health insurance marketplace.
You’ve had your marketplace plan for at least one month.
You don’t have access to a qualified employer-sponsored health insurance plan.
No one claims you as a dependent on their taxes return.
You don’t use the married filing separately filing status.
Your household income falls within the income limits (explained in a later section).
You usually can’t qualify for the APTC if you have access to employer-sponsored health insurance but you may still qualify if your plan is unaffordable. For this credit, qualified plans (which disqualify you) pay at least 60% of costs for covered services and have annual premiums costing no more than 9.78% of your 2020 household income (9.83% of your 2021 household income). Your employer may give you a letter to notify you if you qualify for the APTC.
How much is the APTC worth?
The value of your advance premium tax credit is calculated as the difference between the premium for the second-lowest cost Silver plan (SLCSP) and your premium cap.
APTC amount = premium of SLCSP - premium cap
The insurance premium cap is the amount your state thinks is the most you can reasonably afford to spend on a monthly health insurance premium. Your cap is written as a percentage of your income. The premium is for the second-lowest cost Silver plan, or SLCSP, is the government benchmark for the cost of insurance premiums in your state. You don’t actually have to buy the SLCSP in order to use the premium tax credit; you can apply the premium tax credit to a plan from any metal tier.
Example: Let’s say your state decides that an individual with an income of $35,000 shouldn’t have to spend any more than 8% of their income on insurance premiums. That translates to $2,800 in annual premiums or approximately $233 per month. If the the monthly premium for the SLCSP is $533, your monthly tax credit would be $300:
$533 premium for the SLCSP - $233 premium cap = $300 premium tax credit
How can I avoid paying back my premium tax credit?
When you apply for the APTC, you need to estimate your income for the upcoming year. If you underestimate, you will likely receive more APTC than you actually should have. In that case, you will need to pay back the extra premium tax credit you received. To avoid this, it’s best to estimate as accurately as you can. You can use the figures on last year’s W-2 or your tax return to help you if you expect your income to be similar. Make sure to consider any raises, bonuses, or other income you expect to receive during the next year.
If you underestimate your income, you will probably receive a bit less of the credit than you should have, and the IRS can send you the amount you missed after you file your tax return. If you’re afraid of owing money when you file your taxes, you may choose to overestimate your income a bit during the application process. Just remember that overestimating too much will result in higher premiums during the year.
APTC income limits
You can qualify for the APTC if your annual household income is between 100% and 400% of the federal poverty guideline (except in Alaska and Hawaii, which set their own poverty levels). The federal poverty guideline is also called the federal poverty level or FPL. It varies based on how many people live in your household and it’s updated each year by the Department of Health and Human Services (HHS).
Your household income includes income from you, your spouse, anyone you claim as a dependent, and anyone who lives in your household but doesn’t receive health coverage under your health insurance plan.
Note that the stimulus checks from the COVID-19 pandemic don’t qualify as income for the APTC. Learn more in our guide to the coronavirus stimulus checks.
Federal poverty guidelines for 2020
People in household | 100% of poverty guideline | 400% of poverty guideline |
|---|---|---|
1 | $12,760 | $51,040 |
2 | $17,240 | $68,960 |
3 | $21,720 | $86,880 |
4 | $26,200 | $104,800 |
5 | $30,680 | $122,720 |
6 | $35,160 | $140,640 |
7 | $39,640 | $158,560 |
8 | $44,120 | $176,480 |
More than 8 | $44,120 plus $4,480 per extra person | $176,480 plus $17,920 per extra person |
Alaska poverty guidelines for 2020
People in household | 100% of poverty guideline | 400% of poverty guideline |
|---|---|---|
1 | $15,950 | $63,800 |
2 | $21,550 | $86,200 |
3 | $27,150 | $108,600 |
4 | $32,750 | $131,000 |
5 | $38,350 | $153,400 |
6 | $43,950 | $175,800 |
7 | $49,550 | $198,200 |
8 | $55,150 | $220,600 |
More than 8 | $55,150 plus $5,600 per extra person | $220,600 plus $22,400 per extra person |
Hawaii poverty guidelines for 2020
People in household | 100% of poverty guideline | 400% of poverty guideline |
|---|---|---|
1 | $14,680 | $58,720 |
2 | $19,830 | $79,320 |
3 | $24,980 | $99,920 |
4 | $30,130 | $120,520 |
5 | $35,280 | $141,120 |
6 | $40,430 | $161,720 |
7 | $45,580 | $182,320 |
8 | $50,730 | $202,920 |
More than 8 | $50,730 plus $5,150 per extra person | $202,920 plus $20,600 per extra person |
What if your income is below the poverty line?
You may not qualify for the premium tax credit if your household income is below the federal poverty level, but there are other ways to get financial assistance with your health insurance. One option is a type of subsidy called a cost-sharing reduction. You should also consider Medicaid. Medicaid is a federally and state-funded health insurance program available to Americans earning 133% of the federal poverty level or less. You can apply for Medicaid at any time, even outside of Open Enrollment.
Learn about your Medicaid eligibility in our state-by-state guide to Medicaid.
How to claim the APTC on your taxes
If you used the APTC, you will need to file IRS Form 8962 when you file your tax return. Also use this form if you didn’t receive the APTC but you want to claim the premium tax credit on your tax return. You will also need the information on Form 1095-A. Form 1095-A lists how much you paid in monthly premiums and how much you received in advance credit payments. Everyone with a health insurance plan through the marketplace will get a copy of their 1095-A.
How to fill out Form 8962
Form 8962 is only five sections, over two pages, and most people don’t even have to fill out the whole form. (If you use a tax filing service, it should do all calculations for you.) Here’s a quick rundown of each part of the form.
Part I requires you to put information like how many people are in your household, what your household’s modified adjusted gross income (AGI) was for the year, and what percentage of the federal poverty line your income was.
Part II is where you “reconcile” your APTC. You list how much you received from the APTC each month of the year (using the information on your 1095-A), and then you compare that to how much you should have received based on your final annual income. If you received more in advance payments than you should have, you will have to pay back the excess. If you didn’t receive enough, you will get money refunded to you.
Will you get a tax refund this year?
Part III is where you write how much you need to pay back if you received more of a credit than you should have. You don’t need to fill it out unless you got excess APTC.
Part IV isn’t necessary for most people. It only applies if your credit is split between multiple taxpayers. For example, you may fill out this part if you got divorced. If you need to split your credit, Part IV is where you state what portion of the credit each taxpayer should receive.
Part V of the form only applies if you got married during the year. This section allows you to account for different household incomes before and after your marriage.
What if you don’t file a tax return?
You need to file a tax return to claim the advance premium tax credit. Even if you otherwise wouldn’t have to file a return, you need to file one every year for the APTC. If you ever claim the credit but don’t file a tax return, you will be ineligible to receive the APTC in the future. That means you’ll have to pay full price for premiums in the future. (This situation is officially known as failure to file and reconcile, or FTR.)
You could also potentially run into other problems, including big penalties, if you don’t file your income tax return.
