What Is the Advance Premium Tax Credit?

Paying for health insurance can be a daunting task, but the Advance Premium Tax Credit (APTC) is here to help. The APTC is a federal tax credit designed to assist eligible individuals and families in covering the monthly cost of health insurance premiums. This credit is available to those who purchase insurance through the health insurance marketplace.

The APTC reduces your monthly premium payments by covering a portion of your payment based on your estimated income and household size. You can choose to receive these credits in advance, which means they are applied directly to your premium payments. If you receive more credit than you are eligible for, you will need to pay back the excess when you file your annual taxes. Conversely, if you are entitled to more credit, you can claim the additional amount on your tax return.

Do You Qualify for the Advance Premium Tax Credit?

The APTC is available for health care coverage purchased through the federal health insurance marketplace or your state’s marketplace. The credit is based on the cost of a mid-range Silver plan in your area and is adjusted on a sliding scale based on your income. Although the credit is based on the cost of a Silver plan, you can typically apply it toward the purchase of a Bronze, Silver, Gold, or Platinum plan.

To qualify for the APTC, you must meet the following criteria:

• Your household income must be at least 100% and no more than 400% of the federal poverty line for your family size.
• You or an eligible family member must have been enrolled in marketplace coverage for at least one month during the calendar year.
• You must not have been eligible for affordable coverage through an employer-sponsored plan that provides minimum value, or eligible to enroll in government health coverage such as Medicare, Medicaid, or TRICARE.
• The health insurance premiums for at least one month must be paid by the original due date of your return. They can be paid either through advance credit payments, by you, or by someone else.
• If you’re married, you can’t file your taxes separately except in certain cases of domestic abuse or spousal abandonment.
• You can’t be claimed as a dependent by another taxpayer.

The IRS offers an online interview tool to help you determine your eligibility for the federal APTC. Additionally, states like California, Connecticut, Massachusetts, New Jersey, and Vermont offer extra financial help to their residents.

Estimating Your Credit

Healthcare.gov provides an online calculator to help you estimate your APTC credit based on your income, household size, and state. This tool also checks your eligibility for Medicaid or the Children’s Health Insurance Program (CHIP).

When you apply for coverage through the marketplace, you will see actual health insurance plan prices and your potential APTC savings. You have the option of applying the maximum credit to your monthly payment or using only a portion of it. If you think your income for the year may be higher than estimated, you may want to apply only a portion of your credit to avoid owing taxes when you reconcile your APTC credit on your tax return.

How to File for the Advance Premium Tax Credit

If you receive APTC advance payments, you must complete and file a federal income tax return and attach Form 8962, Premium Tax Credit, to your return. You will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about coverage you purchased through the health insurance marketplace. You can use the information in Form 1095-A to complete Form 8962.

Form 8962 helps you calculate the amount of credit you’re entitled to and reconcile your credit against the premium credits you’ve received throughout the year. If you were entitled to more credit than you received, you can claim the difference as a refundable credit on your tax return. If you were not entitled to the full amount of advance premium credits you received, you may be required to account for the difference on your tax return.

If you received APTC advance payments, you must file federal taxes even if you ordinarily wouldn’t need to file taxes. Failing to file Form 8962 with your taxes could delay your refund or prevent you from receiving additional advance premium credits.

Claiming the Credit Without Advances

If you chose not to apply for advance credits—or you bought insurance through the marketplace without realizing you could receive advance credits—you can still claim premium tax credits on your tax return using Form 8962.

The Bottom Line

Premium tax credits can help make the cost of health insurance more manageable for low- and middle-income taxpayers. If you’re in the market for health insurance, you may want to check the health insurance marketplace or the marketplace in your state to see whether you qualify for the APTC to reduce your monthly premium payments. Even if you don’t currently qualify, you may want to consider buying insurance through the marketplace. If your income changes and it turns out you do qualify, you can claim premium tax credits on your tax return.

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