What the Advanced Premium Tax Credit Is

The Advanced Premium Tax Credit (APTC) is money the federal government sends directly to your health insurance company each month to lower your premium. You do not wait until tax time to receive it — the payment happens before you file your return, which is why it is called "advanced." The IRS estimates how much tax credit you will owe based on your expected income for the year, and sends that amount to your insurer to reduce what you pay out of pocket.

This is different from a regular tax credit you claim on your return. With APTC, the government is making a bet about your income. If you earn less than you predicted, you keep the extra money the government sent on your behalf. If you earn more, you may have to pay some of it back when you file Form 8962 in April.

Key Takeaways

  • The APTC is a monthly payment to your insurance company, not a lump sum you receive at tax time.
  • You must enroll in a plan through Healthcare.gov or your state marketplace and report your expected household income to receive it.
  • The amount you receive is based on a formula that compares your income to the federal poverty line and the cost of the second-lowest silver plan in your area.
  • If your actual income turns out to be higher than you reported, you will owe back some or all of the credit when you file your tax return.
  • You must file a tax return and complete Form 8962 each year you receive APTC, even if you normally would not file.

How Much APTC You Receive

The IRS uses a specific calculation to determine your APTC amount. It starts with the cost of the second-lowest silver plan available in your county — this is called the "benchmark plan." The government then calculates what percentage of your household income should go toward premiums based on federal poverty guidelines. The difference between what you should pay and the full cost of the benchmark plan is your APTC.

For 2024, the percentage of income you are expected to contribute ranges from about 0% for households near the poverty line to about 8.5% for households at 400% of the poverty line. These percentages change each year. Your actual APTC depends on three things: your household size, your expected income, and where you live. Two people with the same income in different states will receive different amounts because the benchmark plan costs vary by location.

You do not have to use the APTC to buy the silver plan. You can use it toward any plan on the marketplace — bronze, gold, or platinum. If you choose a cheaper plan, you keep the difference. If you choose a more expensive plan, you pay the extra cost yourself.

Where to Report Your Income and Enroll

You report your expected income and enroll in a plan through Healthcare.gov (or your state's marketplace if you live in a state that runs its own exchange). During open enrollment, you create an account, enter your household size and expected income for the coming year, and the system shows you what APTC you may have access to for. You then pick a plan, and the APTC is applied automatically to your monthly premium.

The income you report should be your best estimate of what you and your household members will earn in the calendar year ahead. This includes wages, self-employment income, Social Security, pensions, and other sources. It does not include child support received, Supplemental Security Income (SSI), or certain other benefits. If you are unsure whether something counts, Healthcare.gov has a list of what to include.

You can update your income and household information at any time during the year if your situation changes — a job loss, a raise, a birth, or a marriage. When you update, your APTC amount recalculates when ready, and the new amount applies to your next month's premium.

What Happens at Tax Time

When you file your tax return in April, you must report the actual income you earned in the previous year on Form 1040. You then complete Form 8962, Premium Tax Credit (PTC), which reconciles the APTC the government sent to your insurer against the credit you actually owed based on your real income.

If your actual income was lower than you reported, the IRS owes you money. You will receive a refund as part of your tax return. If your actual income was higher, you owe back some or all of the APTC. The amount you owe depends on how much higher your income was and which income limit applies to your household size. There is a cap on how much you have to repay if your income is below 400% of the federal poverty line, but the cap varies by year and household size.

You must file a tax return and Form 8962 every year you received APTC, even if your income is normally too low to require filing. If you do not file, the IRS will not know whether you owe money back, and you may face penalties or lose the credit in future years.

When You Lose APTC or It Changes

Your APTC stops if you lose your marketplace coverage. If you enroll in employer health insurance, Medicare, Medicaid, or CHIP, you are no longer may be able to access for APTC. You must report these changes to Healthcare.gov as soon as they happen so the government stops sending payments to your old plan.

If you move to a different state, your APTC will recalculate based on the benchmark plan in your new county. If your household income changes significantly — you get a raise, lose a job, or have a major life event — update your information when ready. The sooner you report changes, the less likely you will owe a large amount back at tax time.

If you do not update your income and it turns out to be much higher than you reported, you could owe back thousands of dollars. This is one of the most common surprises people face. Updating as soon as you know your situation has changed prevents this problem.

APTC and Other Health Coverage

You cannot receive APTC if you have access to affordable employer health insurance. The IRS defines "affordable" as a plan that costs no more than about 8.5% of your household income (this percentage changes yearly). If your employer offers coverage that meets this test, you are not may be able to access for APTC, even if you think the employer plan is too expensive.

You also cannot receive APTC if you are enrolled in Medicare, Medicaid, CHIP, TRICARE, or the Veterans Health Administration. If you are on Medicaid and lose that coverage, you become may be able to access for APTC on the first day of the month after your Medicaid ends — you do not have to wait for open enrollment.

If you are self-employed or have irregular income, you can still receive APTC. Report your best estimate of your income for the year. If your income varies month to month, use an average or your most recent year's tax return as a starting point, then adjust upward or downward based on what you expect this year.

Common Mistakes That Cost You Money

The most expensive mistake is not updating your income when it changes. If you get a raise or pick up a second job and do not tell Healthcare.gov, you will owe back APTC at tax time. The second mistake is not filing a tax return. Even if you received APTC and your income was low, you must file to reconcile the credit. The third mistake is reporting the wrong household size or forgetting to add a new baby or spouse.

Another common error is confusing APTC with the Child Tax Credit or other refundable credits. APTC is not refundable — if you owe back more than you paid in taxes, you do not get money back. You straightforward owe the IRS. Finally, some people do not realize that APTC is based on the benchmark plan, not the plan they actually chose. If you pick a cheaper plan, you pay less; if you pick a more expensive one, you pay more. The APTC amount stays the same regardless.

Frequently Asked Questions

Do I have to use APTC to buy a marketplace plan?

No. You can enroll in a marketplace plan without APTC if you prefer to pay the full premium yourself. However, if you are may be able to access, using APTC lowers your monthly cost. You can also change your mind during open enrollment and add or remove APTC from your coverage.

What if I think I will owe money back at tax time?

Update your income on Healthcare.gov as soon as you know it will be higher than you reported. This lowers your APTC for the remaining months of the year and reduces what you owe in April. The sooner you update, the smaller the repayment.

Can I receive APTC if I am self-employed?

Yes. Report your expected net self-employment income (after the self-employment tax deduction) on Healthcare.gov. If your income is uneven, use your prior year's tax return as a guide and adjust based on what you expect this year. Update if your situation changes significantly.

What happens to my APTC if I get married during the year?

Report the marriage to Healthcare.gov when ready. Your household size increases, which may raise your APTC. Your spouse can also enroll in coverage. If you do not report the marriage, your APTC will be wrong, and you will owe money back at tax time.

Is APTC the same as a tax refund?

No. APTC is a monthly payment to your insurance company to lower your premium. A tax refund is money the IRS sends you after you file your return. If you received too much APTC, you owe it back; you do not get a refund for overpaying.