What the health insurance tax credit is

The Premium Tax Credit (also called the health insurance tax credit) reduces what you pay for monthly health insurance premiums. It is a refundable tax credit, which means the IRS sends you money if the credit is larger than the tax you owe. You claim it when you file your tax return on Form 1040, using Schedule 8812 or Form 8962 depending on your situation.

The credit is tied to the cost of the second-lowest-cost Silver plan available in your area. The IRS compares that cost to a percentage of your household income. If the plan costs more than that percentage, you get a credit for the difference. The credit goes directly to your insurance company each month to lower your premium, or you can claim the full amount when you file your return.

This credit exists because the Affordable Care Act requires most people to have health insurance. The credit makes coverage affordable for people whose income is between 100% and 400% of the federal poverty line (though some states have expanded this). You do not have to be unemployed or disabled to receive it — your income level is what matters.

Key Takeaways

  • The Premium Tax Credit reduces your monthly health insurance cost based on your household income and the cost of plans in your area.
  • You must buy insurance through the Health Insurance Marketplace (Healthcare.gov or your state's marketplace) to claim the credit.
  • The credit is based on your expected income for the year you are insured, so you must estimate your income when you enroll.
  • You report the credit on Form 8962 when you file your tax return, and the IRS may ask you to repay part of it if your actual income was higher than you estimated.
  • The credit is available only if your income falls within the range set by the IRS each year, which varies by family size and state.

Income limits and how they are calculated

Your income must fall between 100% and 400% of the federal poverty line for your family size in the year you are insured. The poverty line changes each year. For 2024, the poverty line for a single person is $14,600, so the 400% limit is $58,400. For a family of four, the poverty line is $30,000, and 400% is $120,000. These numbers increase slightly each year.

The IRS uses your Modified Adjusted Gross Income (MAGI) to determine whether you may have access to. MAGI is usually your adjusted gross income plus certain types of income the IRS counts back in. For most people, MAGI is the same as the income on line 11 of Form 1040. If you are self-employed, MAGI includes your net business income. If you receive Social Security, some of it may be counted.

You estimate your income when you enroll in a plan through the Marketplace. The credit is based on that estimate. If your actual income turns out to be higher, you may have to repay some of the credit when you file your return. If your actual income is lower, you may receive a larger refund.

Where to buy insurance and how to claim the credit

You must purchase health insurance through the Health Insurance Marketplace to claim the Premium Tax Credit. The Marketplace is Healthcare.gov if you live in most states, or your state's own marketplace if your state runs one (California, New York, and several others operate their own). Insurance bought directly from a private company or through an employer does not may have access to for this credit.

When you enroll in a Marketplace plan, you can choose to have the credit applied to your monthly premium right away. This lowers what you pay each month. Alternatively, you can decline the advance credit and claim the full amount when you file your tax return. Many people choose to receive part of the credit monthly and claim the rest at tax time.

At the end of the year, the Marketplace sends you Form 1095-B, which shows what insurance you had and what advance credit you received. You use this form and Form 8962 to reconcile the credit on your tax return. Form 8962 compares the advance credit you received to the credit you are actually may have access to to based on your final income.

What happens if your income changes during the year

If your income changes after you enroll, you should report the change to the Marketplace as soon as possible. Changes that trigger a report include a job loss, a significant raise, marriage, divorce, birth of a child, or a change in household size. The Marketplace will recalculate your credit based on your new expected income for the rest of the year.

If your income increases, your credit may decrease, which means your monthly premium will go up. If your income decreases, your credit may increase, lowering your premium. Reporting changes promptly prevents you from overpaying or underpaying during the year and reduces the amount you may owe or receive when you file your return.

If you do not report a change and your actual income ends up being significantly different from what you estimated, the IRS will reconcile the difference on Form 8962 when you file. If you received too much credit, you will owe money back. There is a cap on how much you must repay if you are a lower-income taxpayer, but higher-income taxpayers may owe back the full amount.

How the credit amount is calculated

The IRS calculates the credit by comparing the cost of the second-lowest-cost Silver plan in your area to a percentage of your household income. That percentage is called the applicable percentage and increases with income. For 2024, it ranges from 2.0% of income for people at 100% of poverty to 8.5% of income for people at 400% of poverty.

Here is a simplified example: if the second-lowest Silver plan costs $400 per month and your applicable percentage is 5% of your income, and your income is $50,000 per year, then 5% of your income is $2,500 per year, or about $208 per month. The credit would be $400 minus $208, or $192 per month. This $192 would go to your insurance company to reduce your premium.

The credit is based on the Silver plan, but you can use it to buy any plan — Bronze, Silver, Gold, or Platinum. If you buy a cheaper Bronze plan, you pay the difference out of pocket. If you buy a more expensive Gold or Platinum plan, you pay the extra cost out of pocket. The credit amount does not change based on which plan you choose.

Reconciling the credit on your tax return

When you file your tax return, you must reconcile the Premium Tax Credit using Form 8962. This form compares the advance credit you received during the year to the credit you are may have access to to based on your actual income. The Marketplace reports the advance credit on Form 1095-B, which you receive by mail or electronically.

On Form 8962, you enter your actual household income for the year, your family size, and the advance credit amounts from Form 1095-B. The form calculates your actual credit entitlement and shows whether you received too much, too little, or the correct amount. If you received too much, you owe the difference when you file. If you received too little, the difference is added to your refund.

If you are a lower-income taxpayer (below 400% of poverty), there is a cap on how much you must repay. For 2024, the cap ranges from $300 to $1,050 depending on your filing status. If you owe more than the cap, the IRS forgives the excess. Higher-income taxpayers have no repayment cap and must repay the full amount if they received too much credit.

Special situations and exceptions

If you are not a U.S. citizen or national, you generally cannot claim the Premium Tax Credit. However, lawful permanent residents (green card holders), refugees, asylees, and certain other immigrants may be may be able to access. You will need to provide proof of your immigration status when you enroll in the Marketplace.

If you are claimed as a dependent on someone else's tax return, you cannot claim the Premium Tax Credit yourself. The person who claims you as a dependent must claim the credit if anyone in the household is insured through the Marketplace. If you are a dependent and your parent or guardian does not claim the credit, you cannot claim it when you file your own return.

If you have access to affordable employer-sponsored insurance, you may not be able to claim the credit. The IRS defines affordable as costing no more than 8.39% of your household income (this percentage changes yearly). If your employer offers a plan that meets this test, you are generally not may be able to access for the Marketplace credit, even if you do not enroll in the employer plan.

Frequently Asked Questions

Can I claim the health insurance tax credit if I have a job?

Yes. The credit is based on income, not employment status. If your household income is between 100% and 400% of the federal poverty line, you can claim the credit regardless of whether you work. Many people who work full-time or part-time claim this credit because their income falls within the range.

What if I did not receive Form 1095-B from the Marketplace?

Contact the Marketplace directly to request a copy. You need this form to file your return accurately. If you received advance credit during the year but do not have the form, you can contact the Marketplace by phone or through your online account to get the information you need to complete Form 8962.

Do I have to take the credit monthly, or can I claim it all at tax time?

You can choose either option. Some people decline the advance credit and claim the full amount when they file their return. This works well if your income is unpredictable or if you expect a large refund. Others take part of the credit monthly to lower their premium and claim the rest at tax time.

What happens if I move to a different state during the year?

Report the move to the Marketplace when ready. Your credit may change because the cost of plans and the applicable percentage may differ in your new state. The Marketplace will recalculate your credit based on your new location and expected income for the remainder of the year.

Can I claim the credit if I am on Medicare?

No. Medicare is a federal health insurance program, and you cannot enroll in a Marketplace plan while you are on Medicare. Once you are enrolled in Medicare Part A or Part B, you are not may be able to access for the Premium Tax Credit.