What ACA Tax Credits Do

The ACA tax credit (officially the Premium Tax Credit) reduces what you pay each month for health insurance bought through Healthcare.gov or your state's marketplace. The credit goes directly to your insurance company, lowering your monthly bill instead of waiting until tax time. You do not have to repay it later if your income changes slightly—the credit adjusts based on what you actually earn that year.

A second credit, the Cost-Sharing Reduction, lowers your deductible, copays, and coinsurance if you choose a Silver plan and your income falls below a certain threshold. These two credits work together: the Premium Tax Credit makes the monthly payment affordable, and the Cost-Sharing Reduction makes the actual care you use less expensive.

Key Takeaways

  • The Premium Tax Credit reduces your monthly insurance payment based on your household income and the cost of the second-cheapest Silver plan in your area.
  • You must report your expected income when you sign up, and the credit adjusts if your actual income differs by more than $200 per person per year.
  • The Cost-Sharing Reduction only works with Silver plans and only if your income is below 250 percent of the federal poverty line.
  • You can claim the credit on your tax return even if you did not use it during the year, though most people let it reduce their monthly bill instead.
  • If you receive too much credit during the year, you repay the difference when you file taxes; if you receive too little, you get the difference back.

How the Premium Tax Credit Is Calculated

The credit is based on three things: your household income, the number of people in your household, and the cost of the second-cheapest Silver plan available where you live. The government assumes you will pay a percentage of your income toward insurance—that percentage is called the applicable percentage. The credit covers the difference between that amount and the actual cost of the plan you choose.

For example, if the applicable percentage for your household is 4 percent of income, and your household income is $50,000, the government expects you to pay $2,000 per year ($167 per month). If the second-cheapest Silver plan in your area costs $400 per month, the credit pays $233 per month, and you pay $167. If you choose a cheaper Bronze plan at $350 per month, the credit still pays $233, and you pay only $117. If you choose a more expensive Gold plan at $500 per month, the credit still pays $233, and you pay $267.

The applicable percentage changes each year and varies by age and income. It is lower for people with lower incomes and higher for people with higher incomes. The IRS publishes these percentages annually, and Healthcare.gov uses them to calculate your credit when you sign up.

Income Thresholds and Household Size

You can receive the Premium Tax Credit if your household income is between 100 and 400 percent of the federal poverty line. The poverty line changes each year—for 2024, it is $14,600 for a single person and $30,000 for a family of four. This means a single person earning between $14,600 and $58,400 may receive a credit; a family of four earning between $30,000 and $120,000 may receive a credit.

Your household size includes you, your spouse if you are married, and any dependents you claim on your tax return. If you have a child, that child counts toward your household size even if the child does not have income. The larger your household, the higher the income threshold before you lose the credit entirely.

When you sign up on Healthcare.gov, you report your expected income for that year. If your actual income turns out to be different, the credit adjusts when you file your tax return. If you earned more than you expected, you may repay some or all of the credit. If you earned less, you may receive additional money back.

Cost-Sharing Reductions and Silver Plans

The Cost-Sharing Reduction is a separate benefit that only works if you choose a Silver plan and your income is below 250 percent of the federal poverty line. This credit lowers your deductible (the amount you pay before insurance kicks in), your copays (fixed amounts per visit), and your coinsurance (your percentage of the cost after you meet the deductible).

The reduction comes in three levels. If your income is below 150 percent of poverty, you get the largest reduction—your deductible might drop from $3,500 to $500, and your copays might drop from $40 to $10. If your income is between 150 and 200 percent of poverty, you get a moderate reduction. If your income is between 200 and 250 percent of poverty, you get a smaller reduction. Bronze, Gold, and Platinum plans do not may have access to for this reduction, even if you receive the Premium Tax Credit.

You do not explore for the Cost-Sharing Reduction separately. When you sign up on Healthcare.gov and report your income, the system automatically determines whether you may have access to and shows you the reduced costs for Silver plans in your area.

Reconciling Your Credit at Tax Time

Throughout the year, the Premium Tax Credit reduces your monthly bill based on your expected income. When you file your tax return, you reconcile—meaning you compare what you actually earned to what you reported. This happens on Form 8962, which you attach to your tax return.

If you earned less than you expected, you likely received less credit than you should have. The IRS sends you the difference as a refund or applies it to taxes you owe. If you earned more than you expected, you likely received more credit than you should have. You repay the difference when you file, though there are limits on how much you must repay if your income rose unexpectedly. For 2024, if your income increased by less than $200 per person in your household, you do not repay anything.

You must file a tax return to reconcile the credit, even if you do not normally file. If you do not file, the IRS may reduce your credit in future years or contact you about the overpayment. Keep your Form 1095-B (the form your insurance company sends showing you had coverage) and any notices from Healthcare.gov about your credit amount.

Reporting Changes During the Year

If your income, household size, or address changes during the year, you can update your information on Healthcare.gov. Changes that trigger a credit adjustment include a job loss, a significant income increase or decrease, marriage, divorce, birth, or adoption. You have 60 days from the date of the change to report it.

When you report a change, Healthcare.gov recalculates your credit for the rest of the year. If your income dropped, your credit increases, and your monthly bill goes down. If your income rose, your credit decreases, and your monthly bill goes up. If your household size increased (a new baby, for example), your credit usually increases because the applicable percentage is lower for larger households.

If you do not report a change and your actual income ends up being significantly different from what you reported, you will reconcile the difference on your tax return. Reporting changes as they happen keeps your monthly bill accurate and reduces surprises at tax time.

When You Do Not Receive the Credit

You cannot receive the Premium Tax Credit if your income is below 100 percent of the federal poverty line (unless you live in a state that expanded Medicaid, in which case you may be directed to Medicaid instead). You also cannot receive it if you have access to affordable employer coverage—meaning your employer offers health insurance and the employee premium (what you pay, not what the employer pays) is less than 8.39 percent of your household income for 2024.

If your employer offers coverage, Healthcare.gov will ask whether you have access to it. If you do and the premium is affordable, you are not may be able to access for the credit even if the employer plan is poor quality or has a high deductible. Some people in this situation choose to buy marketplace insurance anyway and pay the full price without a credit.

You also lose the credit if you are incarcerated, are not a U.S. citizen or national, or do not have a valid Social Security number. If you are undocumented, you cannot receive the credit, though you can still buy unsubsidized insurance on the marketplace.

Frequently Asked Questions

What happens if I get a job mid-year and my income goes up?

Report the income change to Healthcare.gov within 60 days. Your credit will decrease for the rest of the year, and your monthly bill will go up. When you file your tax return, you will reconcile based on your actual annual income. If the increase was less than $200 per person, you do not repay any credit you received earlier in the year.

Can I use the tax credit with a Bronze or Gold plan?

Yes, the Premium Tax Credit works with any plan level. However, the Cost-Sharing Reduction (which lowers deductibles and copays) only works with Silver plans. If you choose Bronze or Gold, you get the Premium Tax Credit but not the Cost-Sharing Reduction.

Do I have to use the credit to reduce my monthly bill, or can I claim it on my taxes instead?

You can do either. Most people let the credit reduce their monthly payment. If you do not use it during the year, you can claim the full amount on your tax return when you file. However, if you do not use it and do not claim it on your return, you lose it.

What if my income is too high for the credit but I still cannot afford insurance?

If your income is above 400 percent of poverty, you do not receive a credit. You can still buy insurance on the marketplace and pay the full price, or you can explore short-term plans or other coverage options outside the marketplace. Some states offer their own information programs for people above the federal threshold.

Do I need to repay the entire credit if I earned more than expected?

No. There are limits on repayment. For 2024, if your income increased by less than $200 per person in your household, you repay nothing. If it increased by more, you repay a portion, with caps based on your household income. The IRS calculates this on Form 8962 when you file your return.