The ACA tax credit lowers what you pay for health insurance by reducing your monthly premium

The Advanced Premium Tax Credit (APTC), commonly called the ACA tax credit, is money the federal government sends directly to your insurance company each month to pay part of your premium. You do not receive it as a refund or a check—it works like a subsidy that shrinks your bill before you see it.

The credit is based on your household income and the cost of the second-cheapest Silver plan in your area. If you earn between 100% and 400% of the federal poverty line, you may receive a credit. The government estimates what you will earn this year, calculates how much of your premium you should pay based on that income, and sends the rest to your insurer. If your actual income turns out to be different when you file taxes, you settle the difference on your tax return.

Key Takeaways

  • The ACA tax credit is sent to your insurance company monthly, not to you, and it reduces your premium before you pay your share.
  • The credit amount depends on your household income and the cost of the second-cheapest Silver plan available in your county.
  • You estimate your income when you enroll, and if your actual income differs, you report the difference when you file taxes the following year.
  • If you receive too much credit during the year, you repay the overage on your tax return; if you receive too little, you get a refund.
  • You must enroll through Healthcare.gov or your state's marketplace to receive the credit—private insurance bought outside the marketplace does not may have access to.

How the credit amount is calculated

The government uses a formula that compares two numbers: your expected household income and the cost of the second-cheapest Silver plan in your county. The second-cheapest Silver plan is called the benchmark plan, and it anchors the entire calculation.

First, the government determines what percentage of your income you are expected to contribute to health insurance. This percentage changes based on your income level and is set by law each year. For 2024, a single person earning 200% of the federal poverty line is expected to contribute roughly 6.5% of their income to premiums. Someone earning 300% of the poverty line is expected to contribute roughly 8.5%. The higher your income, the higher the percentage.

Next, the government calculates your expected contribution in dollars. If you earn $35,000 per year and are expected to contribute 6.5%, your expected contribution is about $2,275 per year, or roughly $190 per month. If the benchmark Silver plan costs $400 per month, the credit would be $210 per month ($400 minus $190).

The credit applies to any plan you choose, not just the Silver plan. If you pick a cheaper Bronze plan, you pay less out of pocket but the credit stays the same. If you pick a more expensive Gold or Platinum plan, you pay the difference between the credit and the actual premium.

What happens when your income changes during the year

When you enroll in a marketplace plan, you report your expected household income for that year. The credit is calculated based on that estimate. If your income stays close to what you predicted, the credit will be roughly correct. But if your income rises or falls significantly, a mismatch occurs.

You can update your income information at any time during the year through Healthcare.gov or your state marketplace. If you get a raise, a new job, or lose income, reporting the change when ready adjusts your credit going forward. This prevents you from receiving too much or too little credit by year's end.

If you do not update your income and your actual income turns out to be higher than you reported, you will have received more credit than you were may have access to to. When you file your tax return, you must repay the overage. The repayment amount depends on how much higher your income was and how much credit you received. There is a cap on how much you have to repay if your income is below 400% of the poverty line, but the cap is smaller for lower incomes.

If your actual income is lower than you reported, you will have received less credit than you were may have access to to. Your tax return will show a refund of the difference.

Where to enroll and receive the credit

The ACA tax credit is only available when you enroll through Healthcare.gov (the federal marketplace) or your state's health insurance marketplace. States that run their own marketplaces include California, Colorado, Connecticut, Delaware, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington.

If you buy health insurance directly from an insurance company's website or through a broker outside the marketplace, you do not receive the tax credit, even if you would otherwise be may have access to to it. The marketplace enrollment process asks about your income and household size, calculates your credit, and applies it to your account automatically.

Open enrollment typically runs from November 1 through January 15 each year. If you lose coverage due to a job change, move to a new state, get married, or have a child, you may be able to enroll outside open enrollment through a Special Enrollment Period. You have 60 days from the may have access to event to enroll.

How the credit affects your tax return

When you file your federal income tax return, you report the total amount of ACA tax credit you received during the year. The IRS compares this to the amount you were actually may have access to to based on your final income for that year. Form 8962, the Premium Tax Credit Reconciliation form, is where this calculation happens.

If you received more credit than you were may have access to to, you repay the overage. For 2024, if your income is below 400% of the federal poverty line, there is a cap on the repayment amount—meaning you do not have to repay the full overage. The cap ranges from $650 to $2,700 depending on your income level, but it applies only if your income is below 400% of the poverty line. If your income exceeds 400% of the poverty line, you repay the full overage with no cap.

If you received less credit than you were may have access to to, the IRS sends you a refund for the difference. This refund is separate from any other refund you might receive.

Income limits and who can receive the credit

To receive the ACA tax credit, your household income must fall between 100% and 400% of the federal poverty line. The poverty line changes each year. For 2024, 100% of the poverty line for a single person is about $14,600 per year; for a family of four, it is about $30,000 per year.

If your income is below 100% of the poverty line, you do not may have access to for the credit through the marketplace. You may be may be able to access for Medicaid instead, depending on your state. If your income exceeds 400% of the poverty line, you do not receive the credit, though you can still enroll in a marketplace plan and pay the full premium.

Household income includes wages, self-employment income, investment income, and certain other sources. It does not include some types of income, such as certain tribal payments or certain veterans' benefits. When you enroll, you report your expected household income for the current year.

What to do if you think your credit is wrong

If your monthly premium seems too high or too low compared to what you expected, check your enrollment record on Healthcare.gov or your state marketplace. Your account shows the credit amount, the benchmark plan cost, and your expected income. Verify that the income you reported is accurate.

If the income is wrong, update it when ready. This changes your credit going forward. If the income is correct but the credit still seems off, contact your marketplace directly. Healthcare.gov has a phone line at 1-800-318-2596. State marketplaces have their own contact information, usually found on their websites.

If you discover the error after the year has ended, you can still correct it when you file your tax return. Bring documentation of your actual income—pay stubs, tax documents, or other proof—to your tax preparer or use it when filing yourself.

Frequently Asked Questions

Can I get the ACA tax credit if I have insurance through my job?

No. If your employer offers health insurance and you are may be able to access for it, you cannot receive the ACA tax credit for a marketplace plan. However, if your employer's plan is unaffordable (costs more than about 8.5% of your household income) or does not cover at least 60% of medical costs, you may be able to decline it and enroll in a marketplace plan with a credit.

What if I earn too much to get the credit?

If your income exceeds 400% of the federal poverty line, you do not receive a credit. You can still enroll in a marketplace plan, but you pay the full premium yourself. Some people in this situation choose to buy insurance outside the marketplace or go without coverage.

Do I have to repay the entire credit if my income goes up?

Not necessarily. If your income stays below 400% of the federal poverty line, there is a cap on how much you repay. For 2024, the cap ranges from $650 to $2,700 depending on your income. If your income exceeds 400% of the poverty line, you repay the full overage with no cap.

What happens if I do not report a change in income?

If you do not report an income increase, you will have received more credit than you were may have access to to. You will have to repay the overage on your tax return. If you report the change promptly, your credit adjusts going forward and you avoid a large repayment later.

Can I receive the credit if I am self-employed?

Yes. Self-employment income counts toward your household income for credit purposes. When you enroll, report your expected self-employment income for the year. If your actual income differs, you settle it on your tax return.