The ACA tax credit reduces what you pay for health insurance by lowering your monthly premium
The Advanced Premium Tax Credit (APTC) is money the federal government sends directly to your insurance company each month to cover part of your premium. You do not pay that portion — the credit does. The credit is based on your household income and the cost of the second-cheapest Silver plan in your area.
The credit is "advanced" because you receive it before you file taxes. When you enroll in a plan through Healthcare.gov or your state's marketplace, you tell them your expected income for the year. The marketplace calculates your credit and sends it to your insurer when ready. Your monthly bill is lower by that amount.
At tax time, you reconcile what you received against what you were actually may have access to to. If your income was lower than you estimated, you may be may have access to to a larger credit — and you get the difference as a refund. If your income was higher, you may owe some of the credit back when you file your return.
Key Takeaways
- The tax credit is calculated based on your household income and the cost of the second-cheapest Silver plan available in your zip code.
- You receive the credit monthly as a reduction in your insurance bill, not as a lump sum at tax time.
- You must report your expected income when you enroll; if your actual income differs, you settle the difference on your tax return.
- The credit phases out as income rises, meaning higher earners receive smaller credits or none at all.
- You can change your income estimate during the year if your circumstances change, which adjusts your monthly credit.
How income determines your credit amount
The credit is tied to the Federal Poverty Level (FPL) for your household size. The government sets income thresholds: if you earn between 100% and 400% of the FPL, you are in the range where the credit applies. The exact credit amount depends on where your income falls within that range and the cost of the benchmark plan in your area.
For 2024, 100% of the FPL for a single person is about $15,000 per year. For a family of four, it is about $31,000. At 400% of the FPL, a single person earns roughly $60,000 and a family of four earns about $123,000. These figures change each year.
The credit is structured so that you are expected to pay a percentage of your income toward premiums. That percentage increases as your income rises. The credit covers the gap between what you are expected to pay and the actual cost of the benchmark plan. If the benchmark plan costs more than your expected contribution, the credit makes up the difference. If it costs less, the credit is smaller.
What happens if your income changes during the year
You do not have to wait until tax time to update your income. If you experience a major life change — a job loss, a raise, marriage, divorce, or a child born — you can report the change to the marketplace. The marketplace will recalculate your credit and adjust your monthly bill starting the next month.
Reporting changes quickly matters because it keeps your credit aligned with reality. If you do not report a raise and your actual income ends up higher than you estimated, you will owe back a portion of the credit when you file taxes. If you do not report a job loss and your income drops, you are paying more each month than you should.
You can update your income estimate through Healthcare.gov or your state marketplace portal. You will need to provide documentation of the change — a pay stub, a termination letter, or a birth certificate, depending on what changed.
Reconciling the credit on your tax return
When you file your federal income tax return, you report the total amount of tax credits you received during the year. The IRS compares that to the amount you were may have access to to based on your actual income. Form 8962, Premium Tax Credit, is where this reconciliation happens.
If you received more credit than you were may have access to to, you owe the difference back. The amount owed is subtracted from your refund or added to the taxes you owe. If you received less credit than you were may have access to to, the difference is added to your refund.
The reconciliation can work in your favor. If your income was lower than expected, you may receive a larger refund because the credit was calculated conservatively. If your income was higher, you may owe back some of the credit. Either way, the tax return is where the final accounting happens.
The difference between the tax credit and cost-sharing reductions
The tax credit and cost-sharing reductions (CSR) are separate programs that work together. The tax credit lowers your monthly premium. Cost-sharing reductions lower your deductible, copays, and coinsurance — the out-of-pocket costs when you actually use care.
Cost-sharing reductions are only available if you enroll in a Silver plan and your income is below 250% of the FPL. You do not explore for CSR separately; the marketplace automatically enrolls you if you are may be able to access. The reductions are applied to your plan at no extra cost.
Both programs use income to determine may be able to access, but they work on different parts of your costs. The credit reduces what you pay upfront each month. The reductions lower what you pay when you go to the doctor or fill a prescription.
What to do if you think your credit is wrong
If your monthly bill does not match what you expected based on your income, contact the marketplace first. Log into your Healthcare.gov account or your state marketplace and review your process. Check that your household size, income, and family situation are recorded correctly.
Common errors include listing the wrong household size, forgetting to report a dependent, or entering income incorrectly. If you spot an error, update it when ready. The marketplace will recalculate your credit and send you a new bill.
If the information is correct but the credit still seems wrong, contact the marketplace customer service line. Healthcare.gov's number is 1-800-318-2596. State marketplaces have their own phone numbers, which you can find on your state's health insurance website. Have your Social Security number, income documentation, and current insurance information ready when you call.
How the credit affects your taxes if you are self-employed
Self-employed people report income on Schedule C and pay self-employment tax. Your net self-employment income (after business expenses and the self-employment tax deduction) is what counts toward the credit calculation. The marketplace asks for your expected income for the year; use your prior-year tax return as a guide if you are unsure.
If your business income fluctuates, update the marketplace when you have a clearer picture. This prevents a large reconciliation at tax time. When you file your return, Form 8962 reconciles the credit against your actual net self-employment income, just as it does for W-2 employees.
Frequently Asked Questions
Can I get the tax credit if I am covered by my employer's health plan?
No. If your employer offers coverage and it is considered affordable (the employee premium is less than about 8.5% of household income), you are not may have access to to the credit. The marketplace will ask whether you have access to employer coverage and will deny the credit if you do.
What if I do not file taxes — do I still get the credit?
You can receive the credit monthly without filing taxes. However, you must reconcile it on a tax return to keep the credit in future years. If you do not reconcile, the marketplace may stop your credit the following year. Even if you owe no taxes, filing a return to reconcile the credit is necessary.
Does the credit count as income on my taxes?
No. The tax credit is not counted as taxable income. It does not affect your adjusted gross income or your tax bracket. It is a credit applied after your tax liability is calculated, so it reduces what you owe without increasing your income.
What happens to my credit if I move to a different state?
You must report the move to the marketplace. Your credit will be recalculated based on the benchmark plan cost in your new location and your new address. The credit amount may increase or decrease depending on plan costs in the new area. Update your address as soon as you know your move date.
Can I choose a plan that costs less than the benchmark and keep the difference?
No. The credit is applied to whatever plan you choose, but it is calculated based on the benchmark plan. If you choose a cheaper plan, your bill is lower, but you do not receive the difference as cash. If you choose a more expensive plan, you pay the difference out of pocket.