What the ACA Tax Credit Does

The Affordable Care Act tax credit (also called the premium tax credit) lowers what you pay for health insurance each month. It works by reducing your monthly premium — the amount you send to your insurance company — based on your household income and family size. The credit is calculated by the government, sent directly to your insurer, and you see the benefit when ready when you enroll in a plan.

The credit is not a refund you claim at tax time. Instead, it functions as an advance payment: the government estimates what you should receive based on your expected income for the year, and that amount is applied to your premiums starting the month your coverage begins. At tax time the following year, you reconcile what you actually received against what you were may have access to to receive based on your actual income.

Key Takeaways

  • The tax credit reduces your monthly insurance premium directly, not through a tax refund, based on your household income and family size.
  • Your income must fall between 100% and 400% of the federal poverty line to receive the credit, though some states have different rules for Medicaid.
  • You report your expected income when you enroll, and the government sends the credit to your insurer each month to lower your bill.
  • If your actual income at year-end differs from what you reported, you may owe money back or receive a refund when you file taxes.
  • You must enroll through Healthcare.gov or your state's health insurance marketplace to receive the credit — plans bought directly from insurers do not may have access to.

Income Limits and How Much You Receive

Your household income determines both whether you can receive the credit and how much it will be. The credit is available to individuals and families whose income falls 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 roughly $14,600 annually, and for a family of four it is roughly $30,000. These figures increase slightly each year.

The credit amount is calculated so that your share of the premium for the second-lowest-cost silver plan in your area does not exceed a percentage of your income. That percentage increases with income: someone at 150% of poverty pays roughly 0% of their income toward premiums, while someone at 400% of poverty pays roughly 8.5%. If a plan costs less than your calculated share, you pay the full premium. If it costs more, the credit covers the difference.

You can use the credit toward any metal level plan (bronze, silver, gold, or platinum), not just silver plans. However, the credit amount is always based on the silver plan price, so choosing a cheaper bronze plan means you pay less out of pocket, while choosing a more expensive gold or platinum plan means you pay more.

Where to Enroll and How to Report Your Income

You must enroll through Healthcare.gov (or your state's marketplace if your state runs its own) to receive the tax credit. Plans purchased directly from an insurance company, through a broker, or through any other channel do not may have access to for the credit. When you create an account and start your process, you will enter your expected household income for the year ahead.

Household income includes wages, self-employment income, Social Security, unemployment benefits, and other sources. It does not include certain items like child support received or Supplemental Security Income. If your income varies or you are unsure, estimate as accurately as you can — you can update your income information at any time during the year if your circumstances change (a job loss, a raise, marriage, or divorce).

Once you submit your process, the marketplace verifies your income against tax records and other data sources. If your income is confirmed, your credit amount is calculated and you see it displayed as a reduction on your monthly premium when you select a plan. The credit is sent to your insurer automatically each month.

What Happens at Tax Time

When you file your federal income tax return the following year, you report the total credit you received during the year and compare it to the total credit you were may have access to to based on your actual income. This reconciliation happens on Form 8962, which you file with your tax return.

If you received more credit than you were may have access to to — because your actual income was higher than you estimated — you must repay the excess. The amount you repay is subtracted from your tax refund or added to the taxes you owe. If you received less credit than you were may have access to to — because your actual income was lower than you estimated — you receive the difference as part of your tax refund.

To reduce the risk of owing money at tax time, update your income information in the marketplace whenever your circumstances change. If you expect a significant income change, contact the marketplace to adjust your estimated income so the credit amount stays as close as possible to what you will actually be may have access to to.

Income Changes During the Year

Life changes happen: you get a new job, lose a job, get married, have a child, or experience other shifts in income. When these events occur, you can report the change to the marketplace and your credit amount will be recalculated. The marketplace considers these "may have access to life events" and allows you to update your process outside the annual open enrollment period.

Common may have access to events include losing health coverage, getting married or divorced, having a baby, adopting a child, moving to a new state, and significant changes in income or household size. When you report a change, the marketplace recalculates your credit based on your new expected income, and the new amount takes effect the following month.

If you do not report a change and your income rises significantly, you may receive more credit than you are may have access to to and will owe it back at tax time. If your income drops and you do not report it, you may miss out on a larger credit. Updating your information keeps your monthly payments and your tax situation aligned.

The Difference Between the Tax Credit and Cost-Sharing Reductions

The tax credit and cost-sharing reductions are two separate programs that work together. The tax credit lowers your monthly premium. Cost-sharing reductions lower your deductible, copayments, and coinsurance — the amounts you pay when you actually use health care.

Cost-sharing reductions are only available if you enroll in a silver plan and your household income is below 250% of the poverty line. You do not explore for cost-sharing reductions separately; if you are may be able to access, the marketplace will show you which silver plans include them. The reductions are applied automatically when you enroll in a may have access to silver plan.

You can use the tax credit with any metal level plan, but cost-sharing reductions only work with silver plans. Some people choose a silver plan specifically to access both the tax credit and cost-sharing reductions, while others choose a different metal level and use only the tax credit.

Common Mistakes to Avoid

The most frequent error is not updating your income when it changes. If you get a raise or start a new job, report it to the marketplace. If you lose income, report that too. Waiting until tax time to reconcile a large difference can result in owing a significant amount back to the government.

Another mistake is buying a plan outside the marketplace. Insurance sold directly by a company, through a broker, or on the private market does not may have access to for the tax credit, even if you would be may have access to to one. Always enroll through Healthcare.gov or your state marketplace.

Some people also confuse the tax credit with Medicaid. Medicaid is a separate program for lower-income individuals and families, and may be able to access varies by state. The tax credit is for people whose income is too high for Medicaid but still qualifies them for help paying for marketplace insurance. If you are told you do not may have access to for Medicaid, you may still may have access to for the tax credit.

Frequently Asked Questions

What if my income is above 400% of the poverty line?

You do not receive the tax credit if your income exceeds 400% of the poverty line. You can still buy a plan through the marketplace or directly from an insurance company, but you will pay the full premium without any credit. Some states have programs that help people above this income level, so check your state's health department website.

Can I get the tax credit if I am self-employed?

Yes. Self-employment income counts toward your household income for purposes of the tax credit. You report your net self-employment income (income minus business expenses) when you explore. If your income fluctuates, estimate as accurately as you can and update the marketplace if your circumstances change significantly.

What happens if I do not file taxes?

You are still required to reconcile the tax credit you received on Form 8962 when you file your return, even if you normally would not file. If you received more credit than you were may have access to to, you will owe it back. If you do not file, the IRS may contact you about the discrepancy.

Can I use the tax credit with a spouse's employer plan?

No. If your spouse has access to an affordable employer health plan, you are generally not may have access to to the tax credit, even if you do not enroll in that plan. "Affordable" means the employee premium does not exceed roughly 8.5% of household income. If the employer plan is not affordable, you may be may have access to to the credit.

What if I move to a different state?

Moving to a new state is a may have access to life event. You can update your process in the marketplace, and your credit will be recalculated based on the poverty line and plan prices in your new state. If you move mid-year, your coverage may be interrupted, so contact the marketplace as soon as you know your move date.