What the ACA tax credit is

The ACA tax credit (also called the premium tax credit) is money the federal government sends to your insurance company to lower your monthly health insurance bill. You do not claim it after the year ends — it goes directly to your insurer while you are enrolled, reducing what you pay each month. The amount depends on your household income, family size, and the cost of the second-cheapest Silver plan in your area.

The credit is only available if you buy insurance through the Health Insurance Marketplace (Healthcare.gov or your state's marketplace), not through an employer or directly from an insurance company. It phases out as your income rises, meaning higher earners receive smaller credits or none at all.

Key Takeaways

  • The ACA tax credit reduces your monthly insurance premium by sending money directly to your insurer, not by refunding you at tax time.
  • You must buy coverage through the Health Insurance Marketplace to receive the credit; employer plans and off-marketplace plans do not may have access to.
  • The credit amount is based on your expected household income for the year, so you must report changes like job loss or marriage to keep the amount accurate.
  • If your actual income differs from what you reported, you may owe money back at tax time or receive a refund, depending on whether you underestimated or overestimated.
  • You can claim the credit retroactively on your tax return if you did not use it during the year, though the amount may be smaller.

How much credit you receive

The government calculates your credit using a formula that compares your expected income to the cost of the second-cheapest Silver plan available in your county. If the plan costs more than a set percentage of your income (currently 8.5 percent for 2024, though this changes yearly), the credit covers the difference. The lower your income, the larger the credit.

Your household size matters because the income thresholds are different for a single person, a couple, and a family. A family of four at 200 percent of the federal poverty line receives a larger credit than a single person at the same percentage, because the poverty line itself is higher for larger households.

The credit is capped at the cost of the second-cheapest Silver plan in your area. If you choose a cheaper Bronze plan, you pay the difference yourself. If you choose a more expensive Gold or Platinum plan, you also pay the difference — the credit does not increase.

Income limits and how they work

There is no hard income cutoff for the ACA tax credit. Instead, the credit amount decreases as your income rises. At very high incomes, the credit becomes zero, but there is no specific income level where you suddenly become ineligible.

The credit is based on your expected household income for the year you are enrolling. If you expect to earn $35,000 in 2024, you report that figure when you sign up. If your actual income turns out to be $40,000, you will owe back part of the credit at tax time. If it turns out to be $30,000, you may receive a refund or a larger credit going forward.

You must report major income changes — like losing a job, getting married, or having a child — to the Marketplace within 30 days. Failing to report changes can result in owing back a larger amount at tax time.

Reconciliation at tax time

At the end of the year, you file your taxes and report your actual income. The IRS compares what you received in credits during the year to what you were actually may have access to to based on your real income. This process is called reconciliation.

If you received more credit than you were may have access to to (because your actual income was higher than you expected), you owe the difference back when you file. The amount owed is capped — for 2024, single filers owe back no more than $650, and families owe back no more than $1,300 — but only if your income was below 400 percent of the federal poverty line. Above that threshold, you owe back the full amount.

If you received less credit than you were may have access to to (because your actual income was lower than you expected), you receive the difference as a refund or credit against other taxes owed.

Claiming the credit if you did not use it during the year

If you bought insurance off the Marketplace or through an employer, you did not receive the credit during the year. You can still claim it on your tax return if you meet the income requirements. However, the amount will be calculated based on the second-cheapest Silver plan in your area, and you will have to pay the full premium yourself upfront — the credit only reimburses you through your tax refund.

This route is less common because most people prefer to receive the credit monthly rather than wait for a tax refund. It is mainly useful if you did not know you were may have access to to the credit or if you bought coverage before the Marketplace opened.

What changes require you to update your information

The Marketplace uses your reported income to calculate your credit. If your situation changes, you must report it so your credit stays accurate. Major changes include losing or gaining a job, getting married or divorced, having a baby, moving to a different state, or a significant change in self-employment income.

You have 30 days to report changes. If you do not report them, you may receive too much or too little credit, and you will have to settle the difference at tax time. Some changes, like losing employer coverage, also open a special enrollment period that lets you sign up outside the normal enrollment season.

Frequently Asked Questions

Can I get the ACA tax credit if I have employer health insurance?

No. The credit is only for people who buy through the Health Insurance Marketplace. If your employer offers coverage, you are generally not may be able to access, even if the employer plan is expensive or has a high deductible. There is a narrow exception if the employer plan costs more than 9.12 percent of your household income (for 2024) — you may be able to turn it down and use the Marketplace instead.

What happens if I underestimate my income when I sign up?

If your actual income is higher than you reported, you will owe back part of the credit at tax time. The amount owed is capped at $650 for individuals and $1,300 for families if your income is below 400 percent of the federal poverty line. Above that, you owe back the full difference with no cap.

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

Yes. Self-employed people report their expected net income (after business expenses) when they sign up. If your income varies month to month, estimate your total for the year. Report changes to the Marketplace if your income drops significantly during the year.

Do I have to claim the credit, or can I turn it down?

You can turn it down. Some people decline the credit if they expect their income to be higher than they reported, to avoid owing money back at tax time. You can also reduce the amount of credit you receive each month and pocket the difference, though this means paying a higher premium.

What if I move to a different state?

You must report the move to the Marketplace. Your credit amount may change because the cost of the second-cheapest Silver plan is different in each state and county. You may also need to switch to a new insurance plan if your current plan does not operate in your new state.