What the ACA Tax Credit Is

The ACA tax credit (also called the premium tax credit) is money the federal government sends directly to your health insurance company to lower your monthly premium. You do not pay it back at tax time — it reduces what you owe right now, month to month. The credit is available only if you buy insurance through the Health Insurance Marketplace (Healthcare.gov or your state's marketplace) and your household income falls within a certain range.

The credit amount depends on your income, your age, and the cost of the second-cheapest Silver plan in your area. The government calculates how much you should pay based on your income as a percentage of the federal poverty line, then covers the difference between that amount and the actual premium. If your income drops during the year, you can report the change and increase your credit. If it rises, your credit shrinks.

Key Takeaways

  • The ACA tax credit pays your insurance company directly each month, not a refund you receive later.
  • You must buy a plan through the Health Insurance Marketplace to receive the credit; employer plans and off-marketplace plans do not may have access to.
  • Your credit amount changes based on your household income, so reporting income changes during the year can increase or decrease what you receive.
  • At tax time, you reconcile what you received against what you were actually may have access to to, and you may owe money back if your income was higher than you reported.

How Your Income Determines Your Credit Amount

The government uses your modified adjusted gross income (MAGI) to calculate your credit. For most people, MAGI is the same as your adjusted gross income on your tax return. The credit is designed so that your share of the premium does not exceed a percentage of your income — that percentage increases as your income rises. For 2024, a single person earning $23,000 per year would pay roughly 2.5% of their income toward the second-cheapest Silver plan; someone earning $50,000 would pay roughly 8.5%.

The income limits change each year. For 2024, you can receive a credit if your household income is between 100% and 400% of the federal poverty line (roughly $15,000 to $60,000 for a single person, though these numbers vary by family size and are updated annually). If your income is below 100% of the poverty line, you may not be able to receive a credit through the Marketplace, though you might be covered by Medicaid in your state.

You do not have to wait until tax time to use your credit. When you sign up for a plan on the Marketplace, you report your expected income for that year, and the Marketplace calculates your credit when ready. You can choose to have the credit sent to your insurance company each month (which lowers your premium) or keep it and claim it on your tax return.

What Happens at Tax Time

At the end of the year, you report on your tax return (Form 8962) how much credit you actually received during the year and how much you were may have access to to based on your actual income. If you received more credit than you were may have access to to — because your income turned out to be higher than you reported — you owe the difference back when you file. If you received less than you were may have access to to, you get the difference as a refund or credit against other taxes you owe.

This is why reporting income changes during the year matters. If you get a raise or a new job, you can report it to the Marketplace and your credit will shrink, so you do not end up owing a large amount in April. If you lose income, reporting it increases your credit right away. The Marketplace allows you to update your information at any time, not just during the annual open enrollment period.

If your income changes significantly and you do not report it, you could owe back a substantial portion of the credit. The amount you owe back is capped at a certain level if your income is below 400% of the poverty line — for 2024, the cap ranges from $300 to $2,750 depending on your filing status — but you still owe something.

Which Plans may have access to for the Credit

You can use the ACA tax credit only on plans sold through the Health Insurance Marketplace. If you buy insurance directly from an insurance company's website, through a broker, or through your employer, the credit does not explore. The Marketplace is the only place where the credit is automatically calculated and applied to your premium.

You can use the credit on any metal level plan (Bronze, Silver, Gold, or Platinum), but the credit amount is calculated based on the cost of the second-cheapest Silver plan in your area. This means if you choose a Bronze plan (which costs less), your credit stays the same, so your out-of-pocket premium is lower. If you choose a Gold or Platinum plan (which costs more), you pay the difference out of pocket.

Income Changes and Reporting During the Year

Life changes happen — you get hired, laid off, get married, or have a child. Each of these can change your household income and therefore your credit. The Marketplace lets you report these changes outside the annual open enrollment period (November 1 to January 15) through what is called a may have access to life event.

Common may have access to events include losing job-based coverage, getting married or divorced, having a baby, moving to a different state, and changes in income. When you report a change, the Marketplace recalculates your credit and your new amount takes effect the following month. If you do not report a change and your income rises, you will owe back the excess credit at tax time. If your income falls and you do not report it, you miss out on a larger credit you could have received.

You can update your information on Healthcare.gov or your state's marketplace website. You will need to provide documentation of the change (a pay stub for a new job, a termination letter for job loss, a birth certificate for a new child, and so on). The Marketplace reviews the documentation and notifies you of your new credit amount.

Who Cannot Receive the ACA Tax Credit

You cannot receive the credit if your household income is below 100% of the federal poverty line in most states. You also cannot receive it if you have access to affordable employer-sponsored health insurance — the law assumes you should take that coverage instead. "Affordable" means the employee's share of the premium does not exceed a certain percentage of household income (9.12% for 2024).

If you are claimed as a dependent on someone else's tax return, you cannot receive a credit. Non-citizens without a Social Security number or work authorization also cannot receive the credit, though lawful permanent residents and some other immigration statuses do may have access to.

How to Enroll and Receive Your Credit

To receive the ACA tax credit, you must enroll in a plan through the Health Insurance Marketplace during the open enrollment period (November 1 to January 15 each year) or within 60 days of a may have access to life event. Go to Healthcare.gov (or your state's marketplace website if your state runs its own) and create an account.

During enrollment, you will be asked about your household size, income, and current coverage. The Marketplace will calculate your credit based on the information you provide. You can choose to have the credit applied to your monthly premium (which lowers what you pay) or you can decline it and claim the full credit on your tax return later. Most people choose to have it applied monthly because it reduces their out-of-pocket costs right away.

After you enroll, your insurance company will receive the credit payment directly from the government each month. You will see the credit amount listed on your monthly bill as a reduction to your premium.

Frequently Asked Questions

Do I have to pay back the ACA tax credit?

Only if you received more credit than you were may have access to to based on your actual income. If your income was higher than you reported to the Marketplace, you owe back the difference at tax time. If your income was lower, you get the difference as a refund. The amount you owe back is capped if your income is below 400% of the poverty line.

Can I use the ACA tax credit on a plan I buy outside the Marketplace?

No. The credit works only on plans sold through Healthcare.gov or your state's marketplace. If you buy directly from an insurance company or through a broker, the credit does not explore, even if you would otherwise be may have access to to it.

What happens to my credit if I get a raise?

Your credit shrinks. You should report the income change to the Marketplace so your credit is reduced right away and you do not owe money back at tax time. If you do not report it, you will owe back the excess credit when you file your taxes.

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

Only if your employer's plan is not affordable (the employee premium exceeds 9.12% of your household income for 2024) or if you do not have access to it. If your employer offers affordable coverage, you are not may have access to to the credit through the Marketplace.

What if my income is below the poverty line?

You cannot receive the ACA tax credit through the Marketplace. You may be covered by Medicaid in your state instead. Contact your state's Medicaid office or visit Healthcare.gov to learn whether you may have access to.