The Advance Premium Tax Credit is money the federal government sends to your health insurance company each month to lower your premium

The Advance Premium Tax Credit (APTC) is a monthly payment from the U.S. Department of Health and Human Services to your health insurance company, not to you. It reduces the amount you pay for your monthly premium before the bill arrives. The credit is "advance" because the government sends it ahead of time, based on an estimate of your yearly income. You do not have to do anything each month to receive it—once you enroll in a plan through the Health Insurance Marketplace, the payment flows automatically.

The credit exists because the Affordable Care Act requires people without employer coverage to have insurance or pay a penalty. For people earning between 100% and 400% of the federal poverty line, the law caps the amount you pay for the second-lowest-cost silver plan at a percentage of your income. The APTC makes up the difference between that capped amount and the full premium price.

Key Takeaways

  • The APTC is a federal payment sent directly to your insurance company each month, reducing your premium before you receive a bill.
  • You must enroll through the Health Insurance Marketplace (Healthcare.gov or your state's exchange) during open enrollment to receive the credit.
  • The amount you receive is based on your estimated household income for the year; if your actual income differs, you may owe money back or receive a refund when you file taxes.
  • You can change your income estimate or plan choice during open enrollment or if you experience a may have access to life event like job loss or marriage.
  • The credit only works if you choose a plan through the Marketplace; employer plans and off-Marketplace plans do not may have access to.

How the credit amount is calculated

When you enroll in a Marketplace plan, you report your household size and expected income for the year. The government uses that income to determine your Federal Poverty Level (FPL) percentage—for example, 200% of FPL or 350% of FPL. Your FPL percentage determines the maximum percentage of your income you are expected to pay toward the second-lowest-cost silver plan in your area.

The government then calculates the difference between that capped amount and the actual premium for the plan you chose. That difference is your APTC. If you choose a plan cheaper than the second-lowest-cost silver plan, you keep the savings. If you choose a more expensive plan, you pay the difference out of pocket.

The credit amount changes if you change your income estimate, household size, or address during the year. You can update your information anytime through your Marketplace account, and the new credit amount takes effect the following month.

What happens at tax time

The APTC is not a tax refund—it is a loan from the federal government against your tax liability. At the end of the year, you must report the total amount of APTC you received on your tax return using Form 8962 (Premium Tax Credit). The IRS then compares what you received to what you were actually may have access to to based on your real income for the year.

If your actual income was lower than you estimated, you received more credit than you should have. You will owe the difference back when you file taxes, though the law limits how much you must repay if your income is below 400% of FPL. If your actual income was higher than you estimated, you may owe back a larger amount or all of it. If your actual income was lower, you may receive a refund of the overpayment.

This is why reporting your income accurately when you enroll matters: a large gap between your estimate and your actual income can mean a surprise bill or a smaller refund than you expected.

Who can receive the APTC

You must meet three conditions. First, your household income must fall between 100% and 400% of the Federal Poverty Level for your household size. Second, you must be a U.S. citizen or national, or a lawfully present immigrant. Third, you cannot be covered by an employer health plan that meets affordability standards, and you cannot be may be able to access for Medicare or Medicaid.

If you are offered health insurance through your job, you are generally not may have access to to the APTC, even if the employer plan is expensive. The law assumes employer coverage is available to you. However, if your employer's plan costs more than a certain percentage of your household income (the affordability threshold), you may be able to decline it and use the APTC instead. You will need to report the employer offer on your Marketplace application.

Enrolling to receive the credit

You must enroll through the Health Insurance Marketplace—either Healthcare.gov (the federal exchange) or your state's exchange if your state runs its own. You cannot receive the APTC if you buy a plan directly from an insurance company or through a broker outside the Marketplace, even if the plan is identical to one sold on the Marketplace.

Open enrollment typically runs from November through January each year, though the exact dates vary. If you miss open enrollment, you can still enroll if you experience a may have access to life event: job loss, marriage, divorce, birth of a child, loss of other coverage, or a change in immigration status. You have 60 days from the event to enroll.

When you apply, you will enter your household income, household size, and citizenship status. The Marketplace will show you your estimated APTC amount and the plans available to you. You choose a plan, and the credit begins the following month.

Changing your income or plan during the year

If your income changes—you lose a job, get a raise, or have a change in household size—you can update your information in your Marketplace account anytime. The new APTC amount takes effect the first day of the following month. You do not need to wait for open enrollment to make changes if your circumstances change.

You can also switch plans during open enrollment. If you switch to a cheaper plan, your APTC may increase. If you switch to a more expensive plan, your APTC may decrease, and you will pay more out of pocket. Some life events also allow you to switch plans outside open enrollment.

What the APTC does not cover

The APTC only reduces your monthly premium—the amount you pay to have the insurance. It does not pay for deductibles, copayments, coinsurance, or out-of-pocket costs when you use care. Those costs depend on the plan you choose and your actual medical use.

The credit also does not apply to plans sold outside the Marketplace, dental or vision plans, or short-term health plans. If you enroll in a plan through your employer or buy directly from an insurer, you receive no federal credit, even if you are otherwise may have access to to one.

Frequently Asked Questions

What if I do not report my actual income at tax time?

The IRS will calculate the difference between your APTC and your actual income. If you received more credit than you were may have access to to, you will owe it back. The IRS can offset your refund or pursue collection. Reporting accurately avoids this.

Can I get the APTC if I have a job that offers health insurance?

Usually no. If your employer offers a plan that meets affordability standards, you are not may have access to to the APTC. However, if the employer plan costs more than a set percentage of your income, you may be able to decline it and use the APTC. Report the employer offer when you apply.

What happens to my APTC if I get married during the year?

Marriage is a may have access to life event. You can update your household size and income in your Marketplace account within 60 days. Your APTC will be recalculated based on your new household size and combined income, effective the following month.

Do I have to repay all the APTC if my income was higher than I estimated?

It depends on your actual income. If your income is below 400% of the Federal Poverty Level, the law limits how much you must repay. The limit ranges from $300 to $2,500 depending on your income. If your income exceeds 400% of FPL, you may owe back the full amount.

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

Yes. Self-employed people can receive the APTC if their household income falls between 100% and 400% of the Federal Poverty Level and they are not covered by an employer plan. Report your expected net self-employment income when you apply.