What the monthly advance payment of premium tax credit is

The monthly advance payment of premium tax credit (often called the advance premium tax credit or APTC) is money the federal government sends directly to your health insurance company each month to lower your premium. You do not pay the full premium yourself—the government covers part of it upfront, and you pay the rest. This is different from a tax credit you claim later on your tax return; the advance payment reaches your insurer before you ever see a bill.

The amount you receive depends on your household income, family size, and the cost of the second-lowest-cost Silver plan in your area. The government estimates what you will earn this year, calculates how much of the premium you can afford to pay, and sends the difference to your insurer every month. If your actual income turns out to be lower than you estimated, you may have overpaid during the year and will receive a refund when you file taxes. If your income was higher, you may owe some of that money back.

You can only receive the advance payment if you enroll in a health plan through the Health Insurance Marketplace (also called the Exchange) during the open enrollment period or a may have access to life event. Plans sold outside the Marketplace do not may have access to, and neither do plans through your employer.

Key Takeaways

  • The advance payment goes directly to your insurance company each month, reducing the premium you pay out of pocket.
  • The amount is based on your estimated household income for the year and the cost of the second-lowest Silver plan in your area.
  • You must enroll through the Health Insurance Marketplace to receive the advance payment; employer plans and off-Marketplace plans do not may have access to.
  • At tax time, the IRS reconciles what you received against your actual income, and you may owe money back or receive a refund.
  • You can update your income or household size during the year, and the payment amount will adjust in the following month.

How the payment amount is calculated

The federal government uses a formula that compares your expected household income to the federal poverty line for your family size. The law says you should pay no more than a certain percentage of your income toward premiums—this percentage increases each year and varies by age. For 2024, a single person earning 200% of the federal poverty line should pay roughly 2% of their income toward premiums; someone earning 400% of the poverty line should pay roughly 8.5%.

The government then looks at the cost of the second-lowest Silver plan available in your county. If that plan costs $400 per month and you are expected to pay $100 of it based on your income, the advance payment covers the remaining $300. That $300 goes to your insurer every month, and you pay the $100 yourself when you receive your bill.

The exact percentages and poverty-line thresholds change each year, so the amount you receive may shift even if your income stays the same. You can view the current percentages on the Healthcare.gov website or contact your state's Marketplace directly.

When the payment reaches your insurer

The advance payment is typically sent to your insurance company between the 1st and 15th of each month, though the exact date varies by insurer and state. Your insurer then applies that payment to your account and reduces your monthly premium bill accordingly. You should see the reduced amount on your first bill after enrollment.

If you enroll mid-month, the payment for that month may be prorated or delayed until the following month, depending on your insurer's billing cycle. It is worth confirming with your insurer when your first payment will arrive and what your first bill will look like.

The payment continues each month as long as you remain enrolled in your Marketplace plan and your income and household information stay within the bounds of what you reported. If you change plans within the Marketplace, the payment transfers to your new insurer without interruption.

What happens if your income changes during the year

If your income increases or decreases significantly during the year—because you got a new job, lost a job, or had a major life change—you can report the change to your state's Marketplace. You do not have to wait until tax time. When you update your income, the Marketplace recalculates your advance payment, and the new amount takes effect the following month.

If your income rises, your advance payment will decrease, meaning you will pay more out of pocket each month. If your income drops, your advance payment will increase. Some people intentionally report income changes to reduce their monthly costs if they know their earnings will be lower than originally estimated.

You can update your information through your Marketplace account online, by phone, or by mail. The process usually takes a few business days, and you will receive a notice confirming the new payment amount.

Reconciliation at tax time

At the end of the year, you must file a tax return that includes IRS Form 8962, which reconciles the advance payments you received against your actual household income. If you earned less than you estimated, the government overpaid your insurer, and you will receive the difference as a refund on your tax return. If you earned more, you may owe some of that money back when you file.

The amount you owe back is capped based on your filing status and household size. For 2024, single filers earning less than 200% of the federal poverty line owe back no more than $650 if they received too much; those earning 200% to 300% of poverty owe back no more than $1,300. These caps increase each year. Higher-income filers have higher caps or no cap at all.

If you did not file a tax return in previous years but received advance payments, you may still owe money back. The IRS can pursue collection, and you may lose your advance payment may be able to access in future years until the debt is resolved.

Choosing between advance payment and claiming the credit later

When you enroll in a Marketplace plan, you decide how much of your tax credit to take as an advance payment each month. You do not have to take the full amount. Some people choose to take less upfront and claim the remainder when they file taxes, which can be useful if they expect their income to be higher than estimated and want to avoid owing money back.

For example, if you are may have access to to a $200 monthly credit, you could ask the Marketplace to send only $100 to your insurer and claim the other $100 when you file taxes. This reduces your monthly out-of-pocket cost but gives you more control over the reconciliation process. The trade-off is that you pay more each month and must remember to claim the credit on your return.

Most people take the full advance payment because it lowers their monthly bills immediately. But if your income is uncertain or likely to increase, taking a smaller advance can protect you from owing a large amount at tax time.

What to do if you think the payment amount is wrong

If your monthly premium bill does not match what you expected, or if the advance payment seems too low or too high, contact your Marketplace first. Log into your account and check the amount listed under "advance payment" or "tax credit." If it does not match what your insurer is applying, there may be a delay or a processing error.

If the amount is correct in your Marketplace account but your insurer's bill is different, contact your insurance company directly. Sometimes insurers apply the payment late or apply it to the wrong month. Your insurer can explain the discrepancy and correct it if needed.

If you believe your income estimate was wrong when you enrolled, you can update it in your Marketplace account at any time. The new payment amount will take effect the following month. Keep records of any income changes—pay stubs, tax documents, or letters from your employer—in case the IRS questions your reconciliation at tax time.

Frequently Asked Questions

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

No. If your employer offers coverage that meets minimum standards, you are generally not may be able to access for the advance payment, even if the employer plan is expensive or has a high deductible. However, if the employer plan costs more than 8.39% of your household income (for 2024), you may be able to decline it and use the Marketplace instead. You will need to provide proof that the employer plan is unaffordable.

What if I do not file a tax return?

You must file a tax return to reconcile the advance payments you received, even if you normally would not file. If you do not file, the IRS may pursue collection of any overpayment, and you could lose your Marketplace coverage or advance payment in future years. If your income is very low, you may be able to file a return with no tax owed and still reconcile the credit.

Does the advance payment cover my entire premium?

Not usually. The advance payment covers the portion of the second-lowest Silver plan premium that you are not expected to afford based on your income. If you choose a more expensive plan, you pay the difference. If you choose a cheaper plan, you may pay less out of pocket, but the advance payment amount stays the same.

Can I change my advance payment amount mid-year?

Yes. You can log into your Marketplace account and adjust how much of your tax credit you want to take as an advance payment each month. The new amount takes effect the following month. This is useful if your income changes or if you want to reduce your monthly bill by taking more of the credit upfront.

What happens to my advance payment if I switch plans?

If you switch to a different plan within the same Marketplace, your advance payment transfers to the new plan without interruption. If you switch to a plan outside the Marketplace or through an employer, the advance payment stops immediately. You will not receive a refund for the months you were not covered; instead, you reconcile what you received at tax time.