Health Care Premium Tax Credit


The premium tax credit (PTC) makes health insurance more affordable by helping eligible individuals and their families pay premiums for coverage purchased through the Health Insurance Marketplace (also called an Exchange).

There are two ways to get the credit. If you qualify for advance payments of the premium tax credit (APTC), you can choose to have amounts paid directly to the insurance provider to help cover your monthly premiums. You can also choose to get all of the benefit when you claim the PTC on your tax return.

How does the premium tax credit work? have the benefit paid to the insurance company or get the full benefit when you file your taxes.

Download the Premium Tax Credit fact sheet

In order to make the PTC work for you, it’s important you understand the benefits and responsibilities of both situations. See What should I do? for more details. 

Your Premium Tax Credit may change if your income or family size changes during the year. To see how much these changes can affect your credit, try the Premium Tax Credit Change Estimator.

Premium Tax Credit Change Estimator
Helps you estimate how your premium tax credit will change if your income or family size changes during the year.

Determine if you are eligible to claim the Premium Tax Credit (PTC)

To be allowed PTC for a taxable year, you must meet 1 and 2 below:

  1. For one or more months during the year, you or a family member (spouse or dependent) must enroll in a qualified health plan through the Marketplace, must not be eligible for coverage through an employer plan or government sponsored coverage; and must pay qualified health plan premiums by the due date (either by paying directly, or through advance credit payments).

  2. You must be an applicable taxpayer, which is someone who:
    • Has household income between 100% and 400% of the federal poverty line (FPL) for your family size (there are exceptions for certain taxpayers below 100 % of the FPL – see IRS Publication 5187, Healthcare Law: What’s New for Individuals and Families for details).
    • Married, filing a joint tax return, unless you meet criteria that allow certain victims of domestic abuse and spousal abandonment to claim a PTC using the married filing separately fling status.
    • Cannot be claimed as a dependent by another person.

Decide if you want to receive advance payments of the premium tax credit OR get all of the credit when you file your return

If you enroll in coverage through a Marketplace and request financial assistance, the Marketplace will calculate your estimated premium tax credit, using an estimate of all of your household income and other information such as your address, your family size, and who in your family can enroll in non-Marketplace insurance.

At that point, you can choose advance payments of the premium tax credit – where all or part of the estimated premium tax credit is paid to your insurance company, which reduces your monthly premiums — or you can choose to pay all of the premiums, and get all of the benefit of the PTC when you file your tax return.

Advance Payments of the Premium Tax Credit

If you choose advance payments of the premium tax credit (APTC), the Marketplace pays your estimated credit directly to your insurer for you, reducing your monthly premium.

When you file your tax return at the end of the year, you’ll compare the amount of your estimated PTC the Marketplace paid out for the year to the amount of PTC you are allowed. The PTC you’re allowed is based on your actual household income, family size, address, and who in your family is eligible to enroll in non-Marketplace coverage. You will enter these amounts on IRS Form 8962, Premium Tax Credit (PTC), which you file with your tax return. If there is a difference, your tax bill or refund may change.

This end-of-year reconciliation of the advanced premium tax credit and the actual credit is why it is important for you to promptly report any changes in circumstance to your Marketplace (see How will this affect me, below).

Premium Tax Credit on Your Tax Return

If you choose to forego APTC, you will get all of the benefit of the PTC when you file your tax return. In that case, your entire credit will either reduce the tax you owe, or result in or add to a refund.

You may want to forego APTC if you can pay your full monthly premium and your income varies widely during the year or you expect to receive some sort of large lump sum payment later in the tax year. This would keep you from having to contact the Marketplace to recalculate your advance credit during the year or possibly repay advanced amounts.

File a tax return

If you receive the premium tax credit, you must file a tax return.

You should wait to file your tax return until after you receive a Health Insurance Marketplace Statement (Form 1095-A) in the mail – probably in early February. It will come from your marketplace, not from the IRS.

If you do not receive the Form 1095-A or the information on it is incorrect, you must contact your marketplace. If you don’t have that contact information, it is available on IRS.gov.

The form will have all the information you need to file IRS Form 8962, Premium Tax Credit (PTC), including the amount of any advance payments of the premium tax credit that were paid to your health plan in 2014. You will need to complete Form 8962 and file it with your regular tax return.

Note: From 1040EZ cannot be used to claim or reconcile the premium tax credit.

If you get APTC, you must file a tax return at the end of the year, even if you don’t have to file one otherwise.

Reconciling APTC and PTC at the end of the year

The PTC is unusual because, unlike other credits, you may be eligible for advance payments of the estimated PTC during the course of the year. But remember, those advance payments are only an ESTIMATE of your PTC, based on information like your projected household income and family size. If your actual household income or family size is different from the projected amount, the PTC you’re allowed will be more or less than your APTC. 

  • If your actual PTC is more than the APTC payments made for you to your insurer, the difference will reduce the tax you owe with the return, resulting in or increasing your tax refund.
  • If the actual PTC is less than the APTC payments made for you to your insurer, it will increase your tax liability by all or part of the difference. This will increase the amount you owe or reduce your refund when you file your tax return.

If you’re receiving the benefit of APTC, it is important to notify your Marketplace (not the IRS) if you have a change in circumstance. Providing the Marketplace with up-to-date information will reduce the chance that your APTC is significantly more or less than the PTC amount you’re allowed.

Changes in Circumstances

Changes to income or family size are often called changes in circumstances. If the advance credit is paid for you or a family member and you have a change in circumstances, you should promptly report it to your Marketplace, so the Marketplace can adjust your APTC. This will help prevent large differences between your APTC and the PTC you are allowed and reduce the chance that you will owe money or get a smaller refund when you file your tax return.

Changes in circumstances to report to the Marketplace include:

  • Changes in household income (including lump sum distributions from social security, retirement accounts, etc.)
  • Marriage or divorce
  • The birth or adoption of a child
  • You or another enrolled family member starting a job with health insurance
  • You or another enrolled family member gaining or losing eligibility for non-Marketplace health care coverage
  • Changing your residence

For example, if you get a new job with a higher salary, the increase in household income means the PTC you are allowed goes down. If you don’t tell the Marketplace about the increase in household income, your APTC, which was computed based on your household income before the salary increase, will likely be more than the PTC you are allowed. When you file your tax return, you must increase your tax liability by some or all of the difference, which will either reduce your refund or increase the amount of tax you owe with the return.

If your spouse decides to go from full-time work to part-time and your family’s household income goes down, you may qualify for a larger PTC. If you report the change to the Marketplace, you may be able to increase your monthly APTC to help pay your monthly premiums.

If you want to see how a change of circumstance might affect your PTC, you can use the PTC Change Estimator. But remember – contact your Marketplace to report a change of circumstances.

If you end up owing money when you file your tax return, it can be paid electronically at IRS.gov. If you can’t pay what you owe, there are other options.

Premium Tax Credit Change Estimator

IRS.gov Interactive Tax Assistant - Am I eligible to claim the Premium Tax Credit?

IRS.gov - Affordable Care Act resources

IRS.gov - Premium Tax Credit Questions and Answers

Healthcare.gov – Taxes

IRS Publication 974, Premium Tax Credit

IRS Publication 5187, Healthcare Law: What’s New for Individuals and Families

IRS Publication 5120: Your Credit, Your Choice – Get it Now or Get it Later

IRS Publication 5120 SP, Hechos sobre el Crédito Tributario de Prima

IRS Form 8962, Premium Tax Credit

IRS Video IRS Commissioner: Premium Tax Credit - Changes in Circumstance

IRS Podcast - Premium Tax Credit (MP3) English | Spanish

IRS Podcast - Premium Tax Credit Changes in Circumstances – Introduction (MP3) English |  Spanish

IRS Video - Premium Tax Credit: English | Spanish | ASL

IRS Video - Premium Tax Credit: Change in Circumstances: English | ASL

The right to challenge the IRS’s position and be heard. If you think the IRS is not using your correct household income or family size, you can submit documentation to prove that you are correct.

The right to pay no more than the correct amount of tax

The right to confidentiality, which limits what information the marketplaces and the IRS can share.

The right to a fair and just tax system, which means you may be able to request the IRS remove some penalties that are caused by the government’s errors.

Have a different tax issue?  Browse common issues and situations at Get Help.

Is your tax problem more complex?  If your issue is causing you financial hardship, you have tried repeatedly and are not receiving a response from the IRS, or you feel your taxpayer rights are being violated, consider contacting TAS.

Do you feel that you need help from a tax professional but can’t afford one? You may be eligible for representation from an attorney, CPA, or enrolled agent associated with a Low Income Taxpayer Clinic.

Last modified December 7, 2015
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