Health Care Premium Tax Credit

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;
   • 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 percent of the federal poverty line (FPL) for your family size (there are exceptions for certain taxpayers below 100 percent of the FPL – see IRS Publication 5187, Affordable Care Act: What You and Your Family Need to Know, for details).
     • Remember, simply meeting the income requirement does not mean you’re eligible for the premium tax credit. You must also meet the other eligibility criteria.
   • 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. See Instructions for Form 8962 for more information.
   • 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 PTC – 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, as explained below.

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’ll 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 the How will this affect me? section, below).

Premium Tax Credit on Your Tax Return

If you choose to forego advanced payments, you’ll 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 advanced payments, 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, even if you are not otherwise required to file.

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

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 during the tax year. You’ll need to complete IRS Form 8962 and file it with your regular tax return.

Note: Form 8962 can also be claimed on the new IRS form 1040 SR, U.S. Tax Return for Seniors, for taxpayers age 65 and older.

If you get Advanced Premium Tax Credit (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 you provide 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.

Note: IRS Suspends Requirement to Repay Excess Advance Payments of the 2020 Premium Tax Credit

• If you have excess advance payments of the premium tax credit for 2020 (excess APTC), you are not required to report the excess APTC on your 2020 tax return or file Form 8962, Premium Tax Credit.
• If you claim a net Premium Tax Credit for 2020, you must file Form 8962.
• If you already filed a 2020 return and reported excess APTC or made an excess APTC repayment, you don’t need to file an amended return or take any other action.

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’re allowed and reduce the chance that you’ll 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, or any other individual in your household you are eligible to claim as a dependent;
• 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.

*Note – Lump sum distributions such as social security disability insurance (SSDI) are often missed as changes in circumstances. These amounts can be sizable and result in an APTC recipient having to repay large amounts or even all of the APTC paid to an insurer for them. When possible, be sure to consider potential receipt of SSDI or similar income when estimating your household income if you’re electing APTC. In addition, be sure to report receipt of these amounts to the Marketplace as a change in circumstance to help reduce the chance you’ll owe money or get a smaller refund when you file your tax refund.

For example: If you get a new job with a higher salary, the increase in household income means the PTC you’re 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’re 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.

Note: For tax year 2021, any taxpayer who received, or was approved to receive unemployment compensation is treated as an applicable taxpayer and as having household income of no more than 133 percent of the FPL. Taxpayers check a box on Form 8962, line 6 to show they received unemployment compensation.

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

• Affordable Care Act
• Healthcare.gov – Taxes
• Employer Shared Responsibility Estimator
• Small Business Health Care Estimator