Taxes Tax Credits & Deductions What Is the Advance Premium Tax Credit? By Logan Allec Logan Allec Facebook Twitter Website Logan Allec is a licensed Certified Public Accountant (CPA) and a personal finance expert. He has more than a decade of experience consulting and writing about taxes, tax planning, credit cards, budgeting, and more. Logan also has a master's in taxation from the University of Southern California (USC). learn about our editorial policies Updated on September 24, 2022 Reviewed by Eric Estevez Reviewed by Eric Estevez Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article How the Advance Premium Tax Credit Works Example of the Advance Premium Tax Credit How Much Is the Advance Premium Tax Credit? How To Get the Advance Premium Tax Credit Frequently Asked Questions (FAQs) Definition The advance premium tax credit (APTC) is the estimated portion of a taxpayer’s premium tax credit that is paid to their insurer rather than to the taxpayer. It's a form of tax credit for the person filing a tax return. Photo: sturti / Getty Images Key Takeaways The advance premium tax credit (APTC) is the portion of a taxpayer’s premium tax credit that they elect to have the health insurance marketplace pay to their health insurance provider.You may elect to pay your entire premium to your provider every month out of pocket and claim the entire credit on your tax return.A taxpayer must purchase their health insurance through the health insurance marketplace and meet certain requirements to qualify for the APTC.If the amount of your advance premium tax credit exceeds the actual premium tax credit amount you’re eligible for based on your income, you must pay back the excess amount. How the Advance Premium Tax Credit Works The premium tax credit is a credit paid to qualifying taxpayers to help them cover the cost of their health insurance premiums—so long as the policy is purchased through the health insurance marketplace. You must generally have an income between 100% and 400% of the federal poverty line for your family size to qualify for the premium tax credit. If you qualify, you can choose to have the health insurance marketplace estimate your premium tax credit amount for the year. You’ll opt to pay some or all of a prorated monthly amount of this estimate directly to your chosen insurance provider every month. You must enroll in your insurance plan through the health insurance marketplace. Doing so will reduce the amount of health insurance premiums you have to pay out of pocket each month because a portion of it is being paid directly to the insurer. Note Your advance premium tax credit for a certain year is the amount of your premium tax credit that you elect to have the marketplace pay directly to your insurer every month in a given calendar year. Your advance premium tax credit is based on an estimated premium tax credit amount determined by the marketplace. Because of this, the actual amount of your premium tax credit—which is based on your actual adjusted gross income with some minor adjustments—may differ from your advance premium tax credit. This difference is accounted for on IRS Form 8962. You’ll include this form with your tax return to reconcile the amounts paid directly to your insurer as your advance premium tax credit with the actual amount of their premium tax credit. If, when you reconcile the numbers on your tax return, your advance premium tax credit exceeds your actual premium tax credit amount, you must repay that excess portion. If your advance premium tax credit amount is less than your actual premium tax credit amount, the difference will be credited against your tax liability for the year, resulting in a larger refund or lower balance due. Example of the Advance Premium Tax Credit For instance, if the health insurance marketplace estimates at the time of your enrollment that you're eligible for a $1,000 premium tax credit, your advance premium tax credit amount would also be $1,000. If you elect for this entire amount to be paid to your health insurance company, the advance tax credit will reduce your monthly payments by about $83 ($1,000 ÷ 12 months). You can also choose to have the health insurance marketplace pay nothing to your insurer every month based on your estimated premium tax credit amount. In this case, you would have no advance premium tax credit and you’d claim your entire $1,000 premium tax credit amount on your tax return for the year. How Much Is the Advance Premium Tax Credit? Your premium tax credit amount is calculated as the cost of the second-lowest-cost silver plan available to you minus a percentage of your family income. Your maximum advance premium tax credit amount is based on the health insurance marketplace’s estimate of this calculation. The actual amount of your advance premium tax credit is something you can choose, up to this maximum amount. The premium tax credit—and, by extension, the advance premium tax credit—does not have a specific statutory amount. This differs from other tax credits whose dollar amounts may be phased out based on income. How To Get the Advance Premium Tax Credit To qualify for the advance premium tax credit, you must first qualify for the premium tax credit. You can do this by purchasing health insurance through the Health Insurance Marketplace. You must also meet all of the following criteria: You must pay your insurance premium for at least one month during the calendar year by the original due date of your tax return.You must have an income of between 100% and 400% of the federal poverty line for your family size.Your filing status cannot be married filing separately.You can't be eligible to be claimed as another taxpayer's dependent. If you qualify, you'll get the advance premium tax credit by allowing the health insurance marketplace to pay some or all of your estimated premium tax credit amount to your insurer. Frequently Asked Questions (FAQs) What is the maximum premium tax credit? There isn't a set dollar maximum for the premium tax credit because the amount is based on overall health insurance costs and the taxpayer's expected contribution. For example, those earning 300% of the federal poverty threshold are expected to contribute 6% of household income to health insurance premium costs; any premium costs beyond that could qualify for a tax credit. Why do I have to pay back the advance premium tax credit? If you have to repay your advance premium tax credit, it's probably because you were given an excessive amount throughout the year. This can happen when your initial estimate of annual income isn't accurate. For example, if you get a pay raise during the year, then your initial income estimate may have given you more tax credits than you qualified to receive. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "Eligibility for the Premium Tax Credit." Internal Revenue Service. "Questions and Answers on the Premium Tax Credit." Congressional Research Service. "Health Insurance Premium Tax Credit and Cost-Sharing Reductions," Page 7.