What Is the Advance Premium Tax Credit?

How the Advance Premium Tax Credit Works

The APTC is basically a form of the premium tax credit. The premium tax credit helps you cover the cost of your health insurance premiums—so long as you bought the policy through the health insurance marketplace.

You must generally have an income of between 100% and 400% of the federal poverty level for your family size to qualify for the premium tax credit. For tax years 2021 and 2022, the 400% limit is temporarily eliminated. But in general, bigger credits go to people with lower incomes.

Here's where the "advance" part comes in. If you qualify, the health insurance marketplace will estimate your premium tax credit amount for the year. You can then opt to have part or all of the estimated credit paid directly to your chosen insurance provider every month, thus claiming the credit in advance.

Your advance premium tax credit is based on an estimated premium tax credit amount determined by the marketplace. But things can change during the year—maybe you get a raise that makes you eligible for a smaller credit. 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 with the actual amount of your 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

Let's say you sign up for health insurance through the health insurance marketplace. When you do, the program estimates 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. 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. You can then choose how much of that to take in advance.

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're enrolled in a marketplace plan for at least one month.
• You and any family members enrolled in the plan were not eligible for coverage through an employer or a government plan such as Medicare or Medicaid.
• Your income is at least 100% and, for years other than 2021 and 2022, no more than 400% of the federal poverty level for your family size.
• Your filing status is not married filing separately.
• You're not 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)