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Understanding the Advance Premium Tax Credit (APTC)

Paying for health insurance can be daunting, but the Advance Premium Tax Credit (APTC) is here to help. This federal tax credit assists eligible individuals and families in covering the monthly cost of health insurance premiums. Here’s a comprehensive guide on what the APTC is, how it works, and how you can benefit from it.

What Is the Advance Premium Tax Credit?

The APTC is designed to help eligible taxpayers manage the cost of health insurance premiums when purchasing insurance through the health insurance marketplace. This credit reduces your monthly premium payments by covering a portion based on your estimated income and household size. You can opt to receive these credits in advance, which will be applied directly to your premium payments. If you receive more credit than you are eligible for, you will need to repay the excess when you file your annual taxes. Conversely, if you are entitled to more, you can claim the additional credit on your tax return.

Do You Qualify for the Advance Premium Tax Credit?

The APTC is available for health care coverage purchased through the federal or state health insurance marketplaces. The credit amount is based on the cost of a mid-range Silver plan in your area and is adjusted according to your income. Although the credit is based on a Silver plan, it can typically be applied to Bronze, Silver, Gold, or Platinum plans.

To qualify, you must meet the following criteria:

• Your household income must be between 100% and 400% of the federal poverty line for your family size.
• You or an eligible family member must have been enrolled in marketplace coverage for at least one month during the calendar year.
• You must not be eligible for affordable coverage through an employer-sponsored plan that provides minimum value, or eligible for government health coverage such as Medicare, Medicaid, or TRICARE.
• The health insurance premiums for at least one month must be paid by the original due date of your return.
• If married, you cannot file your taxes separately except in certain cases of domestic abuse or spousal abandonment.
• You cannot be claimed as a dependent by another taxpayer.

The IRS offers an online tool to help determine your eligibility for the APTC. Additionally, states like California, Connecticut, Massachusetts, New Jersey, and Vermont provide extra financial assistance to their residents.

Estimating Your Credit

Healthcare.gov provides an online calculator to estimate your APTC based on your income, household size, and state. This tool also checks your eligibility for Medicaid or the Children’s Health Insurance Program (CHIP). When you apply for coverage through the marketplace, you will see actual health insurance plan prices and your potential APTC savings. You can choose to apply the maximum credit to your monthly payment or only a portion of it, depending on your income estimates for the year.

How to File for the Advance Premium Tax Credit

If you receive APTC advance payments, you must file a federal income tax return and attach Form 8962, Premium Tax Credit. You will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about the coverage you purchased. Use this information to complete Form 8962, which helps you calculate the amount of credit you’re entitled to and reconcile it against the credits you’ve received. If you were entitled to more credit than you received, you can claim the difference as a refundable credit on your tax return. If you received more credit than you were entitled to, you may need to repay the difference.

Even if you do not usually file taxes, you must file a federal tax return if you received APTC advance payments. Failing to file Form 8962 could delay your refund or prevent you from receiving additional advance premium credits.

Claiming the Credit Without Advances

If you did not apply for advance credits or bought insurance through the marketplace without realizing you could receive advance credits, you can still claim premium tax credits on your tax return using Form 8962.

The Bottom Line

Premium tax credits can make health insurance more affordable for low- and middle-income taxpayers. If you are in the market for health insurance, check the health insurance marketplace or your state’s marketplace to see if you qualify for the APTC to reduce your monthly premium payments. Even if you do not currently qualify, consider buying insurance through the marketplace. If your income changes and you become eligible, you can claim premium tax credits on your tax return.

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