Premium Tax Credit Explained: Eligibility, APTC, Form 8962

The premium tax credit is a refundable federal tax credit that helps people with low or moderate income pay for health insurance bought through the Health Insurance Marketplace. You can take it in advance each month to lower your premium, or claim all of it when you file your taxes. Either way, you settle up on Form 8962 with your federal return. This guide explains who qualifies, how each option works, and how to avoid owing money back.

Key takeaways

• The credit works on a sliding scale: the lower your income, the larger the credit. It only applies to plans bought through the Marketplace.
• In general, you need household income from 100% to 400% of the federal poverty line. The rule that removed the 400% upper limit covered only tax years 2021 through 2025.
• You can use all, some, or none of your estimated credit in advance. If you use less, you're less likely to have to pay some back.
• If you got advance payments, you must file a federal return with Form 8962. Starting with tax year 2026, there is no cap on repayment.
• Once you're eligible for or enrolled in premium-free Medicare Part A, or enrolled in Part C or premium Part A, your Marketplace savings end. Your Marketplace plan does not end on its own.

What is the premium tax credit and how does it work?

The IRS calls the premium tax credit a refundable tax credit. Refundable means that if your credit is more than your tax bill, you get the difference as a refund. If you owe no tax at all, you can get the full credit as a refund.

The credit is only for health insurance bought through the Health Insurance Marketplace. If you buy a policy anywhere else, it does not qualify.

The Marketplace estimates your credit from three things you report on your application:

• Who is in your family
• Your projected household income for the year
• Whether the people enrolling can get other coverage outside the Marketplace

If you take advance payments, you compare them with the credit you're allowed based on your actual income when you file. That step is called reconciliation.

Who qualifies for the premium tax credit?

The income range

In general, you may qualify if your household income for the year is at least 100% but no more than 400% of the federal poverty line for your family size. For tax years 2021 through 2025, Congress removed the 400% upper limit. The IRS says that change was temporary, so the general range is back for later years.

Each year's credit uses the federal poverty guidelines that were most recently published on the first day of that year's open enrollment period. For example, the 2025 credit is based on the 2024 guidelines. HHS updates the guidelines every year, so check the current chart in the Form 8962 instructions instead of using a figure you saw somewhere else.

The other rules

To be eligible, you must also:

1. Meet the income rules above.
2. Not file as married filing separately. There is a narrow exception for victims of domestic abuse or spousal abandonment.
3. Not be someone who can be claimed as another person's dependent.

And for at least one month of the year, you or a family member must:

• Be enrolled in a Marketplace plan that is not a Catastrophic plan
• Be unable to get affordable employer coverage that provides minimum value
• Not be eligible for Medicaid, Medicare, CHIP, or TRICARE
• Have paid your share of the premium for that month (the part not covered by advance payments), unless special circumstances applied. See the Form 8962 instructions.

Does an employer's offer of coverage count against you?

It does only if the offer is affordable and provides minimum value. Employer coverage counts as affordable if your share of the cost for self-only coverage is at or below a set percentage of household income. If the offer is through your spouse's or parent's job, the test uses what the employee would pay for family coverage, not self-only coverage. If the employer offers more than one plan, the test uses the lowest-cost plan that provides minimum value. The IRS adjusts that percentage every year and lists each year's figure in its premium tax credit Q&A. Coverage provides minimum value if it pays for at least 60% of expected total allowed costs.

What counts as household income for the premium tax credit?

Household income is the modified adjusted gross income (MAGI) of you and every family member who is required to file a tax return. MAGI starts with adjusted gross income and adds back:

• Excluded foreign income
• Nontaxable Social Security benefits
• Tax-exempt interest

Supplemental Security Income (SSI) is not counted.

Why this matters if you're 50 to 64

If you use the Marketplace between a job and Medicare, one-time income can affect your credit. The IRS lists these income changes as things that can affect your credit:

• Lump-sum Social Security payments
• Lump-sum taxable IRA or retirement plan withdrawals
• Capital gains, for example from selling investments
• Canceled debt

Say you planned for modest income but then take a large taxable IRA withdrawal in the fall. Your household income for the year goes up, and the credit you're allowed may go down. If you had already taken the full credit in advance, you could owe some of it back. If you're self-employed, our guide to self-employed health insurance options covers more about estimating income.

How is the amount figured, and which plans can you use it on?

The credit is on a sliding scale, so lower income means more help. When you reconcile, Form 8962 uses figures from your Form 1095-A. One of those is the premium for the second lowest cost Silver plan (SLCSP). Your household income and family size go on the form too.

You can use the credit on any Marketplace plan except a Catastrophic plan, since Catastrophic plans don't count toward eligibility. Compare plans on total cost, not just the premium after the credit. Our Texas Health Insurance Marketplace guide explains metal levels and the extra savings tied to Silver plans.

Should you take the credit monthly or wait until you file?

You can have the Marketplace send an estimated credit to your insurer each month. These are called advance payments of the premium tax credit, or APTC, and they lower what you pay each month. You can also take the whole credit when you file your return.

On HealthCare.gov you choose one of three options: "use all," "use some" (you type in an amount), or "use none." HealthCare.gov says that if you're worried about paying back the credit, you can use less or none each month.

No matter which option you pick, you complete Form 8962 and attach it to your tax return.

How do you reconcile the credit on Form 8962?

If advance payments were made for you in any year, you must file a federal income tax return for that year. That applies even if you wouldn't otherwise need to file. Here is how it works:

1. Watch for Form 1095-A. This is the Health Insurance Marketplace Statement. HealthCare.gov says it should arrive by mail by mid-February. It may show up in your Marketplace account as early as mid-January.
2. Check it for errors. Review every figure, including the second lowest cost Silver plan premium. Don't file until you have an accurate 1095-A.
3. Fill out Form 8962. Use the 1095-A figures and your household income to work out the credit you're allowed, then compare it with the advance payments made for you.
4. Attach Form 8962 to your return. It goes with Form 1040, 1040-SR, or 1040-NR.
5. Keep Form 1095-A with your records. Do not attach it to your return.

If your allowed credit is more than the advance payments, the difference is added to your refund or subtracted from what you owe. If it's less, you repay the difference, as explained below.

Will you have to pay back the premium tax credit?

You will if your allowed credit turns out to be less than the advance payments made for you. The repayment shrinks your refund or adds to the tax you owe.

There is no repayment cap starting with tax year 2026

For tax years after 2025, the IRS says no cap limits repayment. If you received more in advance than you were allowed, you repay the full difference. Repayment caps applied only to tax years before 2026.

This matters for the return you file in 2027 for tax year 2026. You may see older articles or worksheets that list repayment limits. Those describe earlier tax years only.

What if you can't afford what you owe?

The IRS says it routinely works with taxpayers who can't afford to pay. If excess advance payments leave you owing more than your refund, payment arrangements work the same way as for any other tax balance. You may want to talk with a tax professional about your choices.

How can you avoid a repayment surprise?

Most surprises come from life changing during the year while the Marketplace keeps using your old estimate. These steps help.

Report changes promptly

The IRS says to tell the Marketplace right away about changes in household income, family size, address, or eligibility for employer coverage or a government program such as Medicare. Reporting quickly lowers the chance of a large repayment, and it could get you more help sooner if your income drops.

The IRS lists these life changes that can affect your credit:

• Marriage or divorce
• A birth or adoption
• Changes in who you claim as a dependent
• Gaining or losing other coverage
• Moving

Some of these may also open a Special Enrollment Period. See our guide to qualifying life events.

Estimate income carefully

Base your estimate on the whole year, not on one paycheck. Count the items that raise MAGI, such as taxable IRA withdrawals, capital gains, and nontaxable Social Security. If you're planning a large withdrawal or a sale, think about how it changes your estimate before it happens.

Consider taking less than the full credit in advance

If your income goes up and down, using "some" or "none" leaves room for error. When you file, any credit you're allowed beyond what was paid in advance is added to your refund or subtracted from what you owe. The amount depends on your actual income for the year, so it may be smaller than what you held back.

Common mistakes to avoid

• Filing before you have an accurate Form 1095-A
• Attaching Form 1095-A to your return instead of keeping it in your records
• Leaving out Form 8962 after getting advance payments
• Forgetting that nontaxable Social Security counts toward household income
• Keeping a Marketplace plan with the credit after Medicare starts

What if your income is below the poverty level in Texas?

A Texas Comptroller report from October 2020 says Texas is among the states that have not expanded Medicaid eligibility. HealthCare.gov explains what that means in a non-expansion state. If your income is below the federal poverty level and you don't qualify for Medicaid under state rules, you won't qualify for Medicaid or for Marketplace savings.

HealthCare.gov still recommends filling out a Marketplace application. Your detailed income information may put you in the savings range.

If you're turned down for both programs and your expected income later rises into the 100% to 400% range, contact the Marketplace Call Center at 1-800-318-2596 within 60 days of the income change. That is how you get a Marketplace plan with the credit. For open enrollment timing, see our ACA open enrollment guide.

What happens to your premium tax credit when you turn 65?

When the credit stops

CMS says that once you are eligible for or enrolled in premium-free Medicare Part A or Part C, or enrolled in premium Part A, you can't get premium tax credits or other Marketplace savings. You can keep a Marketplace plan, but you pay full price. CMS notes that keeping both isn't recommended, because your Marketplace plan may not be renewed and Medicare doesn't coordinate benefits with Marketplace plans.

When the help stops depends on how you get Medicare:

• If you're automatically enrolled in premium-free Part A, you generally lose Marketplace financial help on the first day of the month you turn 65.
• If you have to sign up, you lose it on the first day of the first full month you can use Medicare. If you never sign up, you lose it starting four months after you could first have signed up.

There's one exception. If you don't qualify for premium-free Part A at 65 and choose not to enroll in premium Part A, you can stay eligible for the premium tax credit and other Marketplace savings.

Your Marketplace plan does not end on its own

Marketplace coverage doesn't stop automatically when Medicare starts. You can update your Marketplace application with your Medicare start date up to 3 months ahead. Your Marketplace coverage then ends the day before Medicare begins. If Medicare starts May 1, for example, your Marketplace plan ends April 30.

HealthCare.gov warns that if you use the premium tax credit and don't end your Marketplace coverage when Medicare starts, you'll have to pay back the credit you used when you file your federal taxes.

The Marketplace also checks its records against other data from time to time. If it finds you have Medicare Part A or Part C along with a Marketplace plan with savings, it sends you a notice. If you do nothing within 30 days of getting the notice, it ends your APTC and cost-sharing reductions. If you gave consent on your application, it ends the Marketplace plan itself.

Don't miss your Medicare window

Your Medicare Initial Enrollment Period lasts 7 months. It starts 3 months before you turn 65 and ends 3 months after. If your birthday is on the first of the month, the window starts 4 months before your birthday month, and Medicare can start the month before you turn 65. Missing it can mean waiting to sign up and paying monthly late enrollment penalties. Our turning 65 Medicare checklist walks through the months in order, and Medicare in Texas covers the basics.

Where can you get help?

• Marketplace questions: The HealthCare.gov Marketplace Call Center is 1-800-318-2596.
• Medicare questions: Call 1-800-MEDICARE. State Health Insurance Assistance Programs (SHIPs) offer free, local, objective counseling to people eligible for Medicare, their households, and caregivers.
• Tax questions: Use the IRS premium tax credit pages and the Form 8962 instructions, or ask a tax professional about your return.
• Choosing a plan: A licensed agent can help you compare Marketplace plans. You are responsible for reporting your income estimate to the Marketplace.

What to do next

1. Log in to your Marketplace account and check that your income estimate still fits this year.
2. Decide whether to use all, some, or none of your credit in advance.
3. Report changes in income, family, address, or coverage as soon as they happen.
4. If you're nearing 65, put your Medicare start date and Marketplace end date on your calendar.
5. At tax time, wait for an accurate Form 1095-A, then file with Form 8962.

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