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Premium Tax Credit: Claiming the Credit and Reconciling Advance Credit Payments

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Introduction to Advance Payments of the Premium Tax Credit

When you enroll in coverage, the Marketplace will estimate the amount of the premium tax credit you will be allowed for the year of coverage. To make this estimate, the Marketplace uses information you provide, including information about:

  • your family composition
  • your household income
  • whether those that you are enrolling are eligible for other non-Marketplace coverage

Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf. These payments – which are called advance payments of the premium tax credit or advance credit payments – lower what you pay out-of-pocket for your monthly premiums. 

If you do not get advance credit payments, you will be responsible for paying the full monthly premium.

You Must File

If you received the benefit of advance credit payments, you must file a tax return to reconcile the amount of advance credit payments with the amount of your actual premium tax credit. You must file an income tax return for this purpose even if you are not otherwise required to do so.

If you choose not to get advance credit payments, you can claim the full amount of the premium tax credit that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax you owe.

Reporting Changes in Circumstances

If you purchased health insurance coverage through the Marketplace and benefit from advance payments of the premium tax credit, it is important to report certain life events to the Marketplace throughout the year – these events are known as changes in circumstances.  

If your household income goes up or the size of your household is smaller than you reported to the Marketplace (for example, because a son or daughter you thought would be your dependent will not be your dependent for the year of coverage), your advance credit payments may be more than the premium tax credit you are allowed for the year.  If you report the change, the Marketplace can lower the amount of your advance credit payments.  If you don’t report the change and your advance credit payments are more than the premium tax credit you are allowed, you have to reduce your refund or increase the amount of tax you owe by all or a portion of the difference when you file your federal tax return next year.

If your household income goes down or you gain a household member, you could qualify for more advance credit payments than are now being paid for you. This could lower what you pay in monthly premiums. You could also qualify for Medicaid or CHIP coverage and would continue to pay more for a Marketplace plan by not reporting the change.

Changes in circumstances that can affect the amount of your actual premium tax credit include:

  • Increases or decreases in your household income
  • Lump sum payments like a lump sum payment of Social Security benefits
  • Marriage or divorce
  • Birth or adoption of a child
  • Other changes affecting the composition of your tax family (you, your spouse, and your dependents)
  • Gaining or losing eligibility for government sponsored or employer sponsored health care coverage
  • Moving to a different address

For the full list of changes you should report, visit HealthCare.gov.

To estimate the effect that changes in your circumstances may have on the amount of premium tax credit that you can claim - see the  Premium Tax Credit Change Estimator

Filing a Federal Tax Return to Claim and Reconcile the Credit

When you file, you will use Form 8962, Premium Tax Credit (PTC) to reconcile the amount of advance credit payments with the amount of your actual premium tax credit.

You must file if:

  • You are claiming the premium tax credit
  • Advance credit payments were paid to your health insurer for you or someone else in your tax family. For purposes of the premium tax credit, your tax family is every individual you claim on your tax return – usually yourself, your spouse, and your dependents.   
  • You told the Marketplace that you would claim an exemption for someone on your tax return who was benefitting from advance credit payments, however, no one ended up claiming that individual.

For Information about how to fill out this form, see the instructions for Form 8962. See Publication 974 for additional instructions for taxpayers in special situations.

How Advance Payments Affect Your Refund

If the premium tax credit computed on your return is more than the advance credit payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. This will be reported in the ‘Payments’ section of Form 1040.

If the advance credit payments are more than the amount of the premium tax credit you are allowed, called excess advance credit payments, you will add all – or a portion of – the excess advance credit payments to your tax liability by entering it in the ‘Tax and Credits’ section of your tax return. This will result in either a smaller refund or a larger balance due. 

Repaying Excess Advance Payments

The amount of your excess advance credit payments that you are required to repay may be limited based on your household income and filing status. On the other hand, if your household income is 400 percent or more of the applicable federal poverty line, you will have to repay all of the advance credit payments.

 

Repayment Limitation Table for 2016

Household Income Percentage of Federal Poverty Line Limitation Amount for Single Limitation Amount for all other filing statuses
Less than 200% $300 $600
At least 200%, but less than 300% $750 $1,500
At least 300%, but less than 400% $1,275 $2,550
400% or more No limit No limit

 

If your filing status is Married Filing Separately, the repayment limitation above applies to both spouses separately based on the household income reported on each return.

The Marketplace will send you a Health Insurance Marketplace statement, Form 1095-A, by January 31 of the year following the year of coverage. This form shows the amount of the premiums for your and your family’s health care plans. This form also includes other information – such as advance credit payments made on your behalf – that you will need to compute your premium tax credit. For more information about Form 1095-A see Health Insurance Marketplace Statements.

If you also receive Form 1095-B or 1095-C, which are unrelated to the Marketplace, see our questions and answers for information about how these forms affect your tax return.

Remember to consider e-filing your tax return, because using tax preparation software is the best way to file a complete and accurate tax return.

For the 2014 taxable year, the IRS provided penalty relief from the failure to pay penalty and the under-payment of the estimated tax penalty under certain circumstances.

Corrected, Incorrect or Voided Forms 1095-A for Tax Years 2014 and 2015

For more information on what you need to do if you receive a corrected or voided Form 1095-A, see Corrected, Incorrect or Voided Forms 1095-A for Tax Years 2014 and 2015.

Failing to file your tax return may prevent future advance credit payments

If advance credit payments are made for you or an individual in your tax family, and you do not file a tax return, you will not be eligible for assistance in paying for your Marketplace health insurance coverage in future years. This means you will be responsible for the full cost of your monthly premiums and all covered services. In addition, you may have to pay back some or all of the advance credit payments that are made on behalf of you or an individual in your tax family.

Advance payments of the premium tax credit are reviewed in the fall by the Health Insurance Marketplace for the next calendar year as part of their annual enrollment process.

Page Last Reviewed or Updated: 04-Jan-2017