What is the advance premium tax credit (APTC)?

A tax credit that helps low-income individuals to lower their monthly health insurance premiums

Derek Silva

Derek Silva

Published September 13, 2019

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KEY TAKEAWAYS

  • You can apply the advance premium tax credit directly to your monthly premiums

  • You can only use the APTC on insurance plans available through the Affordable Care Act (Obamacare)

  • You generally qualify if your annual household income is between 100% and 400% of the federal poverty line

  • You need to file IRS Form 8962 to prove that you received the correct amount of APTC

The premium tax credit (PTC) is a type of health insurance subsidy that helps lower the cost of your monthly health insurance premiums. Unlike other tax credits, you can receive it in advance throughout the year (instead of just on your tax return) and apply it to each of your monthly premium payments. What you take in advance is called the advance premium tax credit (APTC).

You can only claim the APTC if you get a plan through the health insurance marketplace, also called the exchange, or through a certified enrollment partner. You aren’t eligible to use the tax credit if you have health insurance through your employer. Learn more about how to apply for marketplace plans.

Whether or not you qualify for the APTC depends primarily on how your household income compares to the federal poverty level (FPL). If your projected income is between 100% and 400% of the poverty level, you likely qualify. The poverty levels themselves are based on your state of residence and your family size.

When you apply for the tax credit, you only need to give your estimated income for the upcoming year. Then, on your tax return at the end of the year, you will need to “reconcile” how much of the APTC you received with how much you should have received based on what your actual income was. To do this, you need to file Form 8962. If your APTC was too much or too little, you may receive a refund or owe money.

In this article:

How to qualify for the APTC

To qualify for the APTC, you need to get a health plan through the health insurance marketplace. You must have had that plan for at least one month and you cannot have a qualified health plan from an employer.

The primary factor in qualifying for the premium tax credit is your annual household income. The official income figures that determine eligibility are the federal poverty guidelines. They are updated each year by the Department of Health and Human Services (HHS). In day-to-day speech, people refer to the federal poverty guidelines as the federal poverty level or FPL.

You can qualify for the premium tax credit if your annual household income is between 100% and 400% of the federal poverty level. However, the poverty guidelines themselves vary based on where you live and how many people are in your household.

Your household members include yourself, your spouse if you’re married, and everyone else you will claim as a dependent on your next tax return. You also need to include people in your household who don’t get health coverage under your plan.

Note that you do not qualify for the APTC if someone else can claim you as a dependent on their tax return.

Federal poverty guidelines for 2019

In 2019, the federal poverty level (in all states except Alaska and Hawaii) ranges from $12,490 for households with one person to $43,430 for households with eight people.

You can see the full federal guidelines in the table below.

People in household100% of poverty level400% of poverty level
1$12,490$49,960
2$16,910$67,640
3$21,330$85,320
4$25,750$103,000
5$30,170$120,680
6$34,590$138,360
7$39,010$156,040
8$43,430$173,720
More than 8$43,430 plus $4,420 per extra person$173,720 plus $17,680 per extra person

2019 poverty guidelines for Alaska

In 2019, Alaska’s poverty level ranges from $15,600 (one-person household) to $54,310 (eight-person household). You can see the full guidelines in the following table.

People in household100% of poverty level400% of poverty level
1$15,600$62,400
2$21,130$84,520
3$26,660$106,640
4$32,190$128,760
5$37,720$150,880
6$43,250$173,000
7$48,780$195,120
8$54,310$217,240
More than 8$54,310 plus $5,530 per extra person$217,240 plus $22,120 per extra person

2019 poverty guidelines for Hawaii

The poverty level in Hawaii ranges from $14,380 (one-person household) to $49,940 (eight-person household), as you can see in the table below.

People in household100% of poverty level400% of poverty level
1$14,380$57,520
2$19,460$77,840
3$24,540$98,160
4$29,620$118,480
5$34,700$138,800
6$39,780$159,120
7$44,860$179,440
8$49,940$199,760
More than 8$49,940 plus $5,080 per extra person$199,760 plus $20,320 per extra person

What if your income is below the poverty line?

If your income is below the federal poverty level, it may still be possible for you to qualify for the premium tax credit. However, there are also other ways to get financial assistance with your health insurance. Cost-sharing reductions are another subsidy option to help you get affordable care, but you should also consider Medicaid.

Medicaid is a federally- and state-funded health insurance program available to Americans earning up to 133% of the federal poverty level. You can also apply for Medicaid at any time, even outside of Open Enrollment.

Learn about your Medicaid eligibility in our state-by-state guide to Medicaid.

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How much the APTC is worth

The actual amount that you receive as a tax credit is the difference between the premium for the second-lowest cost Silver plan and your premium cap, which your state has set for your income level.

The premium cap

During the sign-up process for health insurance, your state will determine what it thinks is the most you can reasonably afford to spend on your monthly health insurance premiums. This maximum spending level is called your premium cap. Your insurance premium cap is written as a percentage of your income.

As an example, your state may decide that an individual with an income of $35,000 shouldn’t have to spend any more than 8% of their income on insurance premiums. That translates to $2,800 in annual premiums or approximately $233 per month.

The second-lowest cost Silver plan (SLCSP)

Once you know your premium cap, you will also need to know what the premium is for the second-lowest cost Silver plan, or SLCSP, in your state. The premium for the SLCSP is what the government uses as a benchmark for the cost of insurance premiums in your state. When you subtract the premium of the SLCSP from the premium cap, you will know how much your monthly premium tax credit is.

For example, let’s say your premium cap is a $233 monthly premium. That means the government feels you shouldn’t have to pay more than $233 per month on premiums. If the the monthly premium for the SLCSP is $533, your monthly tax credit would be $300: $533 premium for the SLCSP - $233 premium cap = $300 premium tax credit.

You can learn more about the second-lowest cost Silver plan here.

You don’t actually have to get the second-lowest cost Silver plan in order to use the premium tax credit. In fact, you can apply the APTC to a plan from any of the metal tiers (Bronze, Silver, Gold, or Platinum).

Claiming the APTC on your taxes

If you used the APTC, you will need to file IRS Form 8962 when you file your tax return. You will also need this form if you didn’t receive the APTC throughout the year, but you still want to claim the premium tax credit on your tax return. This isn’t a difficult form and if you use an online tax filing service, such as TurboTax, it will do the calculations and most of the hard work for you

To help you fill out this form, you will need the information on Form 1095-A. Form 1095-A lists how much you paid in monthly premiums and how much you claimed in advance tax credits. Everyone with a health insurance plan through the marketplace will get a copy. You don’t need to fill it out yourself.

Form 8962 section by section

Form 8962 is only five sections, over two pages, and most people don’t even have to fill out the whole form. Here’s a quick rundown of each part of the form.

Part I requires you to put information like how many people are in your household, what your household’s adjusted gross income (AGI) was for the year, and what percentage of the federal poverty line your income was. Again, your tax filing service should do all of this math for you.

Part II is where you “reconcile” your APTC. That just means you list how much you received from the APTC each month of the year (using the information on 1095-A), and then you compare that to how much you should have received based on your final annual income. If you received more in advance payments than you should have, you will have to pay back the excess. If you didn’t receive enough, you will get money refunded to you.

(Will you get a tax refund this year?)

Part III is where you write how much you need to pay back if you received more of a credit than you should have.

Most people do not need to fill out Part IV. It only applies to you if your credit is split between multiple taxpayers. For example, you may fill out this part if you got a divorce during the year or if you and your spouse shared the APTC throughout the year but are using the “married filing separately” filing status. If you need to split your credit, Part IV is where you state what portion of the credit each taxpayer should receive.

Part V of the form only applies if you got married during the year. This section allows you to account for different household incomes before and after your marriage.

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What if you don’t file a tax return?

If you claim the credit but don’t file a tax return, you will be ineligible to receive the APTC in the future. That means you’ll have to pay full price for your premiums in the future. (This situation is officially known as failure to file and reconcile, or FTR.) Even if you otherwise wouldn’t have to file a return, you need to file one every year you use the APTC.

You can also run into other problems, including big penalties, if you don’t file your income tax return.

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