Reconciling Advance Payments of the Premium Tax Credit

Will you have to pay back advance payments of your Premium Tax Credit?

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The Premium Tax Credit is a federal subsidy available for people and families with incomes that fall between one and four times the federal poverty line. It's intended to reimburse for the cost of health insurance purchased through the Marketplace.

The credit can be paid in advance directly to your insurer to defray the cost of your premiums, or you can pay the premiums yourself and then collect the refund at tax time. The amount you're entitled to can be something of a guessing game if you choose the advance-payment option, however, so you must “reconcile” your payments at tax time.

Reconciling Your Payments on Form 8962

If you choose to receive Premium Tax Credit advance payments, you must complete and submit Form 8962 at tax time to determine whether the payments made to your insurer were too little, too much, or exactly what you were entitled to receive. Known as "reconciling" the advance payments, this means comparing the amount your insurance company received to the actual amount of the Premium Tax Credit to which you’re entitled.

You can receive any additional tax credit that's due you if the Internal Revenue Service (IRS) paid too little in advance, but you must pay any extra amount back to the IRS if it paid your insurer too much. If the IRS paid out exactly the right amount, you won't owe money to the IRS, but you won't receive any extra tax credit when you file, either.

In April 2021, the IRS announced that, thanks to the American Rescue Plan Act, taxpayers are not required to "increase their tax liability by all or a portion of their excess advance payments of the Premium Tax Credit (excess APTC) for tax year 2020." That means that if your advance payments of the Premium Tax Credit (APTC) exceeded your Premium Tax Credit (PTC), then you are not required to file Form 8962 or report it on your Form 1040 when you file your 2020 taxes.

Advance Payments of the Premium Tax Credit

The Health Insurance Marketplace estimates your Premium Tax Credit when you enroll in a health insurance plan based on estimates of your household income for the year. The actual amount of your credit can’t be calculated until you actually submit your income information on your tax return, along with the amount of health insurance premiums you received as they're reported to you and the IRS on Form 1095-A.

How to Reconcile Your Payments

The first part of Form 8962 calculates the actual amount of the Premium Tax Credit to which you were entitled. Then you'll fill out the second part to compare and reconcile the advance payments with the actual amount of the Premium Tax Credit you received.

The actual amount of the Premium Tax Credit you received can be found on line 24 of Form 8962. The amount of advance payments appears on line 25.

Here's what you'll need to reconcile your payments:

  • Your completed Form 1040: The 2020 Form 1040 is significantly different from the tax return that was used before the passage of the Tax Cuts and Jobs Act, so double-check and make sure you use the correct year's return while reconciling payments.
  • Form 8962.
  • Form (or Forms) 1095-A: This is the Health Insurance Marketplace Statement. Form 1095-A is prepared by the health insurance company and should be sent to you by January 31 each year.

You will only receive a Form 1095-A if you purchased health insurance through the Marketplace, because Marketplace health insurance policies are the only ones eligible for the Premium Tax Credit. 

What If You Received Excess Advance Payments?

You must pay the excess amount back as an additional tax if your advance payments are more than your Premium Tax Credit, but the amount might be limited. Your repayment is based on your household income above a certain threshold that correlates with the percentage of the federal poverty line that your family income falls within. 

Your household income as a percentage of the federal poverty line is calculated and entered on Line 5 of Form 8962, and yes, it comes with instructions. 

2020 Limitations on Paying Back the Credit

There are limitations on how much you’re expected to repay in cases where reconciliation is necessary. This chart shows the limitations for the 2020 tax year, the tax return you'll file in 2021:

 Income % of Federal Poverty Level Maximum Repayment for Single Filers Maximum Repayment for Everyone Else
 Less than 200%  $325  $650
 More than 200% but less than 300%  $800  $1,600
 More than 300% but less than 400%  $1,350  $2,700
 400% or more  Full amount  Full amount

On your 2020 tax return, you would compare your 2020 income with the 2019 federal poverty line figures. They are:  

  • $12,490 for individuals
  • $16,910 for a family of two
  • $21,330 for a family of three
  • $25,750 for a family of four 
  • $30,170 for a family of five
  • $34,590 for a family of six 
  • $39,010 for a family of seven 
  • $43,430 for a family of eight

These figures increased in 2020, and you’ll use them when filing your 2021 tax return in 2022:

  • $12,760 for individuals
  • $17,240 for a family of two
  • $21,720 for a family of three
  • $26,200 for a family of four 
  • $30,680 for a family of five
  • $35,160 for a family of six 
  • $39,640 for a family of seven 
  • $44,120 for a family of eight 

These figures only apply to residents of the 48 contiguous states and Washington, D.C. Residents of Alaska and Hawaii have their own guidelines, published annually by the U.S. Department of Health and Human Services.

To find your maximum repayment amount, divide your 2020 income by the 2019 poverty limit for your family size. Then multiply by 100% to get your income’s percentage of the poverty level. For example, if you’re a single filer who earned $25,520 in 2020, your calculation would be $25,500 / $12,490 = 2.04. Multiply by 100% to get 204%, and check the table above: you’ll only have to repay a maximum of $800.

These dollar limitations are indexed for inflation annually, so you'll have to recalculate your eligibility every year.