What Is the Advance Premium Tax Credit?

The Advance Premium Tax Credit Explained in Less Than 5 Minutes

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The advance premium tax credit (APTC) is the estimated portion of a taxpayer’s premium tax credit that is paid to their insurer rather than to the taxpayer. It's a form of tax credit for the person filing a tax return.

Learn what the advance premium tax credit is, how it affects your healthcare premiums, and how it affects your tax return.

Definition and Example of the Advance Premium Tax Credit

The advance premium tax credit is an estimated percentage of a taxpayer’s premium tax credit that's paid directly to that person’s health insurance company by the Health Insurance Marketplace. It's taken as a credit on the taxpayer’s income tax return for the year.

  • Alternate names: Advanced premium tax credit, advance payments of the premium tax credit, advance credit payments
  • Acronym: APTC

For instance, if the Health Insurance Marketplace estimates at the time of your enrollment that you're eligible for a $1,000 premium tax credit, your advance premium tax credit amount would also be $1,000 if you chose to take the entire credit rather than some or none of it.

How the Advance Premium Tax Credit Works

The premium tax credit is a credit paid to qualifying taxpayers to help them cover the cost of their health insurance premiums—so long as the policy is purchased through the Health Insurance Marketplace. You must generally have an income between 100% and 400% of the federal poverty line for your family size to qualify for the premium tax credit.

If you qualify, you can choose to have the Health Insurance Marketplace estimate your premium tax credit amount for the year. You’ll opt to pay some or all of a prorated monthly amount of this estimate directly to your chosen insurance provider every month. You must enroll in your insurance plan through the Health Insurance Marketplace. Doing so will reduce the amount of health insurance premiums you have to pay out of pocket each month because a portion of it is being paid directly to the insurer.

Your advance premium tax credit for a certain year is the amount of your premium tax credit that you elect to have the Marketplace pay directly to your insurer every month in a given calendar year.

Your advance premium tax credit is based on an estimated premium tax credit amount determined by the Marketplace. Because of this, the actual amount of your premium tax credit—which is based on your actual adjusted gross income with some minor adjustments—may differ from your advance premium tax credit.

This difference is accounted for on IRS Form 8962. You’ll include this form with your tax return to reconcile the amounts paid directly to your insurer as your advance premium tax credit with the actual amount of their premium tax credit.

If, when you reconcile the numbers on your tax return, your advance premium tax credit exceeds your actual premium tax credit amount, you must repay that excess portion. If your advance premium tax credit amount is less than your actual premium tax credit amount, the difference will be credited against your tax liability for the year, resulting in a larger refund or lower balance due.

You can choose to have the Health Insurance Marketplace pay nothing to your insurer every month based on your estimated premium tax credit amount. In this case, you would have no advance premium tax credit and you’d claim your entire premium tax credit amount on your tax return for the year.

How Much Is the Advance Premium Tax Credit?

Your premium tax credit amount is calculated as the cost of the second-lowest-cost silver plan available to you minus a percentage of your family income. Your maximum advance premium tax credit amount is based on the Health Insurance Marketplace’s estimate of this calculation. The actual amount of your advance premium tax credit is something you can choose, up to this maximum amount.

The premium tax credit—and, by extension, the advance premium tax credit—does not have a specific statutory amount. This differs from other tax credits whose dollar amounts may be phased out based on income.

How To Get the Advance Premium Tax Credit

To qualify for the advance premium tax credit, you must first qualify for the premium tax credit. You can do this by purchasing health insurance through the Health Insurance Marketplace. You must also meet all of the following criteria:

  • You must pay your insurance premium for at least one month during the calendar year by the original due date of your tax return.
  • You must have an income of between 100% and 400% of the federal poverty line for your family size.
  • Your filing status cannot be married filing separately.
  • You can't be eligible to be claimed as another taxpayer's dependent.

If you qualify, you'll get the advance premium tax credit by allowing the Health Insurance Marketplace to pay some or all of your estimated premium tax credit amount to your insurer.

Key Takeaways

  • The advance premium tax credit (APTC) is the portion of a taxpayer’s premium tax credit that they elect to have the Health Insurance Marketplace pay to their health insurance provider. It reduces the premium that the taxpayer must pay out of pocket every month.
  • You may elect to not have any of your premium tax credit amount paid to your health insurance provider. In this case, you would have to pay your entire premium to your provider every month out of pocket—but you would also be able to claim the entire credit on your tax return.
  • A taxpayer must purchase their health insurance through the Health Insurance Marketplace and meet certain requirements to qualify for the APTC.
  • If the amount of your advance premium tax credit exceeds the actual premium tax credit amount you’re eligible for based on your income, you must pay back the excess amount.