Advanced Premium Tax Credit

You won't want to miss out on the Advance Premium Tax Credit (APTC), which can help you save money as tax day approaches on April 18.

What is the Advanced Premium Tax Credit ?

When individual buy health insurance through the Marketplace, they can receive a federal tax credit called the advanced premium tax credit (APTC), that lowers the amount they must pay each month in premiums. The portion of your premium tax credit that you choose to have the marketplace send directly to your insurer each month during a specific calendar year is known as your advance premium tax credit for that year.

Your monthly health insurance premium might be reduced through the APTC. You were prompted to predict your yearly income when you applied. You can use that sum to cut your premium if your estimate indicated that you were eligible for a premium tax credit.

The government computes and sends the Advanced Premium Tax Credit directly to the health insurance providers who provide coverage to those who qualify for it. The person receives a tax credit-amount reduction on monthly premium payments. Anyone qualified for this tax credit will get a sum based on their income.

While people with higher incomes will get larger credits and larger healthcare premium discounts, those with lower incomes will get fewer credits and smaller monthly discounts. People who qualify for this tax credit can pay the discounted amount of their monthly health insurance premium because it is a direct payment rather than the whole cost.

Key Facts of Advanced Premium Tax Credit

  • The Patient Protection and Affordable Care Act (ACA), which President Barack Obama signed into law on March 23, 2010, includes a credit known as the advanced premium tax credit.
  • Advance premium tax credit is a tax credit you can use to lower the monthly cost of your health insurance.
  • To be eligible for the APTC, you must purchase your health insurance through the health insurance marketplace and fulfil certain requirements.
  • Directly from the federal government to insurance firms, it is computed and sent.
  • Your modified adjusted gross income (MAGI) must be between 100% and 400% of the federal poverty level in order to qualify for the advanced premium tax credit.
  • Your income will decide the credit's size.

How Does the Advanced Premium Tax Credit Work ?

When you sign up for a health plan through the health insurance marketplace, you may be eligible for the advance premium tax credit (APTC), a tax credit that you can use to reduce your monthly insurance payment (also known as your "premium"). Your tax credit is determined by the household information and estimated income you provide in your Marketplace application.

A monthly premium assistance for eligible subscribers in Affordable Care Act health plans is known as an advanced premium tax credit. Participants who enroll may be eligible for this assistance if their income is between 100 and 400 percent of the federal poverty level. Using the enrollee's estimate of annual income, the tax credit (subsidy) is applied against the enrollee's current premium.

The advanced premium tax credit is basically a form of the premium tax credit. The health insurance exchange will estimate your annual premium tax credit amount if you are eligible. The projected credit can then be claimed in advance by choosing to have some or all of it paid straight to the insurance company of your choice each month.

Your APTC is based on a premium tax credit amount that is projected and set by the market. But things can alter throughout the course of the year; perhaps you receive a raise that lowers your eligibility for a credit. As a result, there may be a difference between your advance premium tax credit and your actual premium tax credit, which is based on your actual adjusted gross income plus a few minor modifications.

The IRS Form 8962 accounts for this discrepancy. To compare the amounts paid directly to your insurance with the actual amount of your premium tax credit, include this form with your tax return. You must pay back the excess if your advance premium tax credit exceeds your actual premium tax credit amount when you reconcile the numbers on your tax return. The difference will be applied to your tax liability for the year if your advance premium tax credit amount is less than your actual premium tax credit amount, resulting in a higher refund or smaller debt owed.

Example of Advance Premium Tax Credit

Let's imagine you use the health insurance marketplace to purchase health coverage. In that case, the program estimates that you qualify for a $1,000 premium tax credit. The $1,000 advance premium tax credit would also apply to you. The advance tax credit will lower your monthly expenses by around $83 ($1,000 ÷ 12 months) if you choose to pay this complete sum to your health insurance provider. Alternatively, you might decide to forgo any monthly payments from the health insurance market to your insurer. In this scenario, you wouldn't be eligible for an advance premium tax credit and would instead claim the full $1,000 in premium tax credits on your yearly tax return.

Who is Eligible for Advance Premium Tax Credit ?

To be eligible for the advance premium tax credit, your income must typically be between 100% and 400% of the federal poverty line for your family size. The 400% cap is temporarily eliminated for tax years 2021 and 2022. However, persons with lower incomes typically receive larger credits.

You must first be eligible for the premium tax credit in order to be qualify for the advance premium tax credit. You must also fulfil each of the following requirements:

  • You are enrolled for health insurance coverage through the marketplace plan for at least one month.
  • You were not qualified for coverage through your employer or a government program like Medicare or Medicaid, and neither were any family members who were enrolled in the plan.
  • For years other than 2021 and 2022, your income must be at least 100% and cannot exceed 400% of the federal poverty line for your family size.
  • You do not qualify as a married person filing separately.
  • You are not listed as a dependent of another taxpayer.

If you are eligible, you can receive the advance premium tax credit by letting the health insurance marketplace pay your insurer all or part of your estimated premium tax credit.

How Much is the Advance Premium Tax Credit ?

The advance premium tax credit does not have a specific statutory amount. Unlike other tax credits, whose dollar amounts could be phased off based on income, this one is not. Your maximum advance premium tax credit amount is based on the health insurance marketplace’s estimation. Then you can decide, how much of that to take in advance.

How to Claim the Advance Premium Tax Credit ?

To claim the Advanced Premium Tax Credit, you need to enroll for health insurance coverage through the Marketplace. The tax credit is not given automatically, instead, you must apply for it when you sign up for insurance by having the Marketplace website determine the amount of the credit based on information provided at that time, or you can pay the full amount of the regular premiums and then claim the tax credit back when filing your taxes the following year.

If you choose to use the monthly discount, you must reconcile the difference between the actual credit and the discount on your tax return for the following year. To claim or reconcile this tax credit, utilize IRS Form 8962, Premium Tax Credit. You are entitled to a refund if the monthly discount you receive is less than the credit's value. When you file your tax return, you must pay back the difference if the discount you received exceeded the credit you were entitled to.

You must first submit an application on the Health Insurance Marketplace in order to receive your tax credit. The credit you can apply for for the following year will then be estimated for you. Your eligibility for credit is determined by :

  • Your household size
  • Your estimate of household income for the coming year.
  • The average cost of insurance in your area for a family like yours.

You may be eligible for extra credit if your family is larger and your income is lower. After that, you'll choose how to apply your credit. Because you can opt to have all or a portion of this subsidy paid in advance toward your premium, it is known as the Advanced Premium Tax Credit.

Your insurance carrier receives reimbursement from the Marketplace after being informed about your credit. Your payments are reduced because your insurance provider puts the credit toward your monthly premium. You can also wait until you file your tax return for the year your plan covered you to make your credit claim. You can also claim the unused portion when you file if you only used a portion of it to pay your insurance. It's the choice between receiving the credit as a lump payment and paying lower monthly rates. You have the choice.

Frequently Asked Questions

What is the maximum advanced premium tax credit?
The premium tax credit has no predetermined financial limit because the amount is determined by the projected contribution of the taxpayer and the overall cost of health insurance. For instance, persons making 300% of the federal poverty line ($83,250 for a family of four in 2023) are predicted to pay 6% of their household income, or $416, toward the cost of health insurance premiums; any premium expenses over that may be eligible for a tax credit.

Why do I have to repay the advance premium tax credit?
You were likely given an excessive amount throughout the year if you have to refund your advance premium tax credit. When your initial annual revenue estimate is off, this can occur. For instance, if you obtain a pay increase over the year, your initial income estimate might have estimated that you were eligible for greater tax credits than you actually were.

What happens, if I get too much APTC?
If you want to use your advance premium tax credits, the amount of your APTC is determined by the information you provide to VHC regarding your expected annual income and the composition of your tax household. The IRS will compare the amount of APTC you received during the year to the income you report on your federal taxes when you submit your taxes at the end of the year. You could need to repay some of your APTC if you received too much of it over the year.

What are the repayment limits for advance premium tax credit?
If your income is higher than you anticipated when you earned Premium Tax Credits for health insurance, the maximum you must repay is the Advanced Premium Tax Credit payback restrictions.

How do changes to my income or family affect my advance premium tax credit?
Your Advanced Premium Tax Credit changes over the course of a year as your circumstances change because it is based on your family size and income. Events that have an impact on the sum include :
  • Marriage
  • Divorce
  • Decreases or increases in household income
  • Child's birth or adoption
  • Becoming ineligible or eligible for health insurance through government program or employer.
Any of these changes should be reported to the Health Insurance Marketplace. They will revise the data that was first utilized to calculate your premium tax credit. They will then change the size of your advance payment.