The advance payment of premium tax credit is money the federal government sends to your health insurance company each month on your behalf, reducing what you owe for coverage
When you buy health insurance through the Healthcare.gov marketplace (or your state's marketplace), you can receive part of your tax credit before tax time arrives. Instead of waiting until April to claim the full credit on your tax return, the government sends monthly payments directly to your insurer. Your monthly premium bill shrinks by that amount. The credit itself comes from your federal income tax liability — the government is essentially advancing you part of a tax break you would otherwise claim later.
This is different from a regular tax credit you claim on your return. A regular tax credit reduces what you owe when you file. An advance payment of premium tax credit reduces what you pay for insurance right now, month to month. The two are connected to the same pool of money, which is why getting one right matters for the other.
Key Takeaways
- The advance payment is a monthly reduction in your insurance bill, not a separate payment to you.
- The amount depends on your household income, family size, and the cost of the second-cheapest Silver plan in your area.
- You estimate your income when you enroll, and the government uses that estimate to calculate the advance payment.
- If your actual income turns out to be higher than you estimated, you may owe money back when you file taxes; if it is lower, you may get a refund.
- You can change your income estimate during the year if your circumstances change, which adjusts your monthly payment.
How the advance payment is calculated
The government starts with the cost of the second-cheapest Silver plan available in your county. This is called the benchmark plan. It is not the plan you choose — it is a reference point used only for the math. The benchmark plan's monthly cost is multiplied by your household size and adjusted for your age.
Next, the government calculates what percentage of your household income should go toward health insurance. These percentages are set by law and change each year. For 2024, a single person earning $35,000 per year would be expected to contribute roughly 8.5% of income toward premiums. The government subtracts that amount from the benchmark plan's cost. The remainder is your advance payment.
Example: If the benchmark Silver plan costs $400 per month and you are expected to pay $100 per month based on your income, the advance payment would be $300. Your actual insurance bill would be reduced by $300 each month.
Your income estimate determines the payment amount
When you enroll in marketplace coverage, you report your expected household income for that year. The government uses this number to calculate your advance payment. If you think your income will be $50,000, the payment is based on $50,000. If you think it will be $40,000, the payment is based on $40,000.
The problem arrives at tax time. When you file your return, you report your actual income for the year. If it was higher than you estimated, you received more advance payments than you were may have access to to, and you owe the difference back. If it was lower, you get the overpayment as a refund. This is called reconciliation, and it happens automatically when you file.
You can update your income estimate during the year if your circumstances change — a job loss, a raise, a change in household size. Each update adjusts your monthly payment going forward. You do not have to wait until tax time to correct a major error.
What happens if your income changes mid-year
Life does not follow the calendar. You might lose a job in June, get married in August, or have a child in October. When your income or household size changes, you can report it to the marketplace and your advance payment will adjust.
If your income drops, your advance payment increases — you receive more help each month. If your income rises, your advance payment decreases. The change takes effect the following month, so there is a lag between when you report the change and when your bill reflects it.
You are not required to report changes, but it protects you at tax time. If you do not report a significant income increase, you will owe back a larger amount when you file. If you do not report an income drop, you will be paying more than you should each month.
The reconciliation process at tax time
When you file your federal income tax return, you report how much advance payment you received during the year. The IRS compares this to how much you were actually may have access to to based on your real income. The difference is either added to your refund or subtracted from it.
You report this on Form 8962, which is the reconciliation form for premium tax credits. If you received $3,600 in advance payments but were only may have access to to $3,000, you owe back $600. If you received $3,000 but were may have access to to $3,600, you get an extra $600 refund.
There is a cap on how much you can owe back if your income was higher than you estimated. For 2024, single filers earning less than $36,000 owe back no more than $300; families earning less than $72,000 owe back no more than $600. Higher earners have higher caps. This cap does not explore if you received advance payments but did not report income at all.
The difference between advance payment and the regular tax credit
The advance payment of premium tax credit and the regular premium tax credit are the same money, split into two parts. Think of your total tax credit as a pie. The advance payment is the slice you get each month while you have insurance. The regular tax credit is the slice you claim on your return at the end of the year.
If you do not take any advance payments, you can claim the entire credit on your tax return. If you take advance payments, you claim only the remaining portion. Most people take advance payments because it reduces their monthly bill when ready, rather than waiting until tax time for a refund.
You do not have to take advance payments if you do not want them. Some people decline them because they want to avoid owing money back at tax time, or because they expect their income to be significantly higher than their estimate. Declining them means paying full price for insurance each month, then claiming the full credit when you file.
Who is not may be able to access for advance payments
You must be enrolled in a marketplace health plan to receive advance payments. If you have coverage through an employer, Medicare, Medicaid, or the military, you cannot use this credit. You also cannot receive advance payments if your household income is below the federal poverty line, though you may still be able to claim the credit on your return.
Non-citizens and people without a Social Security number cannot receive advance payments, though some may be able to claim the credit on a tax return if they have an Individual Taxpayer Identification Number (ITIN).
Frequently Asked Questions
What happens if I do not report a big income change?
If your income rises significantly and you do not report it, you will owe back the difference at tax time. The amount depends on how much higher your actual income was. If your income drops and you do not report it, you will pay more for insurance each month than you should, but you will get the overpayment back as a refund when you file.
Can I get the advance payment as cash instead of a bill reduction?
No. The advance payment goes directly to your insurance company to reduce your premium. You never see the money. You only see the effect on your monthly bill.
What if I enroll mid-year?
Your advance payment is calculated based on the income you report and the months you are enrolled. If you enroll in June, you receive advance payments for June through December. The calculation is the same, but the total amount you receive is smaller because you have fewer months of coverage.
Do I have to file taxes to use the advance payment?
You must file a tax return to reconcile the advance payments you received. If you do not file, the IRS will not know whether you owe money back or are owed a refund. If you owe back a significant amount and do not file, the IRS may pursue collection.
What if my income is too high for a credit?
If your household income exceeds 400% of the federal poverty line, you do not may have access to for a premium tax credit at all. You cannot receive advance payments and cannot claim the credit on your return. You would pay full price for marketplace insurance.