What the monthly advance payment does

The monthly advance payment of premium tax credit is money the federal government sends directly to your health insurance company each month to lower your premium. You do not pay the full premium yourself and then get reimbursed later — the credit arrives before you pay, reducing what you owe on your bill.

This is different from a tax credit you claim on your tax return at the end of the year. The advance payment happens now, month by month, while you have coverage. The Internal Revenue Service (IRS) coordinates with the health insurance marketplace to send the payment based on information you provided when you signed up.

The amount of the advance payment depends on your household income, family size, and the cost of the second-lowest-cost Silver plan in your area. If your actual income during the year turns out to be different from what you reported, you may owe money back or receive additional credit when you file taxes.

Key Takeaways

  • The advance payment goes directly to your insurance company each month, not to you, and reduces your premium before you receive your bill.
  • The IRS calculates the amount based on your household income and family size at the time you sign up for coverage.
  • You must enroll through the Health Insurance Marketplace (Healthcare.gov or your state's marketplace) to receive the advance payment.
  • If your income changes during the year, you should report it to the marketplace so the advance payment amount stays accurate.
  • Any difference between the advance payments you received and the credit you are actually may have access to to is settled when you file your federal tax return.

How the amount is calculated

The IRS uses a formula that compares your expected household income to the federal poverty line for your family size. The advance payment covers a percentage of the premium for the second-lowest-cost Silver plan available in your county, up to a cap based on your income level.

For example, if the second-lowest Silver plan costs $400 per month and the IRS determines you should pay 8% of your income toward premiums, the advance payment would cover the difference between that 8% and the full $400 — assuming your income qualifies you for a credit at all. The exact percentages change each year and vary by income level.

You do not have to choose the Silver plan to receive the advance payment. If you pick a Bronze, Gold, or Platinum plan instead, the advance payment amount stays the same, but your out-of-pocket premium may be higher or lower depending on the plan's price. If you choose a plan cheaper than Silver, you keep the difference as a lower premium. If you choose a more expensive plan, you pay the difference yourself.

Who receives the advance payment

You must meet two conditions: your household income must fall between 100% and 400% of the federal poverty line (some states extend this to higher incomes), and you must enroll in a health plan through the Health Insurance Marketplace during the open enrollment period or a may have access to life event.

You cannot receive the advance payment if you enroll through your employer, a private broker, or directly with an insurance company outside the marketplace. The marketplace is the only place the IRS can coordinate with your insurance company to send the advance payment automatically.

If your income is below 100% of the federal poverty line, you may not be may have access to to a premium tax credit through the marketplace, though you might be may be able to access for Medicaid depending on your state. If your income exceeds 400% of the federal poverty line, you do not receive an advance payment, though you can still buy coverage on the marketplace and claim any remaining credit on your tax return.

When the payment arrives and how it works with your bill

The advance payment is sent to your insurance company around the 15th of each month, before your premium is due. Your insurer applies the credit to your account and reduces your monthly bill accordingly. You receive a bill showing the full premium, the advance payment amount, and what you owe.

The timing means you are not waiting for a refund or reimbursement. The credit reduces your when ready out-of-pocket cost. If you pay by the due date shown on your bill, your coverage continues without interruption.

If the advance payment does not arrive or is applied incorrectly, contact your insurance company first — they can tell you whether the IRS sent it and help you troubleshoot. The marketplace customer service line can also investigate delays, though the IRS processes the actual payment.

What happens if your income changes

If your income increases or decreases during the year, the advance payment amount may no longer match what you actually owe. You should report the change to the marketplace as soon as it happens so the IRS can adjust future payments.

If you do not report a change and your actual income ends up higher than you reported, you will owe some of the advance payments back when you file your tax return. The IRS will calculate how much credit you were actually may have access to to based on your real income, and you will settle the difference on Form 8962 (Premium Tax Credit).

If your actual income is lower than you reported, you may be may have access to to additional credit. You claim this on your tax return, and the IRS sends you a refund or applies it to other taxes you owe.

The connection to your tax return

The advance payment is not separate from the premium tax credit — it is the same credit, paid in advance. At the end of the year, you must file a federal tax return and reconcile the advance payments you received against the credit you were actually may have access to to.

You will need Form 1095-B (Health Insurance Coverage) from your insurer and Form 1094-B (Transmittal of Health Insurance Coverage Information) if you had coverage through the marketplace. Your insurer sends these automatically. You also need your final household income for the year.

If the advance payments were too high, you owe the difference back — it reduces your refund or increases what you owe. If they were too low, you receive the difference as a refund or credit. This is why reporting income changes to the marketplace during the year matters: it keeps the advance payments closer to what you will actually owe, reducing the adjustment at tax time.

How to enroll and receive the advance payment

Visit Healthcare.gov (or your state's marketplace website if your state runs its own) during the annual open enrollment period, which typically runs from November through January. If you have a may have access to life event — such as losing employer coverage, getting married, having a child, or moving — you can enroll outside the open enrollment window.

When you create an account and enter your household income and family size, the marketplace estimates your credit amount and shows you what your monthly premium would be after the advance payment is applied. You can see this estimate before you choose a plan.

Once you select a plan and complete enrollment, the marketplace sends your information to the IRS. The IRS then coordinates with your insurer to begin sending the advance payment the following month. You do not need to do anything else — the payment happens automatically as long as your coverage remains active.

Frequently Asked Questions

Can I get the advance payment as cash instead of having it go to my insurance company?

No. The advance payment must go directly to your insurance company to reduce your premium. You cannot receive it as a check or direct deposit to your bank account. The credit is tied to your health coverage, not paid to you separately.

What happens to the advance payment if I cancel my coverage mid-year?

The IRS stops sending the advance payment once your coverage ends. When you file your tax return, you will reconcile only the months you had coverage. If you had coverage for six months and received six advance payments, those six payments are what you reconcile against the credit you were may have access to to for those six months.

Do I have to choose the Silver plan to get the full advance payment?

No. The advance payment amount is the same regardless of which plan you choose. The calculation is based on the Silver plan's cost in your area, but you can pick any metal level. If you choose a cheaper plan, your premium is lower. If you choose a more expensive plan, you pay the difference yourself.

What if I think the advance payment amount is wrong?

Contact the marketplace first — they can review the income and family size information you provided and recalculate the estimate. If the amount still seems incorrect, ask the marketplace to submit a request to the IRS for review. Keep copies of any income documents you submitted, as you may need them to support a correction.

Can I receive the advance payment if I am self-employed?

Yes, as long as your household income falls within the range for a credit (between 100% and 400% of the federal poverty line, or higher in some states). Self-employed income counts toward household income. You will need to estimate your income for the year when you enroll, and report changes if your actual income looks different.