Affordable Care Act Tax Credits
The Affordable Care Act (ACA) tax credits, officially called premium tax credits, are government subsidies that lower the monthly cost of health insurance purch
The Affordable Care Act (ACA) tax credits, officially called premium tax credits, are government subsidies that lower the monthly cost of health insurance purchased through the Health Insurance Marketplace. These credits are available to individuals and families with household incomes between 100% and 400% of the federal poverty level (FPL) who are not eligible for other affordable coverage. Instead of receiving a lump sum at tax time, most people choose to have the credit paid directly to their insurer each month, reducing their premium right away.
How ACA Tax Credits Work
ACA tax credits are designed to cap the amount you pay for a benchmark health plan—the second-lowest-cost Silver plan available in your area—at a specific percentage of your income. For 2024, the required contribution ranges from about 2% of income for those near 100% FPL to 8.5% of income for those at 400% FPL and above (thanks to the Inflation Reduction Act). The credit covers the difference between that capped amount and the actual premium of the benchmark plan.
For example, if the benchmark Silver plan in your region costs $600 per month and your expected contribution is $150 per month (based on your income), the tax credit would be $450 per month. You can then apply that $450 to any Marketplace plan, not just the Silver plan. If you choose a Bronze plan that costs $400, your monthly payment would be $0 (the credit would cover the entire premium, but any unused credit is lost). If you choose a Gold plan costing $800, you would pay $350 per month.
The credit is calculated based on your estimated income for the coverage year. You can have the full amount paid in advance (called the Advance Premium Tax Credit, or APTC) or claim it when you file your taxes. Most people take the advance payment to lower their monthly bills. At tax time, you must reconcile the advance credit with the actual credit you were entitled to using IRS Form 8962. If your income turns out higher than estimated, you may have to repay some of the credit; if lower, you get the difference as a refundable credit.
Who Qualifies for ACA Tax Credits
Eligibility hinges on three main factors: income, household size, and access to other coverage. As of 2024, you must have a household income between 100% and 400% of the federal poverty level. For a single person, 100% FPL is $14,580 and 400% FPL is $58,320. For a family of four, the range is $30,000 to $120,000. However, if your state expanded Medicaid (most states have), people with income below 100% FPL may qualify for Medicaid instead of tax credits. In states that did not expand Medicaid, those below 100% FPL may have no affordable option—a situation known as the coverage gap.
You also must be a U.S. citizen or lawfully present, not incarcerated, and not eligible for other minimum essential coverage, such as a job-based plan that is considered affordable and adequate. In 2023, the IRS updated the affordability test: if your employer’s plan costs more than 8.39% of your household income for employee-only coverage, you can still qualify for Marketplace tax credits. This change fixed the “family glitch” that previously prevented families from getting subsidies even when employer coverage was unaffordable for dependents.
Finally, you cannot be claimed as a dependent on someone else’s tax return, and you must file a tax return (even if you have no tax liability) to claim the credit. The credit is refundable, meaning if it exceeds your tax liability, you get the excess back as a refund.
How to Calculate Your Credit and What to Expect at Tax Time
Your actual premium tax credit is determined by the number of months you had Marketplace coverage, your household income, and the cost of the benchmark plan. The IRS uses a sliding scale: the lower your income, the smaller your expected contribution. For 2024, the expected contribution percentages are:
| Income as % of FPL | Maximum Premium as % of Income |
|---|---|
| 100% – 138% | 2.0% |
| 138% – 150% | 3.0% – 4.0% |
| 150% – 200% | 4.0% – 6.0% |
| 200% – 250% | 6.0% – 8.5% |
| 250% – 400% | 8.5% |
| Above 400% | 8.5% (capped per ACA enhancement) |
When you file your taxes, you complete Form 8962 to calculate the premium tax credit you should have received based on your actual income. If you took advance payments, you compare that to the advance credit paid. If the advance credit was too high, you must repay the excess, subject to caps. For 2023, the repayment caps were:
- If your income is less than 200% FPL, you repay up to $350.
- If your income is 200% to 300% FPL, you repay up to $900.
- If your income is 300% to 400% FPL, you repay up to $1,500.
- If your income is above 400% FPL, you repay the full excess (no cap, but the enhanced subsidy makes this less common).
If you received less advance credit than you were entitled to, the difference is added to your refund or reduces your tax bill. This reconciliation is why it’s important to report income changes to the Marketplace throughout the year—it helps keep your credits accurate and minimizes surprises on your tax return.
Impact of the Inflation Reduction Act on ACA Tax Credits
The American Rescue Plan Act of 2021 temporarily expanded ACA tax credits, and the Inflation Reduction Act of 2022 extended those enhancements through 2025. The most significant change is the elimination of the “subsidy cliff.” Previously, once your income exceeded 400% FPL, you lost all tax credits. Now, households earning above 400% FPL can still receive a premium tax credit that caps their premium at 8.5% of income. This means that a single person earning $60,000 (just above 400% FPL in 2024) would pay no more than $425 per month for a benchmark plan, with the credit covering the rest.
Additionally, the enhanced subsidies lowered the required contribution for people with incomes below 150% FPL to $0 for the benchmark plan. This has made many Bronze and even some Silver plans available with no monthly premium for lower-income enrollees. These changes are temporary—they are set to expire after 2025 unless Congress acts. If they expire, the subsidy cliff will return, and premiums for higher-income households could spike. For now, millions of Americans benefit from these more generous credits, and the enhanced subsidies have contributed to record enrollment in the Marketplace.
Frequently Asked Questions
Can I get an ACA tax credit if my employer offers health insurance?
It depends on whether your employer’s plan is considered affordable and provides minimum value. For 2024, an employer plan is affordable if the employee-only premium costs no more than 8.39% of your household income. If it’s affordable and provides minimum value, you cannot qualify for a tax credit, even if you decline the coverage. If it’s unaffordable or doesn’t meet minimum value, you may be eligible for a credit. This rule applies only to the employee; family members can now qualify if the employee-only coverage is affordable but family coverage is not (thanks to the “family glitch” fix).
What happens if my income changes during the year?
You should report any change in income to the Marketplace as soon as possible. The Marketplace will adjust your advance tax credit for the remaining months. If you receive too much credit and don’t report the change, you may have to repay the excess when you file your taxes. If your income drops, you can get a larger credit and lower your monthly payments. Reporting changes promptly helps keep your subsidy accurate.
Do I need to pay back the tax credit if I earn more than I estimated?
If you earn more than you projected, you may have to repay some or all of the excess advance credit. However, the repayment is capped based on your income, as shown in the table above. If your income ends up above 400% FPL, the cap disappears, but the enhanced subsidy (through 2025) means you may still qualify for a credit, reducing the amount to repay. If you under-withheld and received too little advance credit, you get the difference as a refundable credit.
Making the Most of Your ACA Tax Credit
ACA tax credits are a powerful tool for making health insurance more affordable, but they require careful planning. When you apply for coverage on the Marketplace, provide accurate income estimates and check in