What is 'Advanced Premium Tax Credit'

The Advanced Premium Tax Credit is a federal tax credit for individuals that reduces the amount they pay for monthly health insurance premiums when they buy health insurance on the Marketplace.

BREAKING DOWN 'Advanced Premium Tax Credit'

The Advanced Premium Tax Credit is a credit in the Patient Protection and Affordable Care Act (ACA, also referred to colloquially as Obamacare), signed into law on March 23, 2010 by President Barack Obama. The tax credits are not like regular tax credits that must be calculated and applied to the taxpayer's tax liability and either refunded or used to reduce liability when taxes are filed for the previous year. In contrast, the Advanced Premium Tax Credit is calculated and sent directly from the government to the health insurance companies that insure individuals who are eligible for the credit. The individual gets a discount on monthly premium payments in the amount of the tax credit. Anyone who is eligible for this tax credit receives an amount determined by income. Those who make more will receive a smaller credit and a smaller monthly discount, while those with less income will receive larger credits and a larger discount on health care premiums. Because this tax credit is a direct payment, individuals who receive it do not have to pay the full amount of their monthly health insurance premium up front, but can pay the discounted amount.

The qualifications for the Advanced Premium Tax Credit are that the individual is ineligible for either Medicaid or the Children’s Health Insurance Program (CHOP), is ineligible for employer-sponsored health insurance and has a modified adjusted gross income (AGI) of between 100 and 400 percent of the federal poverty level.

How to Apply for ‘Advanced Premium Tax Credit’

To claim the Advanced Premium Tax Credit, the individual must enroll in health insurance coverage through the Marketplace. The tax credit is not automatic, and the individual must apply for it when they sign up for insurance by having the Marketplace website calculate the amount of the credit based on information supplied at that time, or pay all the normal premiums and then claim the tax credit back on the tax return when filing the next year. If an individual takes the monthly discount, they must reconcile that actual credit with the discount received on their tax return the next year. IRS Form 8962 Premium Tax Credit is the form to use to claim or reconcile this tax credit. If the discount taken monthly is less than the amount of the credit, the individual is eligible for a refund. If the discount was more than the credit amount, this becomes part of the individual's tax liability.

RELATED TERMS
  1. Non-Refundable Tax Credit

    A non-refundable tax credit is a tax credit that can only reduce ...
  2. Additional Child Tax Credit

    The Additional Child Tax Credit is the refundable portion of ...
  3. Credit Report

    A credit report is a detailed report of an individual's credit ...
  4. Credit Reporting Agency

    A credit reporting agency is a business that maintains historical ...
  5. Advance Premium Fund

    Advance Premium Funds exist when Insurance companies who receive ...
  6. Advance Premium

    An advance premium is an initial premium paid to bind an insurance ...
Related Articles
  1. Personal Finance

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  2. Taxes

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  3. Personal Finance

    Should Your Credit Rating Scare You?

    Take the mystery out of credit scores by learning the most important ways it can impact your life.
  4. Small Business

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  5. Personal Finance

    Tax Credits For Families

    Sometimes it actually pays to have kids if you are looking for significant tax breaks.
  6. Personal Finance

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  7. Personal Finance

    Build Your Credit Score

    Here are four good ways to build your credit score when you're starting from scratch. Do it right and you'll end up with excellent credit.
  8. Personal Finance

    How to Establish Credit with No Credit History

    Even if you have no credit history, taking action to begin establishing your credit history today is a wise move. Learn more in this article.
  9. Investing

    Revolving Credit vs. Line of Credit

    Revolving credit and a line of credit are arrangements made between a lending institution and a business or individual.
  10. Personal Finance

    Extreme Credit Repair: Why It Doesn't Work

    Most of these are illegal scams at worst and a waste of time at best. Here are five extreme credit repair techniques we do not recommend.
RELATED FAQS
  1. Is it possible to have a credit limit that’s too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  2. What is the difference between a write-off and a deduction?

    Understand the differences between a tax write-off and a tax deduction. Learn how each one works to reduce income taxes and ... Read Answer >>
Trading Center