What is 'Advanced Premium Tax Credit'

The Advanced Premium Tax Credit is a type of federal subsidy that reduces the amount individuals pay for their monthly health insurance premiums.

BREAKING DOWN 'Advanced Premium Tax Credit'

Advanced Premium Tax Credits are a provision in the Patient Protection and Affordable Care Act, signed into law on March 23, 2010 by President Barack Obama. The tax credits are sent directly from the government to eligible individuals’ health insurers to reduce monthly premium payments. If eligible, the tax credit amount a person receives depends on income; you will pay more for the monthly premium if your income falls near the top of the range, and less if your income is closer to the bottom.

Since it is a direct payment made to the insurance provider, individuals who qualify for the Advanced Premium Tax Credit do not need to pay the entire amount of their premium up front. To qualify for the Advance Premium Tax Credit, you must be ineligible for public coverage under Medicaid and the Children’s Health Insurance Program, be unable to access qualified health insurance through an employer, and have a modified adjusted gross income that falls between 100 percent and 400 percent of the federal poverty level.

How to Apply for ‘Advanced Premium Tax Credit’

To qualify for Advanced Premium Tax Credits or cost-sharing reductions, the second federal subsidy designed to help lower costs for health insurance coverage, you must purchase coverage through a health insurance marketplace. Advanced Premium Tax Credits are not automatic.

When you enroll in marketplace insurance, you can choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower what you pay for your monthly premiums. Or, you can choose to get all of the benefit of the credit when you file your tax return for the year. If you choose to have advance payments of the premium tax credit made on your behalf, you will reconcile the amount paid in advance with the actual credit you compute when you file your tax return.  Either way, you will complete Form 8962, Premium Tax Credit and attach it to your tax return for the year.

Eligible individuals can decide how much advance credit payments will be applied to their premiums each month, up to a maximum amount. A refundable credit will be given on an individual’s federal income tax return if the amount of advance-credit payments is less than the tax credit they should have received. Conversely, individuals will have to repay any excess advance payments with their tax returns if the advance payments for the year are more than the credit amount.

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