What Is the Premium Tax Credit and How Does It Work?

Key Takeaways

The premium tax credit lowers monthly health insurance costs when the government pays part of your premium directly to your insurer.

Enhanced premium tax credits expire on Dec. 31, 2025. The income cap returns to 400% of the federal poverty level starting in 2026.

You must shop through the federal health insurance marketplace or your state marketplace to use premium tax credits. Your credit amount depends on income, household size and location.

What Is Premium Tax Credit?

The premium tax credit cuts your monthly health insurance costs. The federal government pays part of your premium directly to your insurer, so you pay less each month. Single people earning $15,650 to $62,600 qualify, as do families of four earning $32,150 to $128,600 in 2026. Apply through HealthCare.gov or your state marketplace to find out if you're eligible.

Enhanced tax credits expire on Dec. 31, 2025, which means you'll pay more for the same coverage starting in January 2026. Premium tax credits continue, but the income cap returns to 400% of the federal poverty level. If you earn above these amounts, you won't qualify for any credit, according to the IRS.

Who Qualifies for Premium Tax Credit?

Most people shopping on the Marketplace qualify. Your household income needs to fall between $15,650 and $62,600 if you're single, or $32,150 and $128,600 for a family of four in 2026. You'll shop through HealthCare.gov or your state marketplace, and you can't already have Medicare, Medicaid or affordable coverage through your job.

Income Requirements

The government picks the second-lowest-cost Silver plan in your area and sets your payment cap. Lower earners pay a smaller percentage of their income. Higher earners pay more, topping out at 9.96% for people earning 300% to 400% of the federal poverty level. The premium tax credit covers everything else.

2026 Income Limits and What You'll Pay


1 person	$15,650–62,600	2.1–9.96% of income
2 people	$21,150–84,600	2.1–9.96% of income
3 people	$26,650–106,600	2.1–9.96% of income
4 people	$32,150–128,600	2.1–9.96% of income

What changed for 2026: Enhanced credits that capped your costs at 8.5% of income ended Dec. 31, 2025. If you earn more than $62,600 as a single person (or $128,600 for a family of four), you won't get any credit in 2026, according to the IRS.

Qualifying Health Plans

Shop at HealthCare.gov or your state exchange. That's where the premium tax credit works. Private insurance bought directly from insurers won't qualify.

All metal tiers work: Bronze, Silver, Gold and Platinum. Pick what fits your budget. Your credit gets calculated using the second-lowest Silver plan (the "benchmark" plan) in your area, but you can apply it to any tier. You must enroll in coverage for at least one month and pay your share of premiums by your tax return's due date.

Citizenship Requirements

You must be a U.S. citizen or lawfully present immigrant. Starting in 2026, lawfully present immigrants earning below $15,650 as a single person won't qualify for the premium tax credit.

WHAT DISQUALIFIES YOU FROM PREMIUM TAX CREDIT?

You won't qualify for premium tax credits if you're eligible for Medicare, Medicaid, CHIP, TRICARE or employer-sponsored insurance costing less than 9.96% of your household income for self-only coverage.

How Does the One Big Beautiful Bill Act Affect PTC Eligibility?

Trump signed the One Big Beautiful Bill Act into law on July 4, 2025. It makes getting help with premiums harder starting in 2026. The biggest changes: lawfully present immigrants earning below $15,650 lose eligibility, repayment caps disappear, and you'll need to verify everything before enrolling each year.

Who Loses Coverage?

If you're here legally but earn below $15,650 as a single person, you can't get premium tax credits starting in 2026 if you don't qualify for Medicaid because of your immigration status. In 2027, refugees, asylum seekers and people with Temporary Protected Status also lose eligibility, the Center for American Progress found.

Repayment Just Got Riskier

Repayment limits are gone for 2026 coverage under the One Big Beautiful Bill Act. If you get more advance credit than you qualify for, you'll owe back every dollar when you file taxes. Previously, you'd max out at $375 to $3,250 depending on income. If your income fluctuates during the year, this change could hurt.

What You Need to Do Now

You'll verify your eligibility before enrolling each year. No more enrolling first and proving things later. Bring proof of income, family size and immigration status when you sign up. The One Big Beautiful Bill Act also cuts off premium tax credits for anyone enrolling during the low-income special enrollment period. That's people earning 100% to 150% of the federal poverty level. You can still sign up during that window, just without financial help, based on the new requirements.

How Does Premium Tax Credit Work?

You decide upfront how much help you want with premiums. The government sends money directly to your insurer each month, which lowers what you pay. Your monthly cost drops based on the income and family size you report when you enroll. At tax time, you'll reconcile the advance payments using IRS Form 8962.

How Can You Receive Your Tax Credit?

Choosing between monthly savings and a tax-time credit depends on your cash flow. Take advance payments if you need lower premiums now, or claim the full credit when filing taxes if you can afford higher monthly costs. You'll reconcile what you received against your actual income using Form 8962.

Option 1: Advance Monthly Payments	Option 2: Full Credit at Tax Time
The Marketplace sends money directly to your insurer each month, lowering what you pay immediately. When you file taxes, you'll reconcile using Form 8962. If your actual income was lower than estimated, you'll get money back. If it was higher, you'll owe the difference to the IRS.	You pay full price for premiums each month and claim the entire credit when filing taxes using Form 8962. If the credit exceeds what you owe in taxes, you'll get the difference as a refund. This option works best if you can cover higher monthly costs and want to avoid potential repayment.

WHAT IS FORM 8962?

Form 8962 is how you reconcile with the IRS at tax time. You'll get Form 1095-A from the Marketplace showing your advance payments. Use both forms to compare what you received against what you qualified for based on your final income. Even if you don't normally file taxes, you must file this form, or you won't get advance payments next year.

Factors That Affect How Much Premium Tax Credit You Can Claim

Your credit amount depends on your income, household size and location. The Marketplace calculates your share based on what you can afford, then the credit covers the rest of the benchmark plan's cost. Report income or family changes immediately when they happen, or you'll owe the difference at tax time.

Your Income

Your income determines what percentage you pay toward the benchmark Silver plan (the second-lowest-cost Silver plan in your area). Lower earners near the federal poverty level pay 2.1% of income. Higher earners near the income cap pay up to 9.96%. The credit covers everything beyond your required share.

Your Household Size

Count yourself, your spouse (if filing jointly) and all your dependents. Bigger families qualify at higher income levels. A single person loses eligibility at $62,601, but a family of four can earn up to $128,600 and still qualify. If you add or lose a household member, report the change right away because your credit amount will adjust.

Your Location

Insurance costs vary by ZIP code, which affects your credit. The credit calculation uses the second-lowest-cost Silver plan in your area. Someone in Miami, Florida, receives a larger credit than someone in Minneapolis, Minnesota, at identical income levels. The credit adjusts automatically based on your address.

Is Advance Premium Tax Credit Better for You?

Choosing between advance payments and waiting for tax time depends on your financial situation. Most people take the money upfront for immediate relief on monthly premiums. If your income fluctuates or you hate tax-time surprises, claiming the full credit later eliminates repayment risk.

Pros of Advance Premium Tax Credit	Cons of Advance Premium Tax Credit
Premiums drop immediately. The Marketplace sends money directly to your insurer, lowering what you pay without waiting for tax season.	Income increases trigger repayment. If you earn more than estimated, you'll owe the difference when filing Form 8962.
Spreading the credit across 12 months eases budget pressure. Monthly payments beat waiting for one lump sum if cash flow is tight.	Tax filing becomes mandatory. If you receive advance payments, you must file Form 8962 even if you normally don't file taxes, or you'll lose advance payments next year, the IRS reports.
You control the advance payment amount. You can choose all, some or none of your estimated credit upfront based on income stability.	Life changes need immediate reporting. You must update income or household size right away with the Marketplace, or reconciliation gets complicated with potential tax bills, HealthCare.gov reports.

How Premium Tax Credit Works: Bottom Line

The premium tax credit cuts what you pay each month based on your income, household size and where you live. Shop through HealthCare.gov or your state marketplace to qualify. Enhanced premium tax credits ended Dec. 31, 2025, returning the income cap to 400% of the federal poverty level in 2026.

Premium Tax Credits: FAQ

Frequently asked questions about the premium tax credit, including eligibility requirements, repayment obligations and strategies to minimize costs:

Do you get money back from premium tax credit?

Yes, you get a refund if your actual income was lower than estimated. When filing Form 8962, the IRS compares advance payments against what you qualified for based on final income. If you received less credit than you deserved, the difference gets added to your tax refund or subtracted from what you owe.

Does the premium tax credit work with any type of insurance?

No, premium tax credits only work with marketplace plans purchased through HealthCare.gov or your state exchange. Private insurance bought directly from insurers doesn't qualify. All metal tiers qualify: Bronze, Silver, Gold and Platinum. Your credit calculation uses the second-lowest Silver plan in your area.

Do you have to pay back the tax credit for health insurance?

Yes, if you receive more advance credit than you qualify for based on final income. Repayment caps were eliminated starting with 2026 coverage. You'll owe every dollar of excess credit when filing Form 8962. For 2025 coverage, repayment maxed out at $375 to $3,250 depending on income.

How can I avoid paying back my premium tax credit?

Report income or household changes immediately to the Marketplace when they happen. Alternatively, claim the full credit at tax time instead of taking advance payments, eliminating repayment risk entirely. You can also choose partial advance payments rather than your full estimated credit if your income fluctuates during the year.

About Mark Fitzpatrick

Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. He has analyzed the insurance market for over five years, conducting original research for insurance shoppers. His insights have been featured in CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

He writes about economics and insurance, breaking down complex topics so people know what they're buying.

Read Full Bio »

sources

Congress.gov. "One Big Beautiful Bill Act." Accessed January 13, 2026.
HealthCare.gov. "How to save on your monthly insurance bill with the premium tax credit." Accessed January 13, 2026.
IRS.gov. "Instructions for Form 8962." Accessed January 13, 2026.
IRS.gov. "One, Big, Beautiful Bill provisions." Accessed January 13, 2026.
IRS.gov. "The Premium Tax Credit – The Basics." Accessed January 13, 2026.

What Is Premium Tax Credit and How Does It Work?