ACA Premium Tax Credits: Understanding the Repayments

If you receive health insurance through the Affordable Care Act (ACA), you may have encountered the term “premium tax credit.” This credit helps reduce the cost of your monthly insurance premiums. In specific circumstances, you may need to repay a portion of these credits when you file your taxes.

What is the Advance Premium Tax Credit (APTC)?

The APTC is a tax credit that reduces the amount of income tax you owe. You can receive this credit if you meet certain income and household size requirements and have a health insurance plan that meets minimum standards. The APTC is paid directly to your insurance company to help cover your monthly premiums.

Repaying the APTC

In general, you do not need to repay the APTC. However, if your income increases significantly during the year or if you receive more APTC than you are eligible for, you may be required to repay a portion of the credit when you file your taxes.

When you file your taxes, follow these steps to determine if you need to repay the APTC:

1. Compare your income to the income limits for APTC eligibility. Use the income limits for the year in which you received the APTC. You will need to repay the credit if your income is above the APTC income limits.
2. Review your APTC payments. You will receive Form 1095-A, Health Insurance Marketplace Statement, which shows the amount of APTC you received during the year. You can compare this amount to the APTC amount you were eligible for based on your income and household size.
3. Complete the APTC repayment worksheet, Schedule 3 (Form 8885), Health Coverage Tax Credits. This worksheet will help you calculate the amount of APTC you need to repay.

Factors that can affect the amount of APTC you need to repay:

Estimated income vs. actual income. If your income was estimated too low when you applied for the APTC, you may receive more APTC than you are eligible for.
Changes in family size. If your household size increases during the year, you may be eligible for a higher APTC. However, if it decreases, you may need to repay some of the credit.
Receipt of other tax credits. If you receive other tax credits, such as the Child Tax Credit, it can reduce the amount of APTC you are eligible for.
Changes in your health insurance plan. If you change health insurance plans during the year, it can affect the amount of APTC you receive.