The marketplace tax credit works as a sliding-scale subsidy that pays part of your monthly premium when you buy health insurance through the Health Insurance Marketplace. The federal government calculates how much you can afford to contribute toward a benchmark plan based on your income, then covers the rest. You can take the money in advance each month, so your insurer bills you a lower premium, or you can pay the full premium yourself and claim the credit as a lump sum when you file your federal tax return. Either way, the credit is reconciled on your return once your actual income for the year is known.
Who Qualifies
Five conditions have to be met at the same time.1Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan Your household income has to fall between 100 and 400 percent of the federal poverty level for your family size. You have to buy the plan through the federal or a state-run Marketplace; a policy purchased directly from an insurer does not qualify. You cannot be eligible for other minimum essential coverage — Medicaid, Medicare, or an affordable employer plan. If you are married, you generally have to file a joint return. And you have to be lawfully present in the United States and not incarcerated.
For 2026, the poverty level is $15,960 for a single person, $21,640 for a household of two, $27,320 for three, and $33,000 for four.2HealthCare.gov. Federal Poverty Level (FPL) The credit range therefore runs from about $15,960 to $63,840 for a single filer and from roughly $33,000 to $132,000 for a family of four.
Income is measured as modified adjusted gross income (MAGI): your adjusted gross income plus any foreign earned income you excluded, tax-exempt interest, and nontaxable Social Security benefits.3Internal Revenue Service. Modified Adjusted Gross Income It includes everyone in your tax household — you, your spouse if you file jointly, and any dependents who have to file a return of their own.
The Employer Coverage Test
Having an offer of job-based insurance does not automatically shut you out. If your share of the premium for self-only employer coverage would cost more than 9.96 percent of household income in 2026, the offer is deemed unaffordable and you can still claim the marketplace credit.4Internal Revenue Service. Revenue Procedure 2025-25 – Indexing Adjustments for Taxable Years Beginning in Calendar Year 2026 If the employer plan costs less than that, you are generally locked out of subsidies, even if you would rather buy on the exchange.
Married Filing Separately
Victims of domestic abuse or spousal abandonment can file a separate return and still receive the credit.5Internal Revenue Service. Eligibility for the Premium Tax Credit Separately, a spouse who lived apart from their partner for the last six months of the year, kept a home for a dependent child for more than half the year, and paid more than half the household costs may file as head of household, which is treated as unmarried for this purpose.
How the Credit Amount Is Calculated
The credit is pegged to the second-lowest-cost Silver plan in your area, known as the benchmark plan. The Marketplace looks up the share of income you are expected to contribute toward that plan, then pays the difference between that expected contribution and what the benchmark plan actually costs.
For 2026, the IRS sliding scale of expected contributions runs like this:4Internal Revenue Service. Revenue Procedure 2025-25 – Indexing Adjustments for Taxable Years Beginning in Calendar Year 2026
- Below 133% of FPL: 2.10% of income
- 133% to 149%: 3.14% to 4.19% of income
- 150% to 199%: 4.19% to 6.60% of income
- 200% to 249%: 6.60% to 8.44% of income
- 250% to 299%: 8.44% to 9.96% of income
- 300% to 400%: 9.96% of income
The percentage scales smoothly within each band based on your exact income. Take a single person earning about $24,000, roughly 150 percent of the poverty level. They would be expected to contribute about 4.19 percent of income — about $1,006 a year — toward the benchmark plan. If that benchmark Silver plan costs $6,000, the credit covers about $4,994.
Your credit amount is fixed by the benchmark plan, but you don’t have to buy that plan. Pick a cheaper Bronze policy and the credit can wipe out most or all of the premium, leaving a low or zero monthly bill and a higher deductible. Pick a Gold or Platinum plan and you pay the difference yourself. The dollar amount of the credit does not change.
Taking the Credit in Advance or at Tax Time
Most people take the advance premium tax credit. When you enroll, you estimate your income for the coming year, and the government sends monthly payments directly to your insurer, reducing what you owe each month.6Internal Revenue Service. Premium Tax Credit – Claiming the Credit and Reconciling Advance Credit Payments You can direct all, some, or none of your projected credit to advance payments. Taking the full amount keeps coverage affordable in the moment but exposes you to a repayment if your income rises during the year.
The alternative is to pay the full premium yourself every month and claim the entire credit on your tax return, either reducing your tax or increasing your refund. It costs more up front, but there’s no risk of owing money back at reconciliation.
Reconciling the Credit on Your Tax Return
If any of your credit was paid in advance, you have to reconcile it when you file — there is no exception. Skipping reconciliation makes you ineligible for advance payments in future years, so you’d have to pay full premiums out of pocket.7Internal Revenue Service. Questions and Answers on the Premium Tax Credit
Early in the year, the Marketplace sends you Form 1095-A, which shows your monthly premiums and the advance payments made on your behalf.8Internal Revenue Service. About Form 1095-A, Health Insurance Marketplace Statement You feed those numbers into IRS Form 8962, which recalculates the credit using your actual year-end income and compares it to what you already received.6Internal Revenue Service. Premium Tax Credit – Claiming the Credit and Reconciling Advance Credit Payments Form 8962 is filed with your return.
If you earned less than you projected, the credit you actually qualify for is bigger than what was paid in advance, and the difference comes back as a larger refund or smaller tax bill. If you earned more, your advance payments exceeded your true credit and you owe the excess.
For households whose final income stayed below 400 percent of FPL, the repayment is capped. The statutory caps are indexed for inflation; the 2025 tax-year amounts were:9GovInfo. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan
- Income below 200% of FPL: $375 single, $750 all other filers
- 200% to 299% of FPL: $975 single, $1,950 all other
- 300% to 399% of FPL: $1,625 single, $3,250 all other
The 2026 indexed figures had not been published at the time of writing but will be slightly higher. If your income lands at 400 percent of FPL or above, the cap does not apply and you have to repay every dollar of advance credit, because at that income level you were not eligible for any credit in the first place.10Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit
Keeping the Advance Credit Accurate Mid-Year
Because reconciliation is based on your actual income, changes during the year matter. A raise, a new job, a marriage, a birth, a move to a new state, or gaining access to other coverage can all change your credit. Report them and the Marketplace recalculates your advance payments going forward, which limits any repayment surprise at tax time. You can log in at HealthCare.gov and use “Report a Life Change,” call the Marketplace Call Center, or work with a local assister.11HealthCare.gov. How to Report Income and Household Changes to the Marketplace A move across state lines requires a fresh application in the new state’s exchange.
The 400 Percent Cap Is Back for 2026
Between 2021 and 2025, temporary legislation lifted the 400 percent income ceiling and capped everyone’s expected premium contribution at 8.5 percent of income, so higher-income households could still receive some credit.1Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan Those enhanced credits expired at the end of 2025. Under the law now in force for 2026, a household even a dollar over 400 percent of the poverty level loses the credit entirely — the “subsidy cliff.” The House passed a bill in January 2026 to extend the enhanced credits for three more years, but as of this writing it is awaiting Senate action. If that extension becomes law, the ceiling and the contribution percentages described above will change.