How Does the Marketplace Tax Credit Work for Health Insurance?

The Marketplace tax credit for health insurance is a federal subsidy that reduces what you pay for a plan purchased through HealthCare.gov or a state exchange. You can take it two ways: as an advance payment sent directly to your insurer each month to lower your premium bill, or as a lump sum on your federal tax return. For 2026 coverage, it’s available to households with income between 100% and 400% of the federal poverty level, roughly $15,960 to $63,840 for a single person and $33,000 to $132,000 for a family of four.¹

Who Qualifies

Several conditions have to line up at once. Your modified adjusted gross income for the year must fall between 100% and 400% of the federal poverty level for your family size.² MAGI here isn’t just your AGI: you add back foreign earned income, tax-exempt interest, and any nontaxable Social Security benefits.³ That last one catches people. Even if most of your Social Security isn’t taxed, the full amount still counts toward household income for credit purposes.

You have to buy coverage through the Marketplace itself, not through a broker or directly from an insurer.⁴ Access to other qualifying coverage disqualifies you: Medicare, Medicaid, CHIP, TRICARE, and most employer plans. Employer coverage only blocks the credit if it’s considered affordable, meaning your share of the premium for self-only coverage is no more than 9.96% of household income in 2026.⁵ If your employer plan costs more than that, you can turn it down, enroll through the Marketplace, and still claim the credit.

Two filing rules round it out. You can’t be claimed as a dependent on someone else’s return, and married couples generally must file jointly. The exception is victims of domestic abuse or spousal abandonment, who can file separately and still qualify.⁴

How the Credit Amount Is Calculated

The credit is built around a benchmark plan: the second-lowest-cost Silver plan available in your area.⁶ Take that plan’s monthly premium, subtract the amount you’re expected to contribute based on your income, and the difference is your credit.

Your expected contribution is a percentage of household income that rises with income. The 2026 percentages are:⁵

Below 133% FPL: 2.10% of household income
133% to 150% FPL: 3.14% sliding up to 4.19%
150% to 200% FPL: 4.19% sliding up to 6.60%
200% to 250% FPL: 6.60% sliding up to 8.44%
250% to 300% FPL: 8.44% sliding up to 9.96%
300% to 400% FPL: 9.96% of household income

A worked example. A single person earning $32,000 in 2026 sits at roughly 200% of the poverty level, so their expected contribution is about 6.60% of income, or $2,112 a year ($176 a month). If the benchmark Silver plan in their area costs $500 a month, the credit is $500 minus $176, or $324 a month. That amount goes straight toward their premium.

You don’t have to enroll in the benchmark plan. The dollar credit stays the same whether you pick Bronze, Silver, Gold, or Platinum. Choose a cheaper Bronze plan and the credit might cover the whole premium. Choose a Gold plan and you pay the extra out of pocket.

Advance Payments or Wait Until Tax Time

When you enroll, you decide how to receive the credit. Most people take it as advance payments, so the Marketplace sends the subsidy to your insurer each month and you only pay the remainder.⁷ You can also apply only part of your estimated credit in advance and claim the rest at tax time, which builds a cushion if your income is unpredictable. Or you can skip advance payments entirely, pay full premiums all year, and claim the whole credit as a refund.

Enrollment happens during open enrollment, which for 2026 coverage began November 1, 2025.⁸ Outside that window, you can only enroll or change plans if you have a qualifying life event like losing coverage, marriage, a new child, or a move.⁹

Reporting Changes During the Year

Your advance payments are based on the income and household size you projected at enrollment. If either one changes, update your Marketplace application right away.¹⁰ The changes that matter most:

Income moving up or down: a raise, job loss, new freelance work, or retirement shifts your contribution percentage.
Household size: marriage, a new baby, a dependent aging off your plan, or a divorce changes your poverty-level percentage.
Getting other coverage: a new employer offering insurance, or becoming eligible for Medicare or Medicaid, may require canceling your Marketplace plan.

Prompt reporting matters more in 2026 than it used to, for a reason covered in the next section.

What Changed for 2026

If your 2026 premiums went up sharply, the reason is that temporary enhancements to the credit expired at the end of 2025. From 2021 through 2025, Congress eliminated the 400% FPL income cap and lowered the contribution percentages across the board.¹¹ During those years, households at 150% FPL paid nothing toward the benchmark premium, and the top of the range was capped at 8.5% of income.

For 2026, the law reverted. People above 400% FPL no longer qualify at all. Contribution percentages rose at every income tier, with the lowest bracket going from 0% to 2.10% and the top going from 8.5% to 9.96%.⁵ Most Marketplace enrollees are paying hundreds of dollars more per year as a result.

The other significant change involves overpayments. During the enhanced years, if you received more advance credit than you turned out to qualify for, lower-income households only had to repay a capped amount. Starting with 2026, you owe back every dollar of overpayment with no cap.¹¹ If you projected $30,000 in income and actually earn $40,000, the Marketplace has been overpaying your credit all year, and the full overpayment comes out of your refund or gets added to your tax bill. That’s what makes mid-year reporting so much more important now.

Reconciling on Your Tax Return

Anyone who received advance payments has to file a federal tax return and attach Form 8962, even if their income is otherwise low enough to skip filing.¹² The same form is used to claim the credit as a refund if you didn’t take advance payments. Skipping Form 8962 when advance payments were made will delay your refund and can block future advance payments until you sort it out.¹³

By January 31, the Marketplace sends you Form 1095-A, which lists each month’s premium, the benchmark plan cost, and how much was paid in advance credits on your behalf.¹⁴ You can also download it from your HealthCare.gov account or your IRS online account.¹⁵ Those monthly figures go onto Form 8962, which calculates the credit you actually qualified for based on your real income.

The IRS then compares what you received in advance against what you earned:

If you received less than you qualified for, the extra shows up as a larger refund or a smaller tax bill.
If you received more than you qualified for, you repay the full difference. There is no cap for 2026 returns.¹¹

Filing electronically is the fastest route because the software cross-checks Form 8962 against Form 1095-A automatically. If you file on paper, attach Form 8962 to your Form 1040.

If Your Income Ends Up Below the Poverty Line

Normally, income under 100% FPL disqualifies you. But if the Marketplace estimated at enrollment that you’d be at or above 100% FPL, and advance payments were made for at least one month, you can still claim the full credit for the year even if your actual income falls short. A separate rule lets lawfully present immigrants who can’t get Medicaid because of their immigration status qualify for the credit even with income under 100% FPL.¹²

1
HHS.gov. 2026 Poverty Guidelines – 48 Contiguous States
2
Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan
3
Internal Revenue Service. Modified Adjusted Gross Income
4
Internal Revenue Service. Questions and Answers on the Premium Tax Credit
5
Internal Revenue Service. Revenue Procedure 2025-25 – Applicable Percentage Table for 2026
6
Centers for Medicare and Medicaid Services. Second Lowest Cost Silver Plan Technical FAQs
7
Centers for Medicare and Medicaid Services. Advance Payments of the Premium Tax Credit and Cost Sharing Reductions Overview
8
Centers for Medicare and Medicaid Services. Marketplace 2026 Open Enrollment Period Report – National Snapshot
9
Centers for Medicare and Medicaid Services. Understanding Special Enrollment Periods
10
HealthCare.gov. When Your Income or Household Changes
11
IRS.gov. Updates to Questions and Answers About the Premium Tax Credit
12
Internal Revenue Service. Instructions for Form 8962 (2025)
13
Internal Revenue Service. Premium Tax Credit – Claiming the Credit and Reconciling Advance Credit Payments
14
Internal Revenue Service. Questions and Answers About Health Care Information Forms for Individuals
15
Centers for Medicare and Medicaid Services. How Do Consumers Receive Their Form 1095-A