What Are Health Insurance Tax Credits and How Do They Work?

Health insurance tax credits, known formally as the Premium Tax Credit, are a refundable federal subsidy that lowers what you pay for a health plan bought through the Health Insurance Marketplace. Because the credit is refundable, it can erase your tax bill and pay out the remainder as a refund. For 2026, you qualify if your household income falls between 100% and 400% of the federal poverty level, you buy your plan on the Marketplace, and you don’t have access to other qualifying coverage. The enhanced subsidies that ran from 2021 through 2025 have expired, so the income cap is back and the share of income you’re expected to put toward premiums is higher than it was last year.1Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan

What Changed for 2026

From 2021 through 2025, temporary legislation removed the 400% federal poverty level income cap and lowered the percentage of income households were expected to contribute toward premiums. Those enhanced subsidies expired on December 31, 2025. The House of Representatives passed legislation in January 2026 to extend them for three additional years, but as of the IRS’s published 2026 guidance, the original statutory rules apply.

The practical effect is real money. Under the enhanced rules, households above 400% FPL could still receive a credit, and households below 150% FPL paid nothing toward premiums. Under the 2026 rules, one dollar over 400% disqualifies you entirely, and every income tier owes a larger share toward coverage. If your situation hasn’t changed since 2025, expect a higher monthly premium.

Who Qualifies

Eligibility is set by federal statute and turns on income, where you buy coverage, other coverage available to you, and how you file.1Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan

Income Between 100% and 400% of the Poverty Level

For 2026, the poverty guidelines in the 48 contiguous states put the income band at:2Federal Register. Annual Update of the HHS Poverty Guidelines

  • Single person: $15,960 to $63,840
  • Family of 2: $21,640 to $86,560
  • Family of 3: $27,320 to $109,280
  • Family of 4: $33,000 to $132,000

Alaska and Hawaii use higher guidelines. Below 100% FPL you generally don’t qualify for the credit, though Medicaid may cover you. Above 400% FPL you get nothing and must repay any advance payments you received.3Internal Revenue Service. Eligibility for the Premium Tax Credit

You Have to Buy on the Marketplace

Coverage must come through HealthCare.gov or your state’s exchange. Plans bought directly from an insurer, through a private broker, or through an employer don’t qualify. Marketplace catastrophic plans are also excluded from the credit, even though they’re sold on the exchange.

Other Coverage Can Disqualify You

You can’t claim the credit for any month you were eligible for Medicaid, Medicare, CHIP, or an employer plan that meets affordability and minimum value standards. For 2026, an employer’s self-only plan is considered affordable if your share of the premium is 9.96% of household income or less.4Internal Revenue Service. Revenue Procedure 2025-25 If the employer plan fails either the affordability or minimum value test, you can buy on the Marketplace and claim the credit.

Filing Rules

Married couples must file jointly, with a narrow exception for victims of domestic abuse or spousal abandonment. You cannot claim the credit if someone else claims you as a dependent. You must be a U.S. citizen, national, or lawfully present immigrant.5HealthCare.gov. Health Coverage for Lawfully Present Immigrants

How the Credit Amount Is Calculated

Two numbers drive the math: the cost of a benchmark insurance plan and the amount the government expects you to contribute based on your income. The credit fills the gap.

The Benchmark Plan

The benchmark is the second-lowest-cost Silver plan (SLCSP) in your area, set by zip code and county. Two households with identical incomes in different parts of the country can get very different credit amounts.6Centers for Medicare & Medicaid Services. Second Lowest Cost Silver Plan Technical FAQs You don’t have to enroll in the benchmark plan. You can pick any Bronze, Silver, Gold, or Platinum plan, and your credit is calculated against the SLCSP regardless. Choose cheaper, and the credit may cover most or all of the premium. Choose pricier, and you pay the difference.

Your Expected Contribution

The IRS sets a percentage-of-income scale each year. For 2026:4Internal Revenue Service. Revenue Procedure 2025-25

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

Within each tier, the percentage slides upward as your income climbs. Under the 2021–2025 enhanced rules someone at 133% FPL paid 0% toward premiums; these restored percentages are the main reason 2026 costs feel higher.

Because insurers can charge older adults up to three times more than younger enrollees, the benchmark SLCSP premium is higher for older households, which produces a larger credit at the same income. Tobacco surcharges are not covered by the credit; you pay those yourself.

Getting the Credit Monthly or at Tax Time

You have two ways to receive the credit, and you can mix them.

Advance payments are the common choice. When you apply for coverage, the Marketplace estimates your income, determines eligibility, and sends the credit directly to your insurer each month. Your monthly bill drops. The trade-off is reconciliation risk: if your actual income runs higher than the estimate, you’ll owe some of it back when you file.7Internal Revenue Service. The Premium Tax Credit – The Basics

Claiming the full credit at filing means paying full premiums all year and taking the entire credit as part of your refund. No repayment risk, but you have to float the premium yourself for twelve months.

You can also take a smaller advance payment than you qualify for, which leaves a cushion against income surprises.

Report Life Changes Within 30 Days

Because the credit is estimated on projected income and household details, changes during the year need to be reported to the Marketplace within 30 days.8CMS. Reporting Life Changes – Types of Qualifying Life Events The changes that matter most:

  • Income shifts: a raise, a new job, losing a job, or any move away from your estimate
  • Family size: marriage, divorce, birth, adoption, or a dependent aging off your plan
  • Other coverage: becoming eligible for Medicare, Medicaid, or affordable employer coverage
  • Moving to a new zip code or state, which changes your available plans and benchmark

If your income rises and you don’t report it, advance payments keep flowing at the old amount and you’ll owe the difference at tax time. The earlier you report, the smaller the gap.9CMS. Report Life Changes When You Have Marketplace Coverage Some of these changes also open a Special Enrollment Period so you can switch plans or enroll outside open enrollment.10CMS. Understanding Special Enrollment Periods

Filing: Form 1095-A and Form 8962

If anyone in your household had Marketplace coverage, you’ll get Form 1095-A by mid-February, and it’s usually available in your Marketplace account by mid-January.11HealthCare.gov. How to Use Form 1095-A, Health Insurance Marketplace Statement It shows, for each month of coverage: the premium for your plan, the SLCSP premium, and any advance credit payments the Marketplace sent to your insurer. Don’t file until you have an accurate 1095-A; errors on it flow straight into your credit calculation.

Only Form 1095-A matters for the Premium Tax Credit. Forms 1095-B (from insurers or government programs) and 1095-C (from large employers) report that you had coverage but don’t feed into the credit math.12Internal Revenue Service. Questions and Answers About Health Care Information Forms for Individuals

Form 8962 is where you reconcile. You transfer the monthly figures from Form 1095-A, calculate your expected contribution using your final household income, and determine your actual credit.13Internal Revenue Service. About Form 8962, Premium Tax Credit Form 8962 attaches to your Form 1040. If you received any advance payments, filing it is not optional, even if you wouldn’t otherwise have to file a return.14Internal Revenue Service. 2025 Instructions for Form 8962 – Premium Tax Credit

Reconciliation produces one of three results:

  • Your actual credit exceeded your advance payments (income came in lower than projected, or the SLCSP was higher than estimated). The extra reduces your tax or increases your refund.
  • The numbers match, and nothing changes.
  • Advance payments exceeded your actual credit, and you repay the difference through your return.

Skipping Form 8962 isn’t a workaround. An electronic return without it is rejected outright.15Internal Revenue Service. How to Correct an Electronically Filed Return Rejected for a Missing Form 8962 A paper return without it is accepted, but the IRS follows up and holds any refund until the form arrives.

Repayment Caps and the 400% Cliff

If your advance payments came in higher than your final credit, how much you have to repay depends on income. Households under 400% FPL have caps on the damage. Based on the most recent IRS guidance (tax year 2025 figures; 2026 figures will be similar):16Internal Revenue Service. Instructions for Form 8962

  • Below 200% FPL: $375 single, $750 all other filers
  • 200% to under 300% FPL: $975 single, $1,950 all other filers
  • 300% to under 400% FPL: $1,625 single, $3,250 all other filers
  • 400% FPL and above: no cap; you repay the full amount

The 400% threshold is where reconciliation can get painful. If you projected 398% but end the year at 401%, the cap disappears and every dollar of advance credit becomes repayable. During the 2021–2025 enhanced period this cliff was smoothed out because people above 400% still received partial credits. In 2026 it’s back in full force, so if your income is anywhere near the threshold, taking a smaller advance payment than you qualify for is the safer route.