Reconciling Advance Payments of the Premium Tax Credit

The premium tax credit is a federal subsidy available for people and families with incomes that fall between one and four times the federal poverty line. It's intended to reimburse for the cost of health insurance purchased through the marketplace.

The credit can be paid in advance directly to your insurer to defray the cost of your premiums, or you can pay the premiums yourself and then collect the refund at tax time. The amount you're entitled to can be something of a guessing game if you choose the advance-payment option, however, so you must “reconcile” your payments at tax time.

Reconciling Your Payments on Form 8962

If you choose to receive premium tax credit advance payments, you must complete and submit Form 8962 at tax time to determine whether the payments made to your insurer were too little, too much, or exactly what you were entitled to receive. Known as "reconciling" the advance payments, this means comparing the amount your insurance company received to the actual amount of the premium tax credit to which you’re entitled.

You can receive any additional tax credit that's due you if the Internal Revenue Service (IRS) paid too little in advance, but you must pay any extra amount back to the IRS if it paid your insurer too much. If the IRS paid out exactly the right amount, you won't owe money to the IRS, but you won't receive any extra tax credit when you file, either.

Advance Payments of the Premium Tax Credit

The Health Insurance Marketplace estimates your premium tax credit when you enroll in a health insurance plan based on estimates of your household income for the year. The actual amount of your credit can’t be calculated until you submit your income information on your tax return, along with the amount of health insurance premiums you received as they're reported to you and the IRS on Form 1095-A.

How To Reconcile Your Payments

The first part of Form 8962 calculates the actual amount of the premium tax credit to which you were entitled. Then you'll fill out the second part to compare and reconcile the advance payments with the actual amount of the premium tax credit you received.

Here's what you'll need to reconcile your payments:

• Your completed Form 1040: The Form 1040 typically changes every year, so double-check and make sure you use the correct year's return while reconciling payments.
• Form 8962: Use this form to calculate the total premium tax credit you should've received and the total premium tax credit you actually received.
• Form (or Forms) 1095-A: This is the Health Insurance Marketplace Statement. Form 1095-A is prepared by the health insurance company and should be sent to you by January 31 each year.

What If You Received Excess Advance Payments?

You must pay the excess amount back as an additional tax if your advance payments are more than your premium tax credit. However, your repayment amount might be limited if your household income is less than four times the federal poverty line.

Your household income as a percentage of the federal poverty line is calculated and entered on Line 5 of Form 8962, and yes, it comes with instructions. 

2022 Limitations on Paying Back the Credit

There are limitations on how much you’re expected to repay in cases where reconciliation is necessary. This chart shows the limitations for the 2022 tax year, the tax return you'll file in 2023:

On your 2022 tax return, you would compare your 2022 income with the federal poverty line figures provided in the instructions for Form 8962. They are:  

• $12,880 for individuals
• $17,420 for a family of two
• $21,960 for a family of three
• $26,500 for a family of four 
• $31,040 for a family of five
• $35,580 for a family of six 
• $40,120 for a family of seven 
• $44,660 for a family of eight 

To find your maximum repayment amount, divide your 2022 income by the poverty limit for your family size. Then multiply by 100 to get your income’s percentage of the poverty level. For example, if you’re a single filer who earned $25,400 in 2022, your calculation would be 197% ([$25,400/ $12,880]*100). Check the table above: you’ll only have to repay a maximum of $325.

These dollar limitations are indexed for inflation annually, so you'll have to recalculate your eligibility every year.

Frequently Asked Questions (FAQs)