What the credit does
An advance premium tax credit can reduce the monthly amount an eligible household pays for Marketplace coverage. The Marketplace calculates eligibility using information including household size, projected annual income, location, and access to other qualifying coverage.
Why projected income matters
The application asks for expected income for the coverage year, not simply last year’s income. Applicants should use the best reasonable estimate available and update the Marketplace if income or household circumstances change significantly.
Advance payment and reconciliation
Eligible consumers can generally apply some or all of the estimated credit in advance to monthly premiums. The final amount is reconciled on the federal tax return using actual household information. If the advance amount differs from the final allowed amount, the tax result may change.
Premium credits versus cost-sharing reductions
Premium tax credits reduce premiums. Cost-sharing reductions lower certain deductibles, copays, coinsurance, and out-of-pocket limits, and they require enrollment in an eligible Silver Marketplace plan.