Paying for health insurance is one of your most significant expenses. When you have employer-sponsored coverage, you can save money since you usually split the cost of premiums.
But what if you don’t have employer-sponsored coverage and need to buy a health insurance plan on your own? If you’re looking to make your individual health coverage more affordable, advance premium tax credits are a great place to start.
In this article, we’ll explain how advance premium tax credits work and how to apply them to plans on the Health Insurance Marketplace.
In this blog post, you’ll learn:
- How advance credit payments lower monthly health insurance expenses.
- Who qualifies for advance premium tax credits.
- The possible changes to advance premium tax credits in 2025.
Shopping for individual health insurance? Here are the terms you need to know.
Overview of premium tax credits
Health insurance is expensive if you’re paying for it on your own without help from your employer. According to KFF1, the average monthly lowest-cost silver plan premium for single coverage in 2025 was $486. The average monthly premium for a gold plan was $507.
The Affordable Care Act (ACA) established premium tax credits, also known as health insurance premium subsidies, in 2014. These subsidies are designed to make health insurance more affordable by lowering the monthly premiums for eligible individuals.
You can claim these credits on your federal income tax return. You also have the option to receive them as advance credits, which help cover your monthly insurance premiums throughout the year.
To qualify for a premium tax credit, you must meet specific eligibility criteria. This financial aid is generally available to moderate and lower-income Americans who purchase individual or family health insurance plans. To receive these tax credits, individuals must enroll in an ACA-compliant plan through a public exchange, such as the federal Health Insurance Marketplace or a state-based marketplace. Premium tax credits aren’t available for off-exchange plans.
How advance premium tax credits work
Advance credit payments help make health insurance more accessible and affordable for individuals and families with moderate incomes, ensuring they have the necessary coverage without financial strain.
Here’s how they work:
- Eligibility: You can’t have access to affordable health insurance through an employer or government program, like Medicare or Medicaid. Usually, you also have to meet certain income criteria, generally between 100% and 400% of the federal poverty level (FPL), to qualify for tax credits. However, that changed temporarily in 2021 when the American Rescue Plan Act expanded subsidy eligibility to everyone. These enhanced premium tax credits are expected to expire at the end of 2025, reverting eligibility to the 100% to 400% of the FPL threshold.
- Application process: When applying for coverage through the Health Insurance Marketplace, you provide your estimated annual income and family size. Based on this information, the Marketplace determines eligibility for the tax credits.
- Premium cost: The Marketplace calculates your expected premium contribution2 for a silver benchmark plan based on a sliding scale of your annual income. Lower-income enrollees get more aid. Higher incomes get less. If you earn between $15,060 and $22,590 (100%-150% FPL), your plan could cost $0. Actual costs may vary based on factors like your ZIP code and age. If you earn $60,240 (400% FPL) or more, you’ll pay 8.5% of your income.
- Advance payment: If eligible, you can apply premium tax credits in advance to reduce your monthly premium payments. The advance credit payment goes directly to the insurance company on your behalf, which lowers your monthly out-of-pocket cost for health coverage.
- Reconciliation: At the end of the year, you must file a federal income tax return and complete Form 8962 to reconcile the amount of tax credit you received with the amount you were eligible for based on your actual annual income. If you received more credit than you were entitled to, you have to pay back the difference. Conversely, if you received less, you can claim the difference as a refundable credit when you file your tax return.
Upcoming changes to advance credit payments
Initially, people only qualified for health insurance premium subsidies if they met federal poverty guidelines. But the American Rescue Plan Act of 2021 ensured that all Americans purchasing health insurance on a public exchange would spend no more than 8.5% of their actual household income on the second-lowest-cost silver plan.
These enhanced tax credits were supposed to expire in 2022. But the Inflation Reduction Act of August 2022 extended them through the end of 2025. If Congress doesn’t extend these enhanced premium tax credits further, eligibility will revert to the original pre-2021 rules. Both net premium payments and gross premiums are likely to increase3.
Here’s what that will look like:
- Ending the enhanced tax credits could lead to a 75% increase4 in premium payments for APTC enrollees. The extent of this impact will differ based on income levels and family size.
- According to Congressional Budget Office5 (CBO) Director Phillip Swagel’s remarks in December 2024 to Congress, on average, gross premiums for benchmark silver plans6 could rise by 7.9% compared to a scenario without these changes. This increase reflects a sicker average risk pool as healthier individuals drop coverage to save money, which may lead to more enrollees being unable to afford their insurance coverage.
Premium tax credits and a group health plan
If you have a traditional group health plan, you aren’t eligible for premium tax credits. However, if your employer offers you an unaffordable plan (a plan where your premium cost exceeds 9.02% of your household income in 2025), you may qualify for APTC. In addition to your plan being unaffordable, you’d need to meet the eligibility requirements for the tax credits. If so, you can decline your employer coverage and enroll in an individual health plan from a public exchange.
Premium tax credits and ICHRA
If your employer offers you an individual coverage health reimbursement arrangement (ICHRA) instead of a group health plan, you’re responsible for securing your own individual health insurance policy. However, your employer helps you with the cost by providing a monthly ICHRA allowance for your insurance premiums.
Since an ICHRA is an employer-sponsored plan, participants aren’t eligible for premium tax credits. However, you may be eligible if your ICHRA allowance is unaffordable. An ICHRA is affordable in 2025 if you don’t pay more than 9.02% of your actual income for the lowest-cost silver plan on a public exchange.
If you pay more than this amount, you need to choose between the ICHRA and your potential premium tax credits. You can’t receive both.
Here’s what to consider:
- If the ICHRA your employer offers is affordable, you should waive your tax credits and opt into the health benefit.
- If the ICHRA your employer offers isn’t affordable, you can opt out of the ICHRA and collect your premium tax credits if you qualify for them. However, if the ICHRA is affordable and you opt out, you won’t be able to receive your tax credits.
Conclusion
When employer-sponsored coverage isn’t an option, securing an individual health plan becomes essential. It’s important to understand advance premium tax credits to make informed decisions about your healthcare coverage. These credits can significantly reduce your health insurance costs. But, if they don’t get an extension, enhanced premium tax credits will expire at the end of 2025 for those who earn more than 400% of the FPL.
Who is eligible for individual health insurance? Find out in our blog.
This blog article was originally published on July 20, 2022. It was last updated on August 11, 2025.
- https://www.kff.org/affordable-care-act/state-indicator/average-marketplace-premiums-by-metal-tier/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
- https://www.kff.org/faqs/faqs-health-insurance-marketplace-and-the-aca/what-are-premium-tax-credits-and-how-do-they-work/
- https://www.healthsystemtracker.org/brief/early-indications-of-the-impact-of-the-enhanced-premium-tax-credit-expiration-on-2026-marketplace-premiums/
- https://www.kff.org/affordable-care-act/issue-brief/inflation-reduction-act-health-insurance-subsidies-what-is-their-impact-and-what-would-happen-if-they-expire/
- https://www.cbo.gov/system/files/2024-12/59230-ARPA.pdf
- https://www.healthinsurance.org/glossary/benchmark-plan/#benchmark