The Affordable Care Act’s premium subsidies are tax credits that can be taken in advance and paid to your health insurer throughout the year, but you also have the option to claim the entire amount on your tax return.

Should I take my ACA premium subsidy during the plan year – or claim it at tax time?

Reviewed by our health policy panel.

Q: I’ve heard that I can just claim my health insurance premium subsidy on my tax return instead of getting a subsidy throughout the year based on my estimated income. How does this work?

A: Yes, you can do that. Most people don’t wait, but it can be a good choice for people who have the money to cover full price premiums throughout the year, especially if they aren’t sure whether or not their income will actually be subsidy-eligible when all is said and done.

The Affordable Care Act’s premium subsidies are tax credits. Unlike most tax credits, the premium subsidy can be taken in advance and paid to your health insurer throughout the year. But as with other tax credits, there’s also an option to claim the entire amount on your tax return.

Most people choose to take at least some of their premium subsidy throughout the year. (The IRS reported in 2017 that 98 percent of tax filers who claimed the premium tax credit for 2015 had received at least some of the amount in advance.) That makes sense, given how expensive full-price health insurance can be. Paying full price each month and having to wait until the following tax season to recoup the tax credit would be unrealistic for most subsidy-eligible enrollees.

Premium subsidies offset a large portion of the monthly premiums for the majority of the people who enroll in plans through the health insurance exchange in each state: Eighty-seven percent of exchange enrollees were receiving premium subsidies in 2019 (paid in advance to their health insurers each month), and those subsidies amounted to 86 percent of the average total premium amount.

But in order to claim your tax credit in advance, you do have to go through an eligibility determination process when you enroll in a plan through the exchange. This process can be simple or complicated depending on your circumstances – W2 versus self-employed, steady job versus variable income, etc. Some people prefer to skip that process altogether, pay full price for their coverage, and claim the premium tax credit in full when they file their tax return the following spring.

A few more premium subsidy considerations

Either option is fine, and the “best” option is a matter of personal preference. But here are some things to keep in mind:

  • Regardless of whether you plan to take the premium subsidy throughout the year or claim the whole thing on your tax return, it’s only available if you enroll in a plan through the exchange in your state. You cannot get a premium subsidy if you enroll in a plan outside the exchange.
  • HealthCare.gov (used in 38 states) and the state-run exchanges have user-friendly plan comparison tools that you can use to estimate whether you’d qualify for a subsidy and if so, how much it would be. Depending on the size of the subsidy, you can decide whether you want to go through the subsidy eligibility determination when you enroll. You can use this 2020 subsidy calculator to get an estimate of the size of your subsidy.
  • If you’re going to claim the subsidy in advance (and thus pay lower premiums each month throughout the coming year), you’ll select the option to see if you qualify for financial assistance. This will be early in the enrollment process. If you say yes, you’ll go through a series of questions to determine your eligibility for financial assistance (including Medicaid, CHIP, premium subsidies, and cost-sharing reductions). The exchange will compare your income projection with the records the government already has, and may or may not ask you to provide additional documentation to back up your income projection (especially if you’re in a state that hasn’t expanded Medicaid and you’re projecting a subsidy-eligible income but the government has records indicating that your income projection is too high, be prepared to submit documentation to back up your income projection).
  • Everyone who gets a premium tax credit – either in advance or claimed in full on their tax return – has to fill out the same form (Form 8962) on their tax return in order to reconcile or claim the tax credit.
  • Everyone who enrolls in a plan through the exchange – regardless of whether they end up qualifying for a premium tax credit – receives Form 1095-A from the exchange after the end of the year (the form is available via the exchange website as of January, and is also mailed to enrollees, or delivered electronically if the enrollee selects that option). The information on this form is used to to reconcile or claim the tax credit when enrollees file their tax returns. (People who are certain they don’t qualify for a subsidy can skip Form 8962 and don’t need to do anything with Form 1095-A.)
  • If you get your premium tax credit in advance and it ends up being too small (which is determined via Form 8962 after the year is over and your income is certain rather than estimated), you’ll claim the additional amount when your file your taxes. If your advance premium tax credit ended up being too big, you’ll have to pay back some or all of it when you file your taxes.

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