What tax credits do on the marketplace

A tax credit for health insurance is money the federal government sends directly to your insurance company each month to lower your premium — the amount you pay for coverage. You do not wait until tax time to get the money. Instead, the credit reduces what you owe the moment you enroll, so your monthly bill is smaller from day one.

The government bases the credit on your household income and family size. If your income is between 100% and 400% of the federal poverty line, you may receive a credit. The closer your income is to the lower end of that range, the larger the credit tends to be.

You claim the credit by enrolling through Healthcare.gov (or your state's marketplace if your state runs its own) and reporting your expected income for the year ahead. The marketplace then calculates how much credit you should receive and sends it to your insurer on your behalf each month.

Key Takeaways

  • Tax credits reduce your monthly insurance premium by sending money directly to your insurance company, not to you at tax time.
  • You must enroll through Healthcare.gov or your state marketplace to receive a credit; buying insurance outside the marketplace does not may have access to.
  • The credit amount depends on your household income, family size, and the cost of the second-lowest-cost Silver plan in your area.
  • You report your expected income when you enroll, and if your actual income differs, you may owe money back or receive a refund when you file taxes.
  • Credits are available only to U.S. citizens and lawfully present immigrants; undocumented immigrants cannot receive them.

How the credit amount is calculated

The marketplace does not straightforward give everyone the same credit. Instead, it uses a formula that compares your expected income to a benchmark plan cost. The benchmark is the price of the second-lowest-cost Silver plan available in your county — not the cheapest plan, but the second-cheapest Silver option.

The government assumes you should pay a certain percentage of your income toward that benchmark plan. That percentage increases as your income rises. For example, someone at 150% of the poverty line might be expected to pay 0% of their income toward insurance, while someone at 300% of the poverty line might be expected to pay 8.5%. The credit covers the gap between what you are expected to pay and the full cost of the benchmark plan.

If you choose a plan cheaper than the benchmark Silver plan, you keep the difference. If you choose a plan more expensive, you pay the extra cost yourself. This is why the Silver plan is often the most cost-effective choice — the credit is designed around it.

Income reporting and what happens if your income changes

When you enroll, you report what you expect to earn for the entire year. The marketplace uses that number to calculate your credit for the next 12 months. If your actual income ends up different — because you got a raise, lost a job, or had a change in hours — the credit amount may no longer match what you should have received.

At tax time, you reconcile the credit. If you earned less than you reported, you may receive a refund. If you earned more, you may owe some of the credit back when you file your tax return. The amount you owe is capped: in 2024, individuals owed back no more than $300 and families no more than $600, though this cap may change year to year.

You can update your income during the year if your situation changes — a job loss, a significant raise, or a change in household size. When you update, the marketplace recalculates your credit for the remaining months of the year. This is why reporting changes promptly matters: if your income rises and you do not report it, you may owe back a larger amount at tax time.

Who can and cannot receive a tax credit

To receive a credit, you must be a U.S. citizen or a lawfully present immigrant. Undocumented immigrants cannot receive credits, even if they meet the income requirements. You must also be a resident of the state where you are enrolling and cannot be incarcerated.

You cannot claim a credit if someone else claims you as a dependent on their tax return — even if you live separately and pay your own insurance. If you are claimed as a dependent, you are ineligible regardless of your income.

You must enroll through the official marketplace (Healthcare.gov or your state's marketplace) to receive a credit. If you buy insurance directly from an insurance company's website or through a broker outside the marketplace, you will not receive the credit, even if you would otherwise may have access to.

The difference between tax credits and cost-sharing reductions

Tax credits lower your monthly premium. Cost-sharing reductions (also called CSRs) lower your out-of-pocket costs — your deductible, copayments, and coinsurance — when you actually use care. They are separate programs that work together.

You receive cost-sharing reductions only if you enroll in a Silver plan and your income is below 250% of the poverty line. If you choose a Gold or Bronze plan, you do not receive cost-sharing reductions, even if you may have access to. This is another reason Silver plans are often the best choice for people with lower incomes: the credit reduces the premium, and the cost-sharing reductions reduce what you pay when you go to the doctor.

What happens to your credit if you do not use it

The credit is tied to your enrollment. If you enroll in a plan and receive the credit, but then do not pay your premium, your insurance company will eventually cancel your coverage for non-payment. The credit does not accumulate or carry over if you skip a month.

If you enroll but then decide to drop coverage before the year ends, you stop receiving the credit. If you later re-enroll during the same year, the marketplace recalculates your credit based on your current income and circumstances.

Tax credits and other income sources

The marketplace counts most types of income when calculating your credit: wages, self-employment income, Social Security, unemployment benefits, and investment income all count. However, some income does not count — for example, Supplemental Security Income (SSI) and certain tribal payments are excluded.

If you receive income from multiple sources, report all of them when you enroll. The marketplace adds them together to determine your total household income, which determines your credit amount. If you are unsure whether a particular income source counts, the marketplace process will ask about it, or you can contact your state's marketplace directly.

Frequently Asked Questions

Can I get a tax credit if I have insurance through my job?

No. If your employer offers health insurance and it is considered affordable (the employee premium is less than about 8.5% of your household income), you are not may be able to access for a marketplace credit. You can still buy marketplace insurance if you want, but you would not receive a credit. If your employer's insurance is not affordable, you may be may be able to access for a credit.

What if my income goes up after I enroll — do I have to pay back the entire credit?

Not necessarily. You owe back only the amount of credit you received that you were not may have access to to. If your income rises partway through the year, you can update it in the marketplace, and your credit will be recalculated for the remaining months. At tax time, you reconcile based on your actual year-end income. The amount you owe is also capped by law, so you will not owe back more than the cap allows.

Do I have to file taxes to get a tax credit?

You do not have to file taxes to receive the credit each month — it goes to your insurance company automatically. However, you must file taxes the following year to reconcile what you received against what you were may have access to to. If you do not file, you cannot receive a refund if you overpaid, and the government may pursue the amount you owe.

Can I receive a tax credit if I am self-employed?

Yes. Self-employed people report their net self-employment income (income minus business expenses) when they enroll. The marketplace uses that figure to calculate the credit. If your income varies, report what you expect to earn for the year, and update it if your situation changes significantly.

What if I am married but file taxes separately?

If you are married and file taxes separately, you cannot receive a marketplace tax credit — this is a federal rule. You must file jointly to be may be able to access. The only exception is if you are legally separated or if your spouse is a nonresident alien.