What is the premium tax credit and how does it work?

The premium tax credit lowers your monthly Marketplace premium. How the amount is set, and why the income you estimate matters at tax time.

Updated September 3, 2026 · 3 min read · by Gerino Alejos

Key points

The premium tax credit is help from the government that lowers your premium, the monthly bill for a health plan you buy on the Marketplace.
Most people have it paid to the insurance company every month, based on the income they estimate for the year ahead.
Tell the Marketplace within 30 days when your income changes, or you may have to pay part of the credit back at tax time.

The premium tax credit is the main financial help in the Marketplace, the government website where you shop for health coverage. It lowers what you pay each month for a plan you buy there. That monthly payment is your premium, and the credit comes off it. You do not have to wait until you file your taxes to get it. Most people have it paid in advance every month.

How the amount is decided

The credit is built around a benchmark plan, the second lowest cost silver plan sold at your address. Silver is one of the metal tiers, the standard levels the Marketplace uses to sort plans.

The rules set how much of your household income you have to put toward that benchmark plan. The credit pays the rest.

Two things follow from that.

The credit is tied to the benchmark plan, not to the plan you pick. You can put it toward any metal tier.
Premiums go up with age. An older person with the same income usually gets a larger credit, because the credit is figured from what coverage costs, not from income alone.

So do not rule yourself out over your income. See whether you qualify.

Advance payments, and the catch

When you take the credit in advance, the amount is based on the income you estimate for the coming year. At tax time, the IRS compares your estimate against what you actually earned.

You earned less than you estimated. You get the difference back as a refund.
You earned more. You pay some of the credit back.

Paying part of the credit back in April is the surprise people run into most often. Report income changes to the Marketplace when they happen instead of waiting for April. Your monthly credit then adjusts going forward.

Who cannot use it

People whose job offers coverage that is affordable and meets minimum value, a standard for how much the plan has to cover.
People eligible for Medicare, for Medicaid, or for the Children's Health Insurance Program (CHIP). Medicaid and CHIP are the state programs for people with low income and their children.
People who do not file a federal tax return. Married people who file separately are also shut out, with narrow exceptions for domestic abuse and abandonment.
People who are not lawfully present in the United States.

Using it well

Estimate your income for the coverage year as closely as you can. If you work for yourself, use what is left after business expenses.
Include everyone in your tax household, even the people who will not be on the plan.
Take the credit monthly unless your income is hard to predict. If it is, you can take less each month and collect the rest at tax time.
Tell the Marketplace within 30 days of any change in income or household.
Keep Form 1095-A when it arrives. You need it to file. Form 8962 is where the credit is reconciled, meaning matched against what you really earned.

See what Marketplace coverage costs and how income limits work.

Your next step is to estimate your income and write down everyone in your tax household. We will go through both with you. Call our McAllen office at (956) 687 3334, or use the ZIP form on this page.

Common follow-up questions

Do I get the credit as a check?

Not usually. Most people have it paid straight to the insurance company each month, which lowers the premium. You can also take the whole credit at tax time instead.

What if I overestimate my income?

You get the difference back when you file. Overestimating is the safer direction to be wrong in.

Does the credit change if I pick a cheaper plan?

No. The credit is set by the benchmark plan, whatever plan you choose. Pick a cheaper plan and the credit stays the same, so your monthly cost drops.

Want this looked at properly?

We are an independent agency in McAllen serving Hidalgo, Cameron and Starr counties. There is no obligation to talk it through.

Call (956) 687 3334

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