The American Rescue Plan, signed into law on March 11, 2021, includes a provision that eliminates the requirement to repay excess advance premium tax credits for tax year 2020. Click here for additional information.
During enrollment through the Marketplace, the Marketplace will determine if you are eligible for advance payments of the premium tax credit, also called "advance credit payments."
Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums. These payments are called advance payments of the premium tax credit or advance credit payments. If you do not get advance credit payments, you will be responsible for paying the full monthly premium.
Per the IRS Premium Tax Credit: Claiming the Credit and Reconciling Advance Credit Payments webpage:
If you or someone in your family received advance payments of the premium tax credit through the Health Insurance Marketplace, you must complete Form 8962, Premium Tax Credit. You will receive Form 1095-A, Health Insurance Marketplace Statement, which provides you with information about your health care coverage. Use the information from Form 1095-A to complete Form 8962 to reconcile advance payments of the premium tax credit on your tax return. Filing your return without reconciling your advance payments will delay your refund. You must file an income tax return for this purpose even if you are not otherwise required to do so.
If the premium tax credit computed on your return is more than the advance credit payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. This will be reported on Form 1040, Schedule 3.
If the advance credit payments are more than the amount of the premium tax credit you are allowed, called excess advance credit payments, you will add all – or a portion of – the excess advance credit payments to your tax liability will be entered on Form 1040, Schedule 2. This will result in either a smaller refund or a larger balance due.
The amount of your excess advance credit payments that that increases your tax liability may be limited if your household income is less than 400 percent of the applicable federal poverty line. On the other hand, if your household income is 400 percent or more of the applicable federal poverty line, you will have to repay all of the excess advance credit payments.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.