Deductions and Credits · Credits

ACA net premium tax credit

For five years this credit had no upper income limit and a capped repayment. Both of those were temporary, both ran out with taxable year 2025, and the second was then repealed outright rather than merely allowed to lapse. The result is that 2026 is the first year since 2020 in which a taxpayer one dollar over 400 percent of the federal poverty line loses the credit entirely and repays every dollar advanced on their behalf.

The rule

The credit. A refundable credit for an applicable taxpayer equal to the premium assistance credit amount (IRC § 36B(a)). That amount is the lesser of the premiums actually paid for the qualified health plans covering the family, or the excess of the adjusted monthly premium for the applicable second lowest cost silver plan over one twelfth of the applicable percentage of household income — summed over the taxpayer's coverage months (IRC § 36B(b)(1), (2))^TY2026. The second limb is the operative one for almost everybody: the credit is the gap between the benchmark plan’s premium and what the statute says the household should pay for itself.

Applicable taxpayer. household income of at least 100 percent and not more than 400 percent of the federal poverty line for the family size involved — the ceiling is back for 2026, because the IRC § 36B(c)(1)(E) rule disregarding it applied only to taxable years beginning before 1 January 2026^TY2026 (IRC § 36B(c)(1)(A)). Three further conditions: a married taxpayer must file a joint return (IRC § 36B(c)(1)(C)); no credit is allowed to an individual who is another taxpayer’s dependent (IRC § 36B(c)(1)(D)); and household income is the measure, not adjusted gross income.

The applicable percentage. for taxable years beginning in 2026, 2.10 percent of household income below 133 percent of the federal poverty line, rising on a sliding scale to 4.19 percent at 150 percent, 6.60 percent at 200 percent, 8.44 percent at 250 percent and 9.96 percent from 300 percent to 400 percent^TY2026 (IRC § 36B(b)(3)(A)(i), as indexed). The percentage slides linearly within each tier, so a household at 175 percent of the poverty line pays a rate between the tier’s initial and final figures rather than either one.

Coverage month. A month qualifies only if, on its first day, the taxpayer, spouse or a dependent is covered by a qualified health plan enrolled in through an Exchange, and the premium for that month is paid by the taxpayer or by advance payment (IRC § 36B(c)(2)(A)(i), (ii)). A month is excluded if the individual is eligible for minimum essential coverage other than individual market coverage — Medicare, Medicaid, or an employer plan (IRC § 36B(c)(2)(B)(i), (ii), taking the definition from § 5000A(f)). Eligibility is enough; actual enrolment is not required.

When an employer plan does not count. An employee is not treated as eligible for minimum essential coverage where the employer plan is unaffordable — the employee’s required contribution exceeds 9.96 percent of household income for plan years beginning in calendar year 2026 — the required contribution percentage that decides whether an employer plan counts as affordable minimum essential coverage under IRC § 36B(c)(2)(C)(i)(II)^TY2026 of household income — or where it fails minimum value, meaning an employer plan fails the minimum value test if its share of the total allowed cost of benefits is less than 60 percent (IRC § 36B(c)(2)(C)(ii))^TY2026 (IRC § 36B(c)(2)(C)(i)(II), (ii)). Both tests are switched off if the employee or family member is actually covered by the plan (IRC § 36B(c)(2)(C)(iii)). The affordability test looks at the cost of self-only coverage for the employee, and it reaches family members through the last sentence of clause (i).

Advance payment and reconciliation. The credit may be paid in advance to the insurer under § 1412 of the Affordable Care Act. Section 36B(f)(1) then reduces the credit by the advance payments, and the entire excess of advance payments over the credit allowed is added to tax, with no cap — IRC § 36B(f)(2)(B), which had limited repayment for households below 400 percent of the poverty line, was struck by Pub. L. 119-21 § 71305 for taxable years beginning after 31 December 2025^TY2026 (IRC § 36B(f)(2)). Reconciliation is why a return must be filed by anyone who took an advance payment, whatever their income and whatever their filing threshold. The Exchange reports the level of coverage, the total premium, the advance payments and the identifying details on Form 1095-A (IRC § 36B(f)(3)(A)–(D)); the taxpayer reconciles on Form 8962.

Two enrolment restrictions new for 2026 and later. A plan enrolled in during an income-based special enrollment period — one offered on the basis of expected household income relative to the poverty line and not tied to a change in circumstances — is not a qualified health plan for this section (IRC § 36B(c)(3)(A)(iii)). And from a later year, a plan is not a qualified health plan unless the Exchange operates a pre-enrollment verification process for household income and eligibility (IRC § 36B(c)(3)(A)(ii)).

Current figures

How it works in practice

Start with the household, not the policy. Family size and household income set the poverty line percentage, which sets the applicable percentage, which sets the household’s expected contribution. Only then does the benchmark premium matter.

Identify the benchmark. The credit is measured against the second lowest cost silver plan available to the family, not against the plan they actually bought. A family who chose a bronze plan cheaper than their expected contribution gets no credit at all; one who chose gold gets the same credit as if they had bought silver, capped by what they actually paid.

Count coverage months one at a time. A month in which anyone in the family became eligible for Medicare or an affordable employer plan drops out. Mid-year changes are common and the credit is computed monthly, which is why the annual reconciliation so often produces a balance.

Reconcile without a cap. Compare the credit actually allowable for the year with what was advanced. A shortfall is refunded; an excess is added to tax in full. There is no longer any repayment limitation to soften an income estimate that turned out low.

The practical planning point for 2026 is the cliff. Between 399 and 401 percent of the poverty line the credit does not taper — it disappears. A self-employed client whose income is close to the line should be told before year end that a deductible retirement contribution or a deferred invoice can be worth several thousand dollars of credit, and that the reverse is true of a late payment received in December.

How this has changed

Two provisions lapsed rather than being repealed, and both were written with the same end date. Section 36B(b)(3)(A)(iii) substituted a much lower applicable percentage table — running from zero to 8.5 percent, with a tier for income of 400 percent and higher — for taxable years beginning after 31 December 2020 and before 1 January 2026. Section 36B(c)(1)(E) disapplied the words “but does not exceed 400 percent” for the same window. Both were enacted by the American Rescue Plan and extended once by Pub. L. 117-169 § 12001. Neither was extended again. For 2026 the statutory table in § 36B(b)(3)(A)(i) applies as indexed, and the ceiling in § 36B(c)(1)(A) applies as written.

The indexing itself resumed with a change of method. Rev. Proc. 2025-25 § 2 records that from calendar year 2026 the premium growth measure captures individual market premiums as well as employer-sponsored premiums, following the 2026 HHS Marketplace Integrity and Affordability rule, and § 1 records that the additional adjustment in § 36B(b)(3)(A)(ii)(II) is not required for 2026 because the failsafe in subclause (III) applies.

Pub. L. 119-21 then made four amendments with four different effective dates, which is unusual enough to be worth setting out plainly:

• § 71305 struck the repayment limitation in § 36B(f)(2)(B), for taxable years beginning after 31 December 2025. This is the change with the largest practical effect.
• § 71302 repealed § 36B(c)(1)(B), the special rule under which certain lawfully present individuals with household income below the poverty line were treated as applicable taxpayers, for taxable years beginning after 31 December 2025.
• § 71304 added § 36B(c)(3)(A)(iii), excluding plans enrolled in during an income-based special enrollment period, for plan years beginning after 31 December 2025.
• § 71303 added § 36B(c)(3)(A)(ii), the pre-enrollment verification requirement, and § 36B(c)(5) and (6), for taxable years beginning after 31 December 2027 — so it is not yet in effect.
• § 71301 narrowed eligibility by reference to “eligible aliens” in § 36B(e), for taxable years beginning after 31 December 2026 — also not yet in effect.

A page or seminar that lists all five as “the 2026 changes” is wrong about three of them.

Exam focus

Know the shape of the computation: expected contribution equals the applicable percentage of household income; the credit is the benchmark premium minus that, capped at premiums actually paid, summed over coverage months. Be able to say that the benchmark is the second lowest cost silver plan.

Know the eligibility conditions — 100 to 400 percent of the poverty line for 2026, joint return if married, not a dependent, no other minimum essential coverage available — and know that eligibility for other coverage is enough to end a coverage month.

Know the two employer plan tests and that failing either one preserves eligibility, but that actually enrolling in the plan switches both off. And know the reconciliation: a return must be filed, and for 2026 the excess is repaid in full with no limitation.

Check yourself

1. A married couple with two children have household income of 410 percent of the federal poverty line and received $9,000 of advance payments. What is the consequence at reconciliation for 2026?

Answer: The entire $9,000 is added to tax. They are not applicable taxpayers under IRC § 36B(c)(1)(A) because household income exceeds 400 percent of the poverty line, the temporary rule in § 36B(c)(1)(E) expired with taxable year 2025, and the repayment limitation in § 36B(f)(2)(B) was struck by Pub. L. 119-21 § 71305 for taxable years beginning after 31 December 2025.

2. An employee is offered an employer plan costing 6 percent of household income for self-only coverage, which pays 55 percent of allowed benefit costs. Can the employee claim the credit for Exchange coverage?

Answer: Yes, assuming the other conditions are met. The plan is affordable, but IRC § 36B(c)(2)(C)(ii) provides that an employee is not treated as eligible for minimum essential coverage where the plan’s share of total allowed costs is less than 60 percent. Failing either test is enough — unless the employee actually enrolls, when § 36B(c)(2)(C)(iii) disapplies both.

3. A family’s expected contribution is $300 a month, the second lowest cost silver plan costs $980, and they buy a bronze plan for $520. What is the monthly credit?

Answer: $520. Section 36B(b)(2)(B) gives $980 less $300, or $680, but § 36B(b)(2)(A) caps the premium assistance amount at the premiums actually paid for the plans they enrolled in. The bronze plan therefore costs them nothing and the excess benchmark credit is not paid to them.

4. A taxpayer whose income is below the filing threshold received advance payments all year. Must they file?

Answer: Yes. IRC § 36B(f)(1) and (2) require the credit to be reconciled against the advance payments, which can only happen on a return. Filing is required regardless of the income threshold and regardless of whether the reconciliation produces a refund or a balance.

5. In which month does eligibility for Medicare end the credit — the month of enrolment or the month of eligibility?

Answer: Eligibility. Section 36B(c)(2)(B)(i) excludes from coverage months any month for which the individual is eligible for minimum essential coverage other than individual market coverage, and Medicare is minimum essential coverage under § 5000A(f). Declining to enrol does not preserve the credit.