The Covered California tax credit is a federal Premium Tax Credit that lowers what you pay each month for a Marketplace health plan when your household income falls between 100% and 400% of the Federal Poverty Level. It is normally paid straight to your insurance company so your monthly bill drops right away, and then reconciled against your actual income when you file your federal tax return. For 2026, two things changed that make the credit worth understanding carefully: the income ceiling is back, and the cap on repaying excess advance payments is gone.
Who Qualifies
Four things have to line up at once.
First, income. Your household income for the year must sit between 100% and 400% of the Federal Poverty Level.1Internal Revenue Service. Eligibility for the Premium Tax Credit For a single person in the 48 contiguous states in 2026, that works out to roughly $15,960 to $63,840. A family of four falls between $33,000 and $132,000.2HHS ASPE. 2026 Poverty Guidelines: 48 Contiguous States Below roughly 138% of FPL, California households generally qualify for Medi-Cal rather than a Covered California subsidy.
Second, status. You need to be lawfully present in the United States and not incarcerated, aside from being held while charges are pending.3eCFR. 26 CFR 1.36B-2 – Eligibility for Premium Tax Credit
Third, no other qualifying coverage. If you are eligible for Medicare, Medi-Cal, or TRICARE, you cannot get the credit. The same is true if your employer offers a plan that is both affordable and meets a minimum value standard. For 2026, an employer plan counts as affordable when your share of the premium for the cheapest self-only option is less than 9.96% of household income.4HealthCare.gov. Affordable Coverage One wrinkle helps families: if the employer plan is affordable for the employee but not for family members, those family members may still qualify for Marketplace subsidies.
Fourth, how you file. You cannot be claimed as a dependent on someone else’s return, and you generally cannot file as married filing separately. Limited exceptions exist for people who have experienced domestic abuse or spousal abandonment.1Internal Revenue Service. Eligibility for the Premium Tax Credit
What Income Counts
The number that matters is Modified Adjusted Gross Income, or MAGI. For this credit, MAGI is your adjusted gross income plus three things: foreign income you excluded, nontaxable Social Security benefits (including Tier 1 railroad retirement benefits), and tax-exempt interest.5Internal Revenue Service. Questions and Answers on the Premium Tax Credit Supplemental Security Income does not count.
Household income is your MAGI combined with the MAGI of every family member who is required to file a tax return. A teenager with a part-time job who has to file adds to the household total. Self-employment income, capital gains, rental income, and retirement distributions all flow through AGI and into MAGI.
How the Credit Is Calculated
Covered California identifies the Second Lowest Cost Silver Plan in your area. That plan is the benchmark. You do not have to enroll in it, but its premium drives the math. Your credit equals the benchmark premium minus the share of income you are expected to contribute, where the expected share rises on a sliding scale as your income rises toward 400% FPL.1Internal Revenue Service. Eligibility for the Premium Tax Credit
If the benchmark Silver costs $800 a month and your expected contribution works out to $200, the credit is $600. You can apply that $600 to any Bronze, Silver, Gold, or Platinum plan. Choose a cheaper plan and you pay very little in premium; choose one that costs more than the benchmark and you pay the difference yourself.
The 400% FPL Cliff Is Back for 2026
From 2021 through 2025, temporary federal law removed the income ceiling and capped the expected contribution at 8.5% of income for everyone, including households above 400% FPL. That provision expired at the end of 2025.6Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan For 2026, a single person earning above $63,840 or a family of four above $132,000 receives no federal credit at all. Households that enjoyed subsidies in that income range during the enhanced period should expect a sharp jump in net premiums.
California’s State Subsidy for Lower Incomes
California added a state premium subsidy for 2026 aimed at lower-income enrollees. It is available to households at or below 165% of FPL who are otherwise eligible for the federal advance premium tax credit — roughly $26,335 or less for a single person.7Covered California. 2026 California State Premium Subsidy Program
The state subsidy lowers your expected contribution further. Below 150% FPL, your expected contribution to the benchmark Silver plan drops to 0%. Between 150% and 165% FPL, it runs from about 3.19% to 3.91% of income. The state subsidy has its own reconciliation when you file your California return with the Franchise Tax Board.
Why Silver Plans Matter at Lower Incomes
The premium tax credit cuts your monthly bill, but it does not touch your deductible, copays, or out-of-pocket maximum. Cost-sharing reductions do, and they only attach to Silver plans. If your income is below 250% FPL, a Silver plan automatically upgrades to an enhanced version with lower cost-sharing at the same premium.8HealthCare.gov. Cost-Sharing Reductions
- Silver 94, for incomes 100%–150% FPL, covers about 94% of average medical costs.
- Silver 87, for incomes 150%–200% FPL, covers about 87%.
- Silver 73, for incomes 200%–250% FPL, covers about 73%.
Covered California assigns the enhanced plan automatically based on your income.9Covered California. 2026 California Enhanced Cost-Sharing Reduction Program Design Pick Bronze or Gold instead and you keep the premium credit but lose the cost-sharing reductions entirely. For a family that uses care regularly, that choice can swing thousands of dollars over a year.
Taking the Credit Monthly or at Tax Time
Most people take the credit as an Advance Premium Tax Credit (APTC), paid directly to their insurer each month so the bill drops right away.5Internal Revenue Service. Questions and Answers on the Premium Tax Credit The alternative is to pay full premium every month and claim the entire credit as a lump sum when you file. Almost no one does this, but it is on the table if you prefer certainty to monthly cash flow.
Either way, the income estimate you put on your application drives the APTC. An estimate that is too low means the government paid your insurer more than it should have, and you repay the difference at tax time. An estimate that is too high means you overpaid during the year and get the difference back as a refund.
Report Life Changes During the Year
Your APTC was built from a snapshot of your life on application day. If anything changes, update your Covered California account so the credit can be recalculated.10HealthCare.gov. How to Report Income and Household Changes to the Marketplace A raise, a job loss, a new baby, a marriage or divorce, or a move to a different zip code within California can all shift the credit. A move out of state means ending your Covered California plan and applying through the new state’s marketplace.
One scenario catches people off guard. If you gain other qualifying coverage mid-year, such as a new employer plan or Medicare, that is not a change to report on your Covered California application. You need to end the Marketplace plan entirely. Keeping both running means you collect APTC for months you were not eligible, and you will owe all of it back.
Reconciling on Your Tax Return
Any APTC paid on your behalf has to be reconciled on your federal return. If you received APTC during the year, you must file and attach IRS Form 8962, even if your income is otherwise below the filing threshold.5Internal Revenue Service. Questions and Answers on the Premium Tax Credit
Form 8962 compares what you got in advance to what you actually earned the right to. The input you need is Form 1095-A, which Covered California mails by January 31. It lists your monthly enrollment premiums, the benchmark Silver premium used in the credit calculation, and the APTC paid to your insurer each month.11Internal Revenue Service. 2025 Instructions for Form 1095-A
If actual income came in lower than you estimated, you received too little APTC and claim the difference as a refundable credit. If actual income came in higher, the APTC was too generous and you repay the excess.
Repayment Caps Are Gone in 2026
From 2021 through 2025, federal law capped how much excess APTC lower- and middle-income households had to repay. Those caps are gone starting with the 2026 tax year. Any excess has to be repaid in full, regardless of income.12Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit If Covered California paid your insurer $4,000 more than you actually qualified for, you owe the full $4,000.13CMS. Are There Limits to How Much Excess Advance Payments of the Premium Tax Credit Consumers Must Pay Back
That raises the stakes on your income estimate. In the past, a household under 200% FPL who guessed low had a safety net capping the clawback at a few hundred dollars. That safety net no longer exists. If your income is hard to predict, as it often is with self-employment or gig work, consider estimating slightly conservatively and updating Covered California whenever your situation shifts.
If You Skip Form 8962
You cannot quietly ignore the form. If you e-file without Form 8962 and IRS records show APTC was paid for you, the return is automatically rejected.14Internal Revenue Service. How to Correct an Electronically Filed Return Rejected for a Missing Form 8962 Beyond that filing headache, failing to reconcile puts your future APTC at risk: if you received APTC and then did not file at all, you may lose eligibility for advance payments in later years.15Internal Revenue Service. Claiming the Credit and Reconciling Advance Credit Payments You would then owe the full monthly premium until you catch up on your returns.
When You Can Enroll
Open enrollment for 2026 Covered California coverage runs from November 1 through January 31.16Covered California. Covered California Open Enrollment 2026 You can sign up for a new plan, switch plans, or renew during that window.
Outside open enrollment, you need a qualifying life event to trigger a special enrollment period: losing coverage, marrying, having a baby, permanently moving to or within California, and some California-specific triggers like being affected by a declared state of emergency. Members of federally recognized American Indian or Alaska Native tribes can enroll or switch plans at any time.17Covered California. Major Life Changes