Many small business owners and self-employed professionals who buy health insurance through the marketplace get a nasty surprise at tax time: they owe money back to the IRS. If you received advance payments of the Premium Tax Credit (APTC) to help pay for your marketplace health insurance, you might be one of them.

Here’s what’s going on: when you enrolled in marketplace coverage, you estimated your income for the year. The government used that estimate to calculate how much of your premium they’d cover in advance (APTC). If your actual income ends up higher than estimated, you received more credit than you qualify for—and the IRS wants the difference back.

For 2025, repayment caps still protect many taxpayers. But beginning in 2026, those caps disappear under the new One Big Beautiful Bill Act (OBBBA). That makes this year a critical one for proactive planning.

What the Premium Tax Credit Covers (and Who Qualifies)

The Premium Tax Credit (PTC) is a refundable tax credit that helps lower the cost of marketplace health insurance. Many people take it in advance (APTC), which means the IRS pays part of the premium directly to the insurer each month.

Who can claim it:

• Individuals and families who buy coverage through the Health Insurance Marketplace.

• Households with income generally between 100% and 400% of the federal poverty line (FPL).

Who cannot claim it:

• Anyone eligible for affordable employer-sponsored coverage (including through a spouse’s plan).

• Individuals claimed as dependents on someone else’s return.

Income thresholds for 2025 (contiguous U.S.):

• 100% FPL = $14,580 for single filers; $30,000 for a family of four.

• 400% FPL = $69,680 for single filers; $94,200 for a family of four.

Credit range:

• The credit amount depends on household income, family size, and the cost of the benchmark plan (the second-lowest-cost silver plan in your area).

• In practice, the credit can range from a few hundred dollars to more than $10,000 per year for families with moderate income. Lower-income households typically qualify for larger credits, while higher-income households closer to 400% FPL qualify for smaller amounts.

How Premium Tax Credit Repayment Actually Works

Let's say you're a solo consultant who estimated $45,000 in income when you signed up for 2025 marketplace coverage. Based on that estimate, the government sent $400 per month—$4,800 for the year—straight to your insurance company to reduce your premiums.

But your business did better than expected and your actual income came in at $55,000. When you file your return, the IRS recalculates your Premium Tax Credit based on that higher income. Instead of $4,800, you only qualified for $3,500.

That leaves you with an "excess advance premium tax credit" of $1,300 ($4,800 received – $3,500 qualified). That $1,300 is what you’ll need to repay at tax time.

The Repayment Cap Safety Net (2025 Only)

For 2025, the IRS limits how much of your excess Premium Tax Credit you have to repay—unless your income goes over 400% of the federal poverty line. If you stay below that threshold, these repayment caps apply:

Single Filers

• Under $29,160 → Max repayment $375

• $29,160 – $43,740 → Max repayment $950

• $43,740 – $58,320 → Max repayment $1,500

• $58,320 – $69,680 → Max repayment $2,700

Married Filing Jointly

• Under $39,440 → Max repayment $750

• $39,440 – $59,160 → Max repayment $1,900

• $59,160 – $78,880 → Max repayment $3,000

• $78,880 – $94,200 → Max repayment $5,400

But here’s the catch: once your household income hits 400% of the poverty line ($69,680 for single filers, $94,200 for joint filers in 2025), these caps vanish. You must repay every dollar of excess credit you received. This sudden jump is often called the “400% cliff.”

Planning Alert

2025 is the last year these caps exist. Starting with 2026 returns, repayment caps are gone—everyone has to pay back the full excess credit, no matter their income.

Example: The Cap Disappears After 2025

Let’s say Maria, a self-employed graphic designer, received $4,000 more in advance Premium Tax Credit than she actually qualified for.

In 2025 (caps still apply):

• Maria’s household income is $80,000 (married filing jointly).

• Based on the repayment cap table, her maximum repayment is $3,000.

• Even though she received $4,000 in excess credits, she only has to repay $3,000.

In 2026 (caps repealed under OBBBA):

• Same facts: $80,000 income and $4,000 in excess credits.

• With no repayment cap, Maria must repay the full $4,000.

That’s a $1,000 difference simply because the repayment caps go away after 2025. For business owners with fluctuating income, the shift can mean thousands more in unexpected tax liability.

How to Calculate Your Liability 

You'll use Form 8962 to reconcile your advance credit payments with your actual Premium Tax Credit when you file your taxes. The form compares what you received against what you actually qualified for based on your final income. 

• The calculation considers: 

• Your actual Modified Adjusted Gross Income (MAGI) 

• Your household size 

• The cost of the "benchmark plan" (second-lowest-cost silver plan) in your area 

The actual advance payments made on your behalf MAGI includes your adjusted gross income plus any tax-exempt interest, but doesn't include Supplemental Security Income.

Real-World Example: The 400% Cliff

Sarah runs a successful real estate consulting business. When she enrolled in marketplace coverage, she estimated $65,000 of income. Her business grew faster than expected, and she ended up earning $72,000—just over the 400% poverty line threshold.

Because her income crossed the cliff, she lost repayment cap protection and had to repay the full $3,200 of excess credits. If her income had been just $3,000 lower, her repayment would have been capped at $2,700, saving her $500.

This “all-or-nothing” threshold is exactly why business owners with unpredictable income need to watch their estimates closely. Even a modest bump in earnings can mean a much larger repayment.

⚠️ Looking ahead: Starting in 2026, Sarah’s outcome would be even harsher. With the repayment caps gone, she would owe the full $3,200 whether she was under or over the cliff.

Proven Strategies to Avoid Repayment Surprises

The best way to avoid a surprise tax bill is to stay ahead of your income estimates and make adjustments during the year. Here are proven strategies business owners can use:

Update Your Income Estimates Mid-Year: Check your income against your marketplace estimate every quarter. If business is trending higher, report the change right away so your advance credits adjust. This prevents a large repayment when you file. This is where Town’s quarterly check-ins with dedicated CPAs shine: we monitor your income in real time and flag when an update could save you from a surprise bill.

Use Conservative Income Estimates: If your business income fluctuates, it’s safer to estimate on the higher side when you enroll. Getting a refund at tax time feels better than cutting an unexpected check to the IRS.

Leverage the IRS Premium Tax Credit Estimator: The IRS offers a free tool to model how changes in income affect your credit. Use it before making major business decisions that might increase your taxable income.

Plan Business Expenses and Retirement Contributions: Strategic timing matters. Accelerating deductible expenses or maxing out retirement contributions can lower your modified adjusted gross income (MAGI) enough to keep you under the 400% poverty line.

Consider Taking Only Partial Advance Credits: Instead of claiming the full amount each month, some business owners elect to take 75–80% of the credit. This creates a buffer if income rises unexpectedly.

⚠️ 2025 Planning Alert: Caps Disappear in 2026: This year is the last chance to rely on repayment caps. For 2025, keeping income under the 400% cliff could mean thousands in savings. Beginning in 2026, there are no caps—every excess dollar must be repaid. Work with a tax advisor now to maximize deductions and retirement contributions while the safety net still exists.

What Happens If You Can't Pay the Repayment

If you owe back Premium Tax Credit amounts, the IRS will first apply them against any refund you’re due. If the repayment is larger than your refund, the balance gets added to your tax liability.

Can’t pay in full? The IRS treats excess PTC repayments like any other tax debt. You can set up a short-term extension or a monthly payment plan. Interest and penalties may apply, but spreading the payments out is often better than ignoring the balance.

With repayment caps disappearing in 2026, it’s even more important to plan ahead. A “manageable” balance in 2025 could become a much larger obligation next year.

Special Considerations for Business Owners

Business owners face unique wrinkles when it comes to Premium Tax Credit repayment:

Multi-State Operations: If your business operates in more than one state, your repayment calculation still uses the “benchmark plan” for the state where you live—not where you do business.

Employer Coverage Elections: If you’re eligible for affordable coverage through an employer plan (including a spouse’s plan), you generally cannot claim Premium Tax Credits at all. For 2025, “affordable” means the employee’s share of premiums is no more than 9.02% of household income.

Quarterly Tax Integration: When calculating quarterly estimated taxes, include potential PTC repayments. This prevents a large year-end bill and spreads out the cost. With repayment caps ending after 2025, this step will become even more critical. Town’s AI-powered tax platform integrates your live income data with PTC eligibility, so you’re alerted when changes could affect both your premiums and your tax liability.

The Bottom Line

Premium Tax Credit repayment doesn’t have to blindside you. The key is staying proactive—check your income during the year, update your marketplace account when things change, and plan for the possibility that your business might outperform your estimate.

For 2025, repayment caps still soften the blow if you end up earning more than expected. But starting in 2026, those caps disappear, and every excess dollar must be repaid. That makes this year especially important for careful planning—whether that’s accelerating deductions, maxing out retirement contributions, or adjusting quarterly estimates.

Don’t set it and forget it. Treat your Premium Tax Credit like any other liability that needs to be managed. With Town’s dedicated CPAs monitoring your income year-round and integrating it with both business and personal tax planning, you can stay ahead of surprises and keep your healthcare costs under control while focusing on growing your business.

Ready to get your business taxes handled by experts who understand the full picture? Town's dedicated CPAs help business owners navigate complex tax situations like Premium Tax Credit reconciliation while maximizing deductions and minimizing surprises. Learn more about Town's comprehensive tax services or explore our tax resources for more business tax strategies.

Related Resources:

• Business owner tax planning strategies

• Quarterly tax planning guide

• Healthcare deduction optimization

Disclaimer: This content is for educational purposes only and does not constitute personalized tax advice. Tax laws are complex and subject to change, and individual circumstances can vary widely. Strategies that work for one taxpayer may not be appropriate for another.