Covered California Tax Credit: Eligibility, 400% Cliff, and Form 8962

The Covered California tax credit is the federal Premium Tax Credit, applied through California’s Marketplace to lower what you pay each month for a health plan. It’s available to households earning between 100% and 400% of the Federal Poverty Level, and it’s usually paid straight to your insurer so your bill drops right away. You settle up with the IRS at tax time. Two things changed for 2026 that make accuracy matter more than it used to: the 400% FPL income ceiling is back, and the federal cap on how much excess credit you have to repay is gone.

Who Qualifies

Four things have to line up at once.

Your household income for the year has to fall between 100% and 400% of the Federal Poverty Level. For a single person in 2026, that’s roughly $15,960 to $63,840.¹ The thresholds scale up with household size, and Alaska and Hawaii have higher figures.

You have to be lawfully present in the United States and not currently incarcerated, other than someone being held while charges are pending.²

You cannot be eligible for other qualifying coverage. Medicare, Medi-Cal, and TRICARE eligibility all disqualify you. So does an employer plan that is both “affordable” and meets minimum value. For 2026, an employer plan counts as affordable if your share of the cheapest self-only premium is less than 9.96% of household income.³ There’s one useful wrinkle: if your employer plan is affordable for you as the employee but not for your family, your family members may still qualify for a Marketplace credit.

You cannot file as married filing separately (with narrow exceptions for domestic abuse or spousal abandonment), and you cannot be claimed as someone else’s dependent.⁴

One California-specific note at the bottom of the income range: households under roughly 138% of FPL generally qualify for Medi-Cal, so they get Medi-Cal coverage instead of a Covered California credit.

What Income Counts

The number Covered California cares about is your Modified Adjusted Gross Income (MAGI). Start with the adjusted gross income from your federal return, then add back three things: foreign income you excluded, nontaxable Social Security benefits (including Tier 1 railroad retirement), and tax-exempt interest.⁵ Supplemental Security Income doesn’t count.

Household income is your MAGI plus the MAGI of every family member who is required to file a return. A teenager with a part-time job that triggers a filing requirement adds to the total. Self-employment income, capital gains, rental income, and retirement distributions all flow through AGI into MAGI.

How the Credit Is Calculated

The credit runs on a sliding scale tied to how your income compares to the Federal Poverty Level. Households closer to the poverty line are expected to contribute a smaller share of income toward premiums; households near 400% FPL contribute a larger share.⁴

The mechanics: Covered California identifies the Second Lowest Cost Silver Plan (SLCSP) in your area. That plan is the benchmark. Your credit equals the SLCSP premium minus your expected contribution based on the sliding scale. If the SLCSP costs $800 a month and your expected contribution is $200, your credit is $600 a month.

You can apply that $600 to any Bronze, Silver, Gold, or Platinum plan you want. Pick something cheaper than the benchmark and you pay very little in premium; pick something more expensive and you cover the difference. The credit itself doesn’t change based on the plan you choose.

The 400% FPL Cliff Is Back in 2026

From 2021 through 2025, temporary federal legislation removed the 400% ceiling and capped expected contributions at 8.5% of income for higher earners. That provision expired at the end of 2025.⁶ For 2026, a single person earning over $63,840, or a family of four over $132,000, gets no federal credit at all. Households that were used to generous subsidies at higher incomes may see a sharp jump in what they owe each month.

California’s State Premium Subsidy

California added a state subsidy for 2026 aimed at lower-income enrollees. If your income is at or below 165% of FPL, and you’re otherwise eligible for the federal advance premium tax credit, you can receive the California Premium Subsidy on top of the federal one.⁷ For a single person, that ceiling is about $26,335.

The state subsidy lowers your expected contribution percentage. Under 150% FPL, expected contribution drops to 0% of the benchmark Silver premium. Between 150% and 165% FPL, it runs about 3.19% to 3.91% of income.⁷ The state subsidy is reconciled on your California return with the Franchise Tax Board.

Why Plan Choice Still Matters: Silver Plans and Cost-Sharing

The premium tax credit only touches your monthly bill. It doesn’t change your deductible, copays, or out-of-pocket maximum. Cost-sharing reductions do, and they’re only available on Silver plans.

Enroll in Silver through Covered California with qualifying income and your plan automatically upgrades to a version that pays a larger share of your medical costs at the same premium.⁸ For 2026, Covered California offers three enhanced Silver tiers based on income:⁹

Silver 94 for income 100%–150% FPL, covering about 94% of average medical costs with significantly lower deductibles and out-of-pocket limits.
Silver 87 for income 150%–200% FPL, covering about 87% of costs.
Silver 73 for income 200%–250% FPL, covering about 73% of costs.

Pick Bronze or Gold instead and you keep the premium credit but lose cost-sharing reductions entirely. For someone with a chronic condition or a family that uses care regularly, a Silver 94 or Silver 87 can save thousands over the year.

Taking the Credit Monthly vs. at Tax Time

Most people take it in advance. When you enroll, you can direct the estimated credit (called the Advance Premium Tax Credit, or APTC) to your insurer each month, and your bill shows only the remainder.⁵

You can also pay full price every month and claim the entire credit as a lump sum when you file. Almost no one does this, but the option exists if you prefer certainty to cash flow relief.

Report Life Changes as They Happen

Your APTC is based on a snapshot from your application. When something shifts, update Covered California so the credit gets recalculated.¹⁰ Report changes to income, household size, and address. Raises, job losses, a new baby, marriage, divorce, and moves within California all matter. If you move out of state, end your Covered California plan and apply through your new state’s marketplace.

One trap: if you gain access to other qualifying coverage mid-year, such as a new employer plan or Medicare, don’t just update your application. End your Marketplace plan. Keeping both running means collecting APTC during months you weren’t eligible, and you’ll owe all of it back.

Reconciling on Form 8962

Anyone who received APTC has to file a federal return and attach IRS Form 8962, even if your income wouldn’t otherwise require a return.⁵ Form 8962 compares what you got in advance against what you actually qualified for once your real income is known.

You’ll need Form 1095-A to complete it. Covered California sends 1095-A by January 31. It shows your monthly enrollment premiums, the benchmark Silver plan premium used for your credit, and the APTC amounts paid to your insurer.¹¹

Two outcomes are possible. If your actual income came in lower than your estimate, you received less APTC than you deserved, and you claim the difference as a refundable credit. If your income came in higher, the APTC was too generous and you repay the excess.⁵

The Repayment Cap Is Gone in 2026

For 2021 through 2025, federal law capped how much excess APTC lower-income households had to pay back. Starting with tax year 2026, those caps are eliminated. You repay the full amount of any excess with no cap, regardless of income.¹² If your APTC was $4,000 higher than what you actually qualified for, you owe the entire $4,000 back, added to your tax liability.¹³

The takeaway for anyone with variable income: estimate a little on the high side, and update Covered California when your income shifts. Self-employment, gig work, and fluctuating hours are exactly the situations where the removed cap can bite.

What Happens If You Skip Form 8962

You can’t quietly skip it. E-file a return without Form 8962 when IRS records show you received APTC, and the return is automatically rejected.¹⁴ Paper returns get accepted, but the IRS follows up by mail and holds any refund in the meantime.

The longer-term consequence: if you received APTC and don’t file at all, you may lose eligibility for advance credit payments in future years.¹⁵ Covered California would stop sending payments to your insurer on your behalf, and you’d owe the full premium yourself until you catch up on filings. If you also received the California state subsidy, expect a similar reconciliation on your state return.

When You Can Enroll

Covered California’s open enrollment for 2026 coverage runs November 1 through January 31.¹⁶ Sign up, switch plans, or renew during that window.

Outside open enrollment, you need a qualifying life event to trigger a special enrollment period. Losing existing coverage, marriage, a new baby, and a permanent move to or within California are the common ones. California recognizes some events other states don’t, including paying the state individual mandate penalty on a prior-year return and being affected by a declared state of emergency such as a wildfire. Members of federally recognized American Indian or Alaska Native tribes can enroll or change plans at any time.¹⁷

1
HHS ASPE. 2026 Poverty Guidelines: 48 Contiguous States
2
eCFR. 26 CFR 1.36B-2 – Eligibility for Premium Tax Credit
3
HealthCare.gov. Affordable Coverage
4
Internal Revenue Service. Eligibility for the Premium Tax Credit
5
Internal Revenue Service. Questions and Answers on the Premium Tax Credit
6
Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan
7
Covered California. 2026 California State Premium Subsidy Program
8
HealthCare.gov. Cost-Sharing Reductions
9
Covered California. 2026 California Enhanced Cost-Sharing Reduction Program Design
10
HealthCare.gov. How to Report Income and Household Changes to the Marketplace
11
Internal Revenue Service. 2025 Instructions for Form 1095-A
12
Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit
13
CMS. Are There Limits to How Much Excess Advance Payments of the Premium Tax Credit Consumers Must Pay Back
14
Internal Revenue Service. How to Correct an Electronically Filed Return Rejected for a Missing Form 8962
15
Internal Revenue Service. Claiming the Credit and Reconciling Advance Credit Payments
16
Covered California. Covered California Open Enrollment 2026
17
Covered California. Major Life Changes