The ACA Subsidy Cliff Returns—Here’s How to Navigate It in 2026

The subsidy cliff is back—and it's sharper than ever.

Forget gentle slopes; this is a straight drop-off where a single dollar over the income threshold can slash thousands in healthcare credits. The system isn't broken; it's working exactly as designed—to keep you guessing and accountants employed.

Income on the Edge

That magic number hasn't moved, but everything else has. Inflation? Wage shifts? The cliff doesn't care. It calculates based on your Modified Adjusted Gross Income (MAGI), a figure that somehow manages to feel both arbitrary and brutally precise.

Strategies to Soften the Fall

You can't move the cliff, but you can build a bridge. Maximize pre-tax retirement contributions—every dollar into your 401(k) or HSA lowers your MAGI. Explore Health Savings Accounts if eligible; they're triple tax-advantaged and roll over forever. Consider timing for bonuses or capital gains; sometimes delaying income by a month can save a year's worth of subsidies.

The Fine Print Gambit

Estimate low, report fast. The Advanced Premium Tax Credit is based on projections. If your income jumps mid-year, update your marketplace application immediately to avoid a nasty reconciliation surprise at tax time. The penalty for getting it wrong feels personal.

It's a means-tested maze where the rules reward the nimble and punish the unaware. In the grand tradition of personal finance, it's less about optimization and more about damage control—because who doesn't love a system where the best outcome is avoiding ruin?

Key Takeaways

• The end of enhanced ACA premium tax credits has increased premiums for many people whose incomes fall above the so-called "subsidy cliff."
• Earning even $1 above 400% of the federal poverty level can eliminate the credit entirely.

If you're planning to buy or have already bought health insurance off the exchange this year, your premiums may have surged. And if you're not careful, you could be on the hook for a huge tax bill next year.

At the start of the year, enhanced premium tax credits, a type of subsidy for Affordable Care Act (ACA) premiums, expired.

These temporary subsidies were enacted in 2021 and reduced the cost of health insurance premiums for those making more than 400% of the federal poverty level (FPL)—or about $62,600 for individuals in 2025.

Why This Matters To You

People earning too much for subsidies but not enough to comfortably afford full-price premiums often go uninsured or underinsured. Knowing your options can keep you from falling into that gap.

Those with a modified adjusted gross income (MAGI) that falls above the 400% threshold face what some are calling a "subsidy cliff."

"If that number [your MAGI] is $1 above the threshold, you lose the tax credit," said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners.

KFF, a nonprofit health policy organization, estimates that an individual earning $64,000, or just above the threshold, WOULD pay $14,931 in total for their premiums.

However, people earning between 100% and 400% of FPL are still eligible for the premium tax credit. That means someone with an income of $62,000 would pay just $6,175.

Related Education

Pay Close Attention to Your Income

You can receive the premium tax credit in advance or claim the full amount when you file your tax return.

If someone receives the premium tax credit in advance, their eligibility for the credit is determined by their estimated MAGI for the year they want coverage. The credit is then deducted from their monthly premiums.

Your MAGI includes the following:

• Adjusted gross income: This number appears on your IRS form 1040.
• Nontaxable Social Security benefits
• Tax-exempt interest: This could be from municipal bonds
• Untaxed foreign income

If you overestimate your MAGI, you may have to repay all or a portion of the tax credit when you file your tax return later on, according to McClanahan.

"Pay attention to your income during 2026, and if it looks like you may go over [the 400% threshold], do what you can to reduce that income," McClanahan said.

Antonio Lugo, CFP and managing director of Smart Wealth Strategies, recommends planning and taking advantage of strategies like contributing to a health savings account or a traditional 401(k), since contributions to both are deducted from your income.

McClanahan also suggests taking stock of your investment portfolio to see if any of your investments declined during the year. If you sell any investments at a loss, you can deduct up to $3,000 worth of losses from your income. That strategy is called tax-loss harvesting.