If your household income lands just above 400% of the federal poverty line, 2026 is an expensive place to be. The enhanced Marketplace subsidies of 2021–2025 have lapsed, and the “subsidy cliff” is back: one dollar over the limit and the premium tax credit drops to zero. For a couple in their early 60s, that can be a swing of $15,000 or more. The test uses a specific number, modified adjusted gross income (MAGI), and there are legitimate ways to lower it. There are also shortcuts that don't work, and some that cost more than the subsidy.
This is general information, not individual tax advice — the right treatment depends on your specific situation.
What Changed for 2026
The enhanced premium tax credits from the American Rescue Plan and the Inflation Reduction Act expired on December 31, 2025. The House passed a three-year extension on January 8, 2026 (230–196), but the Senate did not, and Congress has not extended them as of this writing. Check HealthCare.gov for any change before you act.
For 2026 coverage, the credit is available only between 100% and 400% of the poverty line, measured against the 2025 guidelines. In the 48 contiguous states and D.C., 400% is $62,600 for one person and $84,600 for a couple, plus $22,000 for each additional household member. Alaska and Hawaii are higher. For 2027 coverage, which uses the 2026 guidelines, the line rises to $63,840 for one person and $86,560 for a couple.
Between 300% and 400%, you're expected to pay 9.96% of household income toward the benchmark silver plan, and the credit covers the rest (IRS Rev. Proc. 2025-25). Above 400%, there is no credit, however expensive the premium.
Repayment also got stricter. The One Big Beautiful Bill Act (§71305) eliminated the caps on repaying excess advance credits starting with tax year 2026, for returns filed in 2027. If you underestimate your income, you repay the full excess. Above 400% there was never a cap.
What Counts as MAGI for the Premium Tax Credit
For the credit, MAGI is your adjusted gross income (AGI) plus non-taxable Social Security, tax-exempt interest, and excluded foreign earned income and housing. It's totaled for everyone in the tax household who is required to file a return.
Effectively all of your Social Security counts. Municipal bond interest counts. And only things that reduce AGI move the number. The standard deduction, itemized deductions and the new deductions for tips, overtime, car-loan interest and seniors are all subtracted after AGI, so none of them lower MAGI.
A Worked Example: What Getting Under the Line Is Worth
Assumptions (illustrative only). A married couple, 62 and 60, filing jointly, with no dependents, in the lower 48, so their 400% line is $84,600. Assume the benchmark silver plan for the two of them costs $2,000 a month ($24,000 a year). Premiums vary widely by state, county and age, so look up yours on HealthCare.gov or your state's exchange.
At $90,000 of MAGI, the credit is $0 and they pay the full $24,000. At $84,000, their expected contribution is 9.96% × $84,000 = $8,366. The credit is about $24,000 − $8,366 = $15,634, and their cost for the benchmark plan drops to roughly $8,366.
How they get there: an extra $6,000 into a traditional 401(k) or a deductible IRA, or into an HSA if they choose an HSA-eligible bronze plan.
What it's worth: about $15,634 of credit, plus the income tax saved on the deduction. At this income they're in the 12% federal bracket after the $32,200 joint standard deduction, so that's roughly $720 federal, plus any state saving. And the $6,000 is still theirs.
The cliff: at exactly $84,600 the credit is about $15,574. At $84,601 it's zero. Aim for a cushion of a few hundred to a couple of thousand dollars below the line, because a late 1099-INT or a year-end fund distribution can push you over.
Levers That Work for Most Households
Traditional 401(k), 403(b) and 457 deferrals. Pre-tax deferrals reduce your W-2 wages and therefore your AGI. For 2026 the limit is $24,500, plus an $8,000 catch-up at 50 or older, or $11,250 at ages 60–63 (IRS Notice 2025-67). There's a trap. Starting in 2026, if your prior-year FICA wages from that employer exceeded $150,000, your catch-ups must be Roth, and Roth contributions don't reduce MAGI.
A deductible traditional IRA. You can contribute up to $7,500, plus $1,100 at 50 or older, for each spouse with earned income, and a working spouse can fund an IRA for a non-working one. If you're covered by a workplace plan, the deduction phases out. For 2026 the range is $129,000–$149,000 for a covered spouse filing jointly and $81,000–$91,000 for a single filer, and most households near the ACA line are below it. Nondeductible contributions don't help.
A health savings account. Starting January 1, 2026, bronze and catastrophic Marketplace plans count as HSA-qualifying (OBBBA §71307; IRS Notice 2026-5). The 2026 limits are $4,400 self-only and $8,750 family, plus $1,000 at 55 or older. Each spouse needs their own HSA to make a catch-up. Eligibility is tested month by month, and contributions stop once you're on Medicare. Our HSA strategy guide covers the rest of the rules.
Extra Levers for the Self-Employed
SEP-IRA or Solo 401(k). A SEP allows roughly 20% of net self-employment earnings (after the deduction for half of SE tax), and you can generally open and fund one up to your return's extended due date. A Solo 401(k) adds an employee deferral on top, so it usually allows more at moderate income, but set it up before year-end. Sole proprietors and partners have no FICA wages from their business, so the Roth catch-up rule generally doesn't apply to them. Compare the options in SEP-IRA vs. SIMPLE vs. Solo 401(k).
The self-employed health insurance deduction. Premiums you pay, net of the credit, are deductible above the line. That lowers AGI, which raises the credit, which shrinks the deduction. IRS Rev. Proc. 2014-41 and Publication 974 give a simplified method and an iterative method for solving the loop. The iterative method often gives a better result, but not all software runs it. There's more in The Self-Employed Health Insurance Deduction Explained.
Business timing. A cash-basis owner can sometimes move a December invoice into January, or pay a genuine expense before year-end. Near the cliff, that deduction can be worth far more than your tax rate. That only holds for spending you'd do anyway, and only if your books are current enough to show in October where you'll land. Our year-end planning checklist covers the details.
Timing the Income You Control
Capital gains. Spread large sales across tax years, or realize gains in a year when the credit isn't at stake. Harvested losses offset gains, plus up to $3,000 of ordinary income.
Roth conversions. Every converted dollar is MAGI. Conversions generally belong in years when the credit isn't in play, such as after Medicare starts. Even then, watch Medicare's two-year income look-back for premiums. See our guide to tax-efficient retirement withdrawals.
Spending money and bonds. Traditional IRA withdrawals add to MAGI. Spending from cash savings, the basis in a taxable account, or Roth contributions generally doesn't. Munis don't help, because tax-exempt interest counts. Holding bonds inside retirement accounts shelters the interest, and a Treasury bill that matures next January pushes it into the next year.
Social Security. If claiming at 62 would push you over, waiting keeps MAGI down and raises your eventual benefit. That works only if you have other money to cover the gap.
The After-Year Fix: Contributions Made by April 15, 2027
This is the lever most people miss. IRA and HSA contributions for 2026 can be made up to the original filing deadline, April 15, 2027, and designated as 2026 contributions. MAGI comes from your 2026 return, so a household that discovers in February that it's $3,000 over can sometimes make a deductible IRA or HSA contribution and get back under. A SEP-IRA can be funded even later, up to the extended due date.
A few caveats apply. You need eligibility for 2026: earned income for an IRA, and HSA-qualifying coverage for the HSA months. The contribution must be deductible, and you must tell the custodian it's for 2026. There's no after-year fix for 401(k) deferrals, which have to come out of 2026 paychecks. This repairs a small overage, not a large one.
Report Changes During the Year
Your advance credit is based on the income estimate you gave the Marketplace. With no repayment cap, report a mid-year jump promptly — a new client, a bonus, a property sale, a Roth conversion — so the advance payments for the remaining months are adjusted. If your income drops, updating can raise the credit.
Choosing Coverage When You're Near (or Over) the Line
Bronze plus HSA, or silver. The credit is a dollar amount based on the benchmark silver plan, and you can apply it to any metal tier. Bronze lowers the premium and opens the HSA, but the deductible is higher.
Narrow networks and off-exchange plans. Narrow-network plans often cost less. If you're certain to be over the cliff, compare carriers directly, including their off-exchange plans. If you might end up under 400%, enroll through the Marketplace, because the credit is available only for Marketplace coverage.
State help. Some states fund their own subsidies, and a few extend them above 400%. In Massachusetts, ConnectorCare subsidies aren't available above 400% of the poverty line for 2026. Check your state's exchange for 2027.
Employer options. A working spouse's employer plan, a small employer's individual coverage HRA (ICHRA), or a part-time job with benefits may beat unsubsidized premiums. COBRA generally costs up to 102% of the full premium, so compare it with an unsubsidized Marketplace plan before you elect it.
What Doesn't Work (or Backfires)
Low-balling your income estimate. With the repayment caps gone, every dollar of excess advance credit comes back on your 2026 return.
Short-term plans and health care sharing ministries. Short-term plans aren't ACA coverage, and they can exclude pre-existing conditions or cap benefits. Sharing ministries aren't insurance, and they don't guarantee payment. At 60, that's a serious risk to take for a lower premium.
Going uninsured. There's no federal penalty, but Massachusetts and a few other states impose their own.
Assuming Roth helps. Roth IRA contributions aren't deductible, and Roth conversions add to income. Neither reduces MAGI.
Forgetting the add-backs. Tax-exempt interest and the untaxed part of Social Security push people over the line every year.
Earning less on purpose. Turning down work makes sense only if the subsidy you keep is worth more than the after-tax income you give up. Run the numbers before you decide.
Rearranging the tax household. Married couples filing separately generally can't claim the credit at all. The limited exceptions are for victims of domestic abuse or spousal abandonment.
Talk to a CPA Before December
Most of these levers work only before year-end, and the after-year fix works only if someone runs the numbers before April. VarStan's CPA-led team can project your 2026 MAGI, size the right contributions, coordinate the self-employed health insurance deduction with the credit, and file Form 8962 correctly. Talk to a CPA, or explore our tax and advisory services.
Frequently Asked Questions
What is the ACA subsidy cliff in 2026?
For 2026 coverage, the premium tax credit is available only if household MAGI is between 100% and 400% of the federal poverty line. Even one dollar above 400% means no credit at all, because the enhanced credits that removed the cap expired at the end of 2025.
What is the 400% income limit for 2026 Marketplace coverage?
Using the 2025 poverty guidelines for the 48 contiguous states and D.C., it's $62,600 for one person and $84,600 for a married couple, plus $22,000 for each additional household member. Alaska and Hawaii are higher.
Do Roth IRA contributions or Roth conversions lower my MAGI?
No. Roth contributions aren't deductible, and conversions increase income. To lower MAGI, you need pre-tax contributions such as a traditional 401(k), a deductible IRA or an HSA.
Can I contribute to an IRA or HSA after year-end to lower my 2026 MAGI?
Often, yes. IRA and HSA contributions designated for 2026 can be made until April 15, 2027, as long as you were eligible and the contribution is deductible. 401(k) deferrals can't be made after December 31.
Can I have an HSA with a bronze Marketplace plan?
Starting January 1, 2026, bronze and catastrophic plans available through an exchange are treated as HSA-qualifying high-deductible plans. The 2026 limits are $4,400 self-only and $8,750 family, plus $1,000 at 55 or older.
What happens if my income ends up higher than I estimated?
For tax year 2026 and later, you repay the entire excess advance credit when you file, because the repayment caps were removed. Report income changes to the Marketplace during the year to keep the gap small.
Does Social Security count toward ACA MAGI?
Yes. The taxable part is already in AGI, and the non-taxable part is added back, so effectively all of your benefit counts. Tax-exempt interest is added back too.
Sources: HealthCare.gov, Federal poverty level; HealthCare.gov, What to include as income; IRS Rev. Proc. 2025-25; IRS, Repayment caps eliminated for excess advance payments; IRS Notice 2026-5; IRS, 2026 retirement plan limits (Notice 2025-67); IRS Publication 974.
Related reading: How Much of Your Social Security Is Taxable — and How IRA Withdrawals Change It and Turning 50? The Tax Moves 60-Year-Olds Wish They'd Made.