The ACA Subsidy Cliff Has Returned. Steps You Can Take to Prevent It

How to Avoid the ACA Subsidy Cliff

Photo credit: Tom Werner / Getty Images

Taking steps such as increasing your 401(k) contributions or making use of a Health Savings Account (HSA) can help lower your taxable income, potentially keeping you below the threshold that triggers the loss of ACA premium tax credits.

Main Points

• With the expiration of expanded ACA premium tax credits, many individuals whose earnings exceed the "subsidy cliff" are now facing higher health insurance premiums.
• Even a slight increase in income—just one dollar above 400% of the federal poverty level—can result in the complete loss of these credits.

If you have purchased or are considering purchasing health insurance outside of the ACA marketplace this year, you may notice a significant increase in your premiums. Failing to monitor your income could also result in a large tax bill when you file next year.

At the beginning of this year, the temporary premium tax credits—which were introduced in 2021 to help those earning above 400% of the federal poverty level (about $62,600 for a single person in 2025)—came to an end.

These subsidies had made health insurance more affordable for higher earners, but now that they have expired, those same individuals may see their costs rise.

Why This Is Important

People whose incomes are too high to qualify for subsidies but not high enough to easily afford full-price premiums often end up uninsured or underinsured. Understanding your choices can help you avoid falling into this coverage gap.

If your modified adjusted gross income (MAGI) exceeds the 400% threshold, you may encounter what is known as the "subsidy cliff."

As financial planner Carolyn McClanahan explains, "If your MAGI is even one dollar over the limit, you lose access to the tax credit."

According to estimates from KFF, a nonprofit focused on health policy, an individual earning $64,000—just above the cutoff—would pay $14,931 annually for health insurance premiums. In contrast, someone earning $62,000 would pay only $6,175, thanks to the premium tax credit.

Monitor Your Income Carefully

You can receive the premium tax credit in advance or claim it when you file your taxes.

For those who opt for the advance premium tax credit, eligibility is based on your estimated MAGI for the coverage year, and the credit is applied to your monthly premiums.

Your MAGI consists of:

• Adjusted gross income: Found on IRS Form 1040
• Nontaxable Social Security benefits
• Tax-exempt interest: Such as income from municipal bonds
• Untaxed foreign income

If you overestimate your MAGI, you may be required to repay some or all of the tax credit when you file your taxes, according to McClanahan.

She advises, "Keep a close eye on your income throughout 2026. If you think you might exceed the 400% threshold, take steps to reduce your income if possible."

Strategies to Lower Your Taxable Income

Antonio Lugo, a certified financial planner and managing director at Smart Wealth Strategies, suggests using tactics like contributing to a health savings account or a traditional 401(k). Contributions to these accounts are deducted from your taxable income, which can help you stay below the subsidy cutoff.

McClanahan also recommends reviewing your investment portfolio. If you have investments that have lost value, selling them at a loss—known as tax-loss harvesting—can allow you to deduct up to $3,000 in losses from your income.