The ACA Subsidy Cliff Is Back: What Early Retirees Need to Know
What changed
From 2021 through 2025, a temporary law let anyone buying Marketplace coverage get a premium tax credit, no matter how high their income, and capped the cost of a benchmark silver plan at 8.5% of income. That rule expired on December 31, 2025. For 2026 coverage the original Affordable Care Act rules are back:
- Household income from 100% to 400% of the federal poverty level qualifies for a credit.
- Above 400%, the credit is $0. There is no phase-out. It is a cliff.
- Below the line, you are expected to pay a set share of your income for the benchmark (second-lowest-cost silver) plan: 2.10% to 9.96% of income in 2026, and 2.15% to 10.22% in 2027 (IRS Rev. Proc. 2025-25 and 2026-26).
The House passed a three-year extension of the enhanced credits on January 8, 2026 (230 to 196). As of early October 2026 the Senate has not acted, so the cliff applies to 2027 coverage as well unless Congress changes the law.
The cliff in dollars: 2026 and 2027
The credit for a coverage year uses the poverty guidelines published the year before. The 400% line works out to:
| Household size | 2026 coverage (2025 guidelines) | 2027 coverage (2026 guidelines) |
|---|---|---|
| 1 person | $62,600 (400% of $15,650) | $63,840 (400% of $15,960) |
| 2 people | $84,600 (400% of $21,150) | $86,560 (400% of $21,640) |
Figures are for the 48 contiguous states and Washington, DC. Alaska and Hawaii have higher poverty guidelines. Source: HHS poverty guidelines.
Many early retirees live on less than this. The problem is the one-time items: a Roth conversion, a home or rental sale, a large IRA withdrawal, or a year of capital gains distributions from a mutual fund. Any of them can push a household over the line for the year.
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A worked example (2027 coverage)
This is an illustration only. Your real benchmark premium depends on your ages and ZIP code; look it up on HealthCare.gov or your state's marketplace.
A married couple, ages 62 and 63, household of 2. Their 400% line for 2027 is $86,560. Assume the benchmark silver plan for the two of them costs $24,000 a year.
| MAGI $86,000 | MAGI $87,000 | |
|---|---|---|
| Under the 400% line? | Yes | No (over $86,560) |
| Their expected share | 10.22% × $86,000 = $8,789 | Full premium |
| Premium tax credit | $24,000 - $8,789 = $15,211 | $0 |
| What they pay for the benchmark plan | $8,789 | $24,000 |
One extra $1,000 of income, such as a slightly larger Roth conversion, costs this couple about $15,200 in lost credit, on top of the income tax on the $1,000. That is why the exact number matters, not just the general range.
Why managing your MAGI matters
The ACA uses modified adjusted gross income (MAGI): your adjusted gross income plus tax-exempt interest plus the part of your Social Security that is not taxed. Deductions such as the standard deduction do not lower it. In practice:
| Counts toward ACA income | Does not count |
|---|---|
| Roth conversions (the full amount converted) | Qualified Roth IRA withdrawals |
| Traditional IRA and 401(k) withdrawals | Spending cash or savings you already have |
| Capital gains, including mutual fund distributions | The cost basis part of an investment you sell |
| Pensions, wages, interest, dividends | Loans, including a reverse mortgage |
| Tax-exempt municipal bond interest | Gifts and inheritances you receive |
| All of your Social Security, including the untaxed part |
Some practical consequences for people 60 to 64:
- Roth conversions: a conversion that looks cheap at a 12% tax rate can cost far more if it pushes you over the cliff. Many early retirees size conversions to stay just under the line in ACA years, or do larger conversions in a year they are not on Marketplace coverage. Remember that from age 63, income also counts toward Medicare IRMAA two years later.
- Capital gains: selling a highly appreciated asset in an ACA year can wipe out the credit. Spreading sales across years, or selling higher-basis shares first, keeps MAGI lower.
- IRA withdrawals: every dollar counts. Living partly on cash savings or Roth money in ACA years can keep income under the line.
- Do not aim too low: in states that expanded Medicaid, income under 138% of the poverty level generally means Medicaid instead of a Marketplace credit, and income under 100% does not qualify for a credit in any state.
Related reading: how to avoid IRMAA (the Medicare income cliff that starts at 65) and the real cost of not doing Roth conversions.
Other 2027 numbers: 2027 tax brackets for retirees · 2027 IRMAA brackets (the Medicare income lines that start at 65) · 2027 Social Security COLA.
Paying back extra credit: no cap starting in 2026
Most people take the credit in advance, paid straight to the insurer each month, based on an estimate of their income for the year. When you file your tax return, Form 8962 compares that estimate with your actual income.
Until 2025, lower and middle income households only had to repay a capped amount if they underestimated. The 2025 tax law removed those caps starting with tax year 2026. Now, if your actual income is higher than you estimated, you repay every dollar of extra credit. If your actual income ends up over 400% of the poverty level, you repay all of it, which in the example above would be about $15,200 due in April.
If your income changes during the year, for example a sale or conversion you did not plan on, report the change to the marketplace so your advance credit is adjusted.
Key dates
- Late October 2026: 2027 plans and prices can be previewed on HealthCare.gov. Insurers proposed a median increase of about 15% for 2027 (KFF/Peterson analysis of rate filings).
- November 1, 2026: open enrollment for 2027 coverage begins.
- December 15, 2026: deadline to enroll for coverage starting January 1, 2027.
- January 15, 2027: open enrollment ends on HealthCare.gov. State-run marketplaces may have different dates.
- December 31, 2026: the last day to make income moves (conversions, sales, withdrawals) that count for tax year 2026, which is the year you will reconcile on your 2026 return.
- Your 65th birthday month: Medicare starts, and Marketplace credits end once you are eligible for premium-free Part A.
Sources
- HHS, poverty guidelines (2025 and 2026).
- IRS, Rev. Proc. 2025-25 (2026 applicable percentages) and Rev. Proc. 2026-26 (2027 applicable percentages).
- HealthCare.gov, dates and deadlines.
- healthinsurance.org, 2025 law changes to health coverage (repayment caps removed from 2026).
- Ballotpedia News, House passes three-year extension of expanded ACA subsidies (January 2026).
- KFF/Peterson Health System Tracker, 2027 Marketplace premium filings.
Checked October 4, 2026. Figures for 2027 coverage are official (HHS and IRS). Premiums and any new legislation can change before open enrollment.
These numbers change every year
The IRMAA brackets, the standard deduction and the senior deduction are all adjusted annually, and the 2027 figures are published late in 2026. The one exception is the Social Security taxation thresholds, which have not moved since 1983 and are not expected to.
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Frequently asked questions
What is the ACA subsidy cliff?
The premium tax credit for Marketplace health insurance is only available if your household income is at or below 400% of the federal poverty level. The temporary rule that removed that limit expired on December 31, 2025, so starting with 2026 coverage, $1 of income over the line can mean losing the entire credit. For 2027 coverage the line is $63,840 for one person and $86,560 for a couple.
Do Roth conversions count toward ACA income?
Yes. ACA income is modified adjusted gross income (MAGI), and a Roth conversion is taxable income, so it counts in full. So do IRA and 401(k) withdrawals, capital gains, pensions and tax-exempt interest.
Does Social Security count toward ACA income?
Yes, all of it. ACA MAGI adds back the part of your Social Security that is not taxed, so the full benefit counts.
What happens if my income ends up higher than I estimated?
You reconcile the credit on your tax return (Form 8962). Starting with tax year 2026, there is no cap on repayment: if your final income is too high, you pay back every dollar of extra credit you received, and if it is over 400% of the poverty level, that can be the whole credit.
When is open enrollment for 2027 coverage?
November 1, 2026 through January 15, 2027 on HealthCare.gov. Enroll by December 15, 2026 for coverage that starts January 1, 2027. State-run marketplaces can have different dates.
Is Congress bringing back the enhanced subsidies?
Not as of early October 2026. The House passed a three-year extension on January 8, 2026 (230 to 196), but the Senate has not acted. Unless that changes, the cliff applies to 2027 coverage too.
Want to run these numbers for your own situation?
The Retirement Literacy Foundation runs free retirement classes across Southern California on Social Security timing, taxes in retirement, and how to turn savings into income. No products are sold at our classes.
The Retirement Literacy Foundation is a 501(c)(3) non-profit. This guide is general financial education, not individualized investment, tax, or insurance advice. Figures are illustrative and change with income thresholds and your personal situation. Consider speaking with a licensed professional before making decisions.
Hans Goldstein
Founder & Executive Director · Retirement Literacy Foundation, a 501(c)(3) non-profit
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