Key Takeaways
- ACA subsidy expansions expire after 2025, reinstating the 400% income cliff.
- Early retirees and self-employed households face potential premium spikes.
- New 2027 rules under the OBBBA shorten open enrollment and change plan eligibility.
As of this writing, the federal government is in a shutdown, largely due to a policy impasse over healthcare changes slated for 2026. The primary sticking point for Senate Democrats surrounds healthcare and the changes slated to take place in 2026. These changes may be relevant to you if you retired from full-time employment before age 65 or are self-employed and purchase health insurance from the marketplace.
Currently, Senate Democrats have withheld support for the budget until either the current Affordable Care Act (ACA) subsidy expansions are extended or measures are taken to mitigate their scheduled expiration. The application window for 2026 coverage opens on November 1 and closes on January 15.
Expiration of Expanded Tax Credits — Return of the Subsidy Cliff
The American Rescue Plan (ARPA),1 signed in 2021, temporarily expanded marketplace subsidies for those who receive coverage under the 2010 ACA.2 In 2022, the Inflation Reduction Actextended this expansion through 2025.3 The primary changes involved in the expanded subsidies were a decrease in the required contribution share, particularly at lower income levels, and the removal of the income cliff at which subsidies were cut off. Instead of the cliff, the expanded subsidies imposed a maximum level of 8.50% of marginal adjusted gross income (MAGI), which was used to calculate one’s required premium contribution, leading to a natural phaseout of subsidies as income levels increased.
Expansion is slated to expire in 2026, and coverage subsidy calculations will revert to the previous system, which limited the availability of subsidies to households with a total MAGI of less than 400% of the federal poverty line (FPL). The FPL is determined based on household size. Each tax year uses the previous year’s FPL numbers, which means the income thresholds relevant to 2026 coverage are already available.5
For 2026 calculation purposes, the applicable FPL ranges for the 48 contiguous states are summarized in the chart below: 5
2026 Federal Poverty Line (FPL) Thresholds
| Household Size | 100% | 150% | 200% | 250% | 300% | 350% | 400% |
|---|---|---|---|---|---|---|---|
| 1 | 15,650 | 23,475 | 31,300 | 39,125 | 46,950 | 54,775 | 62,600 |
| 2 | 21,150 | 31,725 | 42,300 | 52,875 | 63,450 | 74,025 | 84,600 |
| 3 | 26,650 | 39,975 | 53,300 | 66,625 | 79,950 | 93,275 | 106,600 |
| 4 | 32,150 | 48,225 | 64,300 | 80,375 | 96,450 | 112,525 | 128,600 |
| 5 | 37,650 | 56,475 | 75,300 | 94,125 | 112,950 | 131,775 | 150,600 |
Each additional dependent adds $5,500 to the applicable FPL. Household size includes oneself, one’s spouse and all tax return dependents.
What Is Included in Modified Adjusted Gross Income (MAGI)?7,8
MAGI starts with adjusted gross income (AGI), which can be found on line 11 of your income tax return, and then makes the following additions:
- Tax-exempt interest
- Non-taxable Social Security benefits
- Excluded foreign earned income
- MAGI of all dependents within the household
Note that MAGI is defined differently for different purposes; the MAGI used for ACA health insurance subsidies isn’t the same as that used for IRA contribution limits, IRMAA, etc. We won’t discuss foreign earned income further, as it almost never applies to clients in this situation. However, a deeper understanding of tax-exempt interest, non-taxable Social Security benefits and MAGI of all dependents within the household is vital to avoid common pitfalls.
Taxpayers with investments in municipal bonds receive interest that’s tax-exempt at the federal level, which isn’t included in AGI but is included in MAGI.
Taxpayers who claim Social Security benefits before age 65 should be cautious when planning for their healthcare costs. At lower income levels in particular, the taxable amount of Social Security income can be $0, but the full gross amount received during the year is included in the calculation of MAGI for health insurance subsidies.
Additionally, taxpayers with young adult dependents must be cautious to account for the income of their claimed dependents when estimating their income for the year. However, MAGI of dependents is excluded if the dependent isn’t required to file a tax return, which is generally true when their earned income is less than the standard deduction.
Changes to Required Contribution Percentages Toward Premiums Based on MAGI
| MAGI FPL % | 2021-2025 Contribution (2024 amounts)⁸ | Pre 2021 and Post 2025 Contribution (2019 amounts)⁷ |
|---|---|---|
| 150% | 0.00% | 4.15% |
| 200% | 2.00% | 6.54% |
| 250% | 4.00% | 8.36% |
| 300% | 6.00% | 9.86% |
| 350% | 7.25% | 9.86% |
| 400% | 8.50% | 9.86% |
| >400% | 8.50% | No Subsidy |
Approximate dollar impact
For illustration, consider a four-person household (ages 50, 48, 18 and 16) in Johnson County, Kansas. Based on healthcare.gov 2024 data, the second-lowest cost silver plan’s premium is approximately $1,834 per month without subsidies.6 Under the 2021-2025 expanded credit system, subsidies gradually phase out at higher incomes (there’s no sudden cutoff). In our example scenario, the subsidy goes to $0 at roughly 800% FPL. By 900% FPL, the household’s required contribution (8.5% of income) would exceed the plan’s full $1,834 premium, meaning they receive no subsidy at that level.
With the slated reversion, the credits will be removed above 400% FPL. The anticipated monthly cost increase is most significant for households with income levels just above the 400% MAGI cliff. The example four-person household on the second-lowest cost silver marketplace plan (in Johnson County, Kansas, earning $144,675) would expect to see a large premium increase of approximately $809 per month.
| MAGI (4 person) | MAGI FPL % | 2021-2025 | Monthly Premium | Pre 2021 and Post 2025 | Monthly Premium | Monthly Increase |
|---|---|---|---|---|---|---|
| $48,225.00 | 150% | 0.00% | $- | 4.15% | $166.78 | $166.78 |
| $64,300.00 | 200% | 2.00% | $107.17 | 6.54% | $350.44 | $243.27 |
| $80,375.00 | 250% | 4.00% | $267.92 | 8.36% | $559.95 | $292.03 |
| $96,450.00 | 300% | 6.00% | $482.25 | 9.86% | $792.50 | $310.25 |
| $112,525.00 | 350% | 7.25% | $679.84 | 9.86% | $924.58 | $244.74 |
| $128,600.00 | 400% | 8.50% | $910.92 | 9.86% | $1,056.66 | $145.75 |
| $144,675.00 | 450% | 8.50% | $1,024.78 | No Subsidy | $1,834.00 | $809.22 |
| $208,975.00 | 650% | 8.50% | $1,480.24 | No Subsidy | $1,834.00 | $353.76 |
| $249,162.50 | 775% | 8.50% | $1,764.90 | No Subsidy | $1,834.00 | $69.10 |
| $289,350.00 | 900% | 8.50% | $1,834.00 | No Subsidy | $1,834.00 | $- |
Tobacco users and those in their late 50s or early 60s may find that the unsubsidized cost of plans available to them is higher than the figures listed in the example given.6,10
Who is affected
Generally, these changes apply to two primary groups of people:
- Those who have retired from full-time employment before they’re eligible for Medicare at age 65
- Self-employed individuals who don’t have access to employer sponsored health insurance plans
Tax Law Changes Under the One Big Beautiful Bill Act9
The One Big Beautiful Bill Act (OBBBA) was signed into law this summer. The law didn’t extend the ARPA/Inflation Reduction Act subsidy enhancements, but it made a few active changes to marketplace coverage that are worth discussing briefly. Primarily of concern is the shortening of the enrollment period. Beginning with 2027 coverage, it will be from November 1, 2026, through December 15, 2026. Previously, the enrollment period extended until January 15. If you’re on a marketplace plan, it’s imperative to apply for coverage before the December 15, 2026, deadline next year. Additionally, the OBBBA added pre-enrollment verification requirements that will effectively end automatic re-enrollment. Other changes include:
- The law now requires that all bronze level plans qualify as high-deductible plans, meaning they become health savings account (HSA) eligible
- Repayment limitations have been removed for taxpayers whose actual income exceeds their estimated income
- Additional restrictions on credit availability have been imposed on non-citizens
Tax Planning Strategies to Manage MAGI
If you’re aiming to keep your MAGI within certain limits, strategies to consider include:
- Deferring claiming Social Security until at least age 65
- Avoiding Roth conversions that may put your income over the 400% FPL cliff
- Funding an HSA on a bronze-level marketplace plan
- Utilizing the sale of taxable investments or savings accounts to fund living expenses
