[Rewritten on July 7, 2025 after the new 2025 Trump tax law was passed.]
As a result of I’m self-employed and I’m beneath 65, I purchase medical health insurance from the medical health insurance market established beneath the Reasonably priced Care Act (ACA). Each state has one. Some states run their very own. Some states use the federal healthcare.gov platform. It’s for the self-employed, early retirees, and others who don’t get medical health insurance by means of an employer or a authorities program corresponding to Medicaid or Medicare.
You qualify for a Premium Tax Credit score (PTC) whenever you purchase medical health insurance from the ACA market primarily based in your modified adjusted gross revenue (MAGI) relative to the Federal Poverty Degree (FPL) to your family measurement. On the whole, the decrease your MAGI is, the much less you pay for medical health insurance web of the tax credit score.
MAGI for ACA
Your MAGI for ACA is principally:
- Your gross revenue
- plus tax-exempt muni bond curiosity
- plus untaxed Social Safety advantages
- minus pre-tax deductions from paychecks (401k, FSA, HSA, …)
- minus above-the-line deductions listed on web page 2 of Kind 1040 Schedule 1, for instance:
- pre-tax conventional IRA contributions
- HSA contributions made exterior of payroll
- 1/2 of self-employment tax
- pre-tax contributions to SEP-IRA, solo 401k, or different retirement plans
- self-employed medical health insurance deduction
- pupil mortgage curiosity deduction
Wages, 1099 revenue, rental revenue, curiosity, dividends, capital beneficial properties, pension, withdrawals from pre-tax conventional 401k and IRAs, and Roth conversions all go into the MAGI for ACA. Muni bond curiosity and untaxed Social Safety advantages additionally depend within the MAGI for ACA.
Tax-free withdrawals from Roth accounts don’t enhance your MAGI for ACA.
Facet observe: There are numerous totally different definitions of MAGI for various functions. These totally different MAGIs embrace and exclude totally different elements. We’re solely speaking concerning the MAGI for ACA right here.
2021-2025: 400% FPL Cliff Modified to a Slope
Your premium tax credit score goes down as your MAGI will increase. Up by means of the yr 2020, the tax credit score dropped to zero when your MAGI went above 400% of the Federal Poverty Degree (FPL). In case your MAGI was $1 above 400% of FPL, you’d pay the complete premium to your ACA medical health insurance with zero tax credit score.
Legal guidelines modified throughout COVID. This 400% FPL cliff turned a downward slope for 5 years, from 2021 to 2025. The tax credit score continued to drop as your MAGI elevated, however it didn’t all of a sudden drop to zero in case your revenue went $1 over 400% of FPL. The tax credit score at revenue ranges beneath 400% of FPL additionally turned extra beneficiant throughout these 5 years.
The Cliff Returns in 2026
The brand new 2025 Trump tax regulation — One Massive Stunning Invoice Act — didn’t prolong the improved tax credit score after 2025. The 400% FPL cliff is scheduled to return in 2026. The premium tax credit score at incomes beneath 400% of FPL may even drop again to pre-COVID ranges.
The chart above illustrates the ACA premium tax credit score at numerous revenue ranges for a pattern family of two 55-year-olds residing within the decrease 48 states. The blue line is for 2025, with the slope and the improved tax credit score. The purple line is for 2026, with out the improved tax credit score. The sharp vertical drop is the cliff.
Variable Impression
How your premium tax credit score will change in 2026 will depend on your place within the chart.
In case your MAGI is to the left of the cliff within the chart, your tax credit score will drop barely. It goes down from $18,900 to $17,200 at a $50,000 revenue on this instance. A $1,700 drop within the tax credit score interprets to a rise of about $140/month for medical health insurance. Having a $140/month enhance isn’t nice, however maybe it’s manageable in case you’re ready.
Your tax credit score will drop extra in case your revenue is to the far proper within the chart. At a $200,000 revenue on this instance, the tax credit score drops from $3,800 to $0, elevating the associated fee for medical health insurance by slightly over $300/month. Nobody needs a giant hit to their funds, however a minimum of you have got the revenue to afford it.
The drop is precipitous instantly to the proper of the cliff. We’re speaking about receiving a $13,000 tax credit score in 2025 versus $0 in 2026 at an revenue of $85k. How do you give you an additional $13,000 for medical health insurance when your revenue is $85k?
I used information from KFF’s premium subsidy calculator for my instance. You’ll be able to enter your particular zip code, family measurement, and age on this calculator to estimate how a lot your premium tax credit score and your web medical health insurance premium will change.
Know Your Cliff
You should know firstly the place the cliff is for you. The desk beneath reveals the 400% FPL cliff for numerous family sizes in 2026:
| Family Measurement | Decrease 48 States | Alaska | Hawaii |
|---|---|---|---|
| 1 | $62,600 | $78,200 | $71,960 |
| 2 | $84,600 | $105,720 | $97,280 |
| 3 | $106,600 | $133,240 | $122,600 |
| 4 | $128,600 | $160,760 | $147,920 |
| 5 | $150,600 | $188,280 | $173,240 |
| 6 | $172,600 | $215,800 | $198,560 |
| 7 | $194,600 | $243,320 | $223,880 |
| 8 | $216,600 | $270,840 | $249,200 |
Supply: Federal Poverty Ranges (FPL) For Reasonably priced Care Act.
The chart I used for example is for a two-person family. A chart to your particular scenario may have the identical form however totally different numbers on the axes.
In case your MAGI is safely to the left of the cliff and there’s no threat of going over, be ready for a rise in your medical health insurance premiums in 2026 as a result of slight lower within the premium tax credit score. If it’s far to the left, look ahead to a special cliff on the low finish, which I’ll clarify on the finish of this put up.
In case your MAGI is simply too far to the proper of the cliff and you’ve got completely no approach to deliver it to the left, you’ll need to pay 100% of the medical health insurance premium beginning in 2026, which may be nicely over $20,000 a yr.
The difficult half and the alternatives are within the center. In case your MAGI is near the cliff on either side, it is best to handle it fastidiously to maintain it from going over the cliff.
Handle Your Revenue
Probably the most crucial half is to mission your MAGI all year long and to not notice revenue willy-nilly. You’ll be able to nonetheless alter in case you discover your revenue is about to go over the cliff earlier than you notice revenue. Many individuals are caught abruptly solely after they do their taxes the next yr. Your choices are rather more restricted after the yr is over.
If revenue from working will push your MAGI over the cliff, possibly work rather less to maintain it beneath.
Tax-free withdrawals from Roth accounts don’t depend as revenue.
Check out the MAGI definition. Reduce gadgets that elevate your MAGI, and maximize every thing that lowers your MAGI.
When you have got W-2 or self-employment revenue, you have got the choice to contribute to a pre-tax conventional 401k and IRA. These pre-tax contributions decrease your MAGI, which helps you keep beneath the 400% FPL cliff.
Select a high-deductible plan and contribute the utmost to an HSA. The brand new 2025 Trump tax regulation made all Bronze plans from the ACA market HSA-eligible beginning in 2026.
Alternatively, Roth conversions, withdrawals from pre-tax accounts, and realizing capital beneficial properties enhance your MAGI. Try to be cautious with doing these whenever you’re attempting to remain beneath the 400% FPL cliff.
Shifting Revenue
In the event you’re susceptible to going over the cliff in 2026, think about accelerating some revenue from 2026 to 2025 when the premium tax credit score remains to be on a slope. If pulling revenue ahead to 2025 helps you keep beneath the cliff in 2026, you lose a lot much less in premium tax credit score out of your further revenue in 2025 than the steep drop in 2026.
Alternatively, in case you’re going over the cliff in 2026 it doesn’t matter what, think about suspending some revenue from 2025 to 2026. When you’re over the cliff in 2026, you don’t have anything extra to lose, whereas much less revenue offers you extra premium tax credit score in 2025.
Borrowing
When you have a brief spike in your want for extra cash, think about borrowing as an alternative of withdrawing from pre-tax accounts or realizing giant capital beneficial properties. Spending borrowed cash doesn’t depend as revenue.
Whenever you want money to purchase a brand new automobile, as an alternative of realizing giant capital beneficial properties and pushing your self over the cliff, take a low-APR automobile mortgage to stretch it out. HELOC, security-based lending, and promoting quick field spreads are additionally good sources for borrowing.
You’ll be able to repay the mortgage whenever you don’t want as a lot money or whenever you now not use ACA medical health insurance.
Revenue Bunching
In the event you can’t keep away from going over the 400% FPL cliff, think about revenue bunching. Whenever you’re already over the cliff, you may as nicely go over large. Withdraw extra from pre-tax accounts or notice extra capital beneficial properties and financial institution the cash for future years.
Spending the banked cash doesn’t depend as revenue. Going over the cliff large time in a single yr might assist you keep away from going over once more for the following a number of years.
100% and 138% FPL Cliff
There may be one other cliff on the low finish, though that one is definitely overcome when you’ve got pre-tax retirement accounts.
To qualify for a premium tax credit score for purchasing medical health insurance from the ACA market, your MAGI have to be above 100% of FPL. In states that expanded Medicaid, your MAGI have to be above 138% of FPL. This map from KFF reveals which states expanded Medicaid and which states didn’t.
{The marketplace} sends you to Medicaid in case you don’t meet the minimal revenue requirement. The brand new 2025 Trump tax regulation added necessities to Medicaid for reporting work and group engagement. You don’t need to have your revenue fall beneath 100% or 138% of FPL and be topic to these new necessities in Medicaid.
In the event you see your revenue is susceptible to falling beneath 100% or 138% FPL, convert some cash out of your Conventional 401k or Conventional IRA to Roth. That’ll elevate your revenue above the minimal revenue requirement.
Say No To Administration Charges
In case you are paying an advisor a share of your belongings, you’re paying 5-10x an excessive amount of. Discover ways to discover an unbiased advisor, pay for recommendation, and solely the recommendation.
