Addendum–Lever #1: Your Income (Health Insurance–The ACA Premium Cliff is Back)
The 2025 Trump tax law changed the game
For those under age 65 (which most of your presumably are) who get their health insurance through the ACA Marketplace (healthcare.gov or your state’s exchange), the “One Big Beautiful Bill Act” (OBBBA) just made a significant change you need to know about: The dreaded ”Premium Subsidy Cliff” is back starting in 2026.
This might sound technical, but it could mean thousands of dollars more per year in health insurance costs if you’re not careful, especially if you’re self-employed, working part-time, doing contract work, or planning an early retirement.
This is another addendum that is devoted to the changes to the ACA Premium Tax Credit as a result of the OBBBA. I have also added a summary section to the Health Care article: 20—Lever #1: Your Income (Part Eight—Health Insurance)
The Premium Tax Credit (PTC) is a subsidy that helps reduce your monthly ACA premiums. It’s based on your Modified Adjusted Gross Income (MAGI) and your household size, compared to the Federal Poverty Level (FPL).
In general, a lower income means a bigger subsidy and a higher income means a smaller subsidy, which makes sense. But there’s a catch: If your income crosses a particular line—400% of the FPL—your subsidy drops to $0 instantly. That line is what we call “the cliff.”
You may not have gone through the ”Lever #2–Tax” series yet, so as a refresher, your MAGI includes the following:
W-2 wages
+ 1099/self-employment income
+ Dividends and capital gains
+ IRA and 401(k) withdrawals
+ Roth conversions
+ Rental income
+tax-exempt muni bond interest and untaxed Social Security
– pre-tax contributions (IRA, HSA, 401(k), SEP, self-employed health, student loan interest
This is news now because the cliff was gone (2021–2025), but it’s coming back. During COVID, Congress temporarily smoothed out the cliff so that subsidies phased out gradually, even if you earned more than 400% of FPL.
That’s how it worked from 2021 to 2025. But starting in 2026, the cliff returns, thanks to the OBBBA doing... well, nothing. It simply let the provision expire.
Here’s a 2026 cliff example (hold on to the guard rail). Let’s say you’re a married couple of 30-year-olds earning $85,000/year. In 2025, you’d receive $13,000 in ACA premium subsidies. In 2026, if you’re just $1 over the 400% FPL ($84,600 for a household of 2), you get $0. Yes, you read that right! That’s a $13,000 overnight increase in your insurance costs. That’s serious money for middle-income families.
Now imagine this happening by accident because of a late-year bonus, a Roth conversion, or a capital gain from selling a few stock shares. Yikes!
To prevent this, you need to know your 2026 FPL Cliff (400% Threshold):
Source: Federal Poverty Levels (FPL) For the Affordable Care Act.
If you’re anywhere near these numbers, you must start tracking your income now, because even $1.00 over could cost you thousands.
If you're relying on ACA coverage, here are some practical ways to stay on the right side of the cliff:
Track your MAGI throughout the year. Don’t wait until tax time. Estimate your income monthly and check how close you are to the cliff.
Use Pre-Tax Contributions to Lower MAGI. Max out your traditional 401(k) or IRA, your HSA (especially now that all Bronze ACA plans will be HSA-eligible in 2026, and your SEP or Solo 401(k) if self-employed. These reduce your MAGI and keep your subsidy.
Avoid Roth conversions or capital gains (unless it’s worth it). These increase your MAGI and could kick you off the cliff. Be strategic.
Shift income across years. If you’re close to the cliff, you might accelerate income to 2025 while subsidies are still phased out gradually. You may also decide to defer income to 2026 if you’re going to go over anyway (you lose the same either way).
By the way, there is also a wow-income cliff that you don’t want to fall under. (Can you fall “under” a cliff?) If your income drops below 100% of FPL (or 138% in Medicaid expansion states), you don’t qualify for ACA subsidies; you get pushed into Medicaid, which now includes work/community requirements after the new law.
There are some other ACA changes in the OBBBA. Starting in 2026, every Bronze (and catastrophic) ACA plan qualifies for HSA contributions. Big win for young, healthy individuals. If you underestimate your income for ACA coverage in 2026 and get too much subsidy, you’ll pay it all back. There’s no cap like before, so be accurate with your estimates.
Starting in 2028, you must manually renew your ACA plan each year. No more auto-enrollment. Set multiple calendar reminders.
So, what should you do now? Here are some suggestions:
Get a handle on your MAGI
Maximize pre-tax contributions
Don’t wait until tax filing to find out you went over
Consider shifting income or Roth conversion strategies
Re-run your ACA subsidy estimate using tools like KFF.org's calculator
The OBBBA did a lot of things, some great, some maybe not so much. But the return of the ACA premium subsidy cliff in 2026 could be one of its most expensive surprises for middle-income young adults. If this affects you, don’t panic; plan like a wise steward does.