The ACA Subsidy Cliff Is Back: Health Insurance for Early Retirees in 2026

If you retire before 65 and buy your own health insurance, 2026 changed the arithmetic in a way most published guidance has not caught up with. The enhanced premium tax credits expired on December 31, 2025, and the 400% federal poverty line eligibility cutoff came back with them. Earn a dollar over that line and the entire subsidy disappears at once.

For a two-person household the line sits at $84,600 of modified adjusted gross income. For one person, $62,600. Crossing it can cost more than eight thousand dollars, and the crossing is invisible until you file. This is the constraint that actually governs an early retirement plan between the last paycheck and Medicare at 65.

What expired, and what came back

The American Rescue Plan Act temporarily rewrote two parts of the premium tax credit in 2021. It replaced the applicable percentage table with a more generous one, and it suspended the rule limiting eligibility to households under 400% of the poverty line. The Inflation Reduction Act extended both through 2025.¹

Both were written with an expiry date in the statute itself. The temporary table applies only to a taxable year “beginning after December 31, 2020, and before January 1, 2026,” and the provision suspending the ceiling carries the identical window.¹ Nothing extended them, so for coverage year 2026 the permanent rule returned: an applicable taxpayer is one whose household income “equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved.”¹

Premiums moved at the same time. KFF estimated that insurers raised marketplace premiums by 26% on average for 2026, and was careful to note that this is the amount insurers charge rather than what most enrollees pay.² For anyone above the cliff, though, the charged premium and the paid premium are the same number.

Why it is a cliff and not a slope

Below the line the credit is generous and gradual. The statute sets an expected contribution as a percentage of income, sliding upward as income rises, and the credit covers whatever the benchmark plan costs above that. For 2026 the schedule runs from 2.10% of income at the bottom to 9.96% at the top:³

Read the last row, then look for the next one. There is no band above 400%. The table simply stops, and with it the credit. Inside a band the percentage rises smoothly, because the statute requires it to increase “on a sliding scale in a linear manner.”¹ At the top of the final band it does not taper. It ends.

KFF published the cleanest illustration of what that does to a real person. A 60-year-old earning $62,000 would pay about $6,175 for the year, with the premium capped near 10% of income. The same person in the same city earning $64,000 would pay $14,931, the full price, because that income is 409% of the poverty line.⁴ Two thousand dollars of extra income costs $8,756. KFF adds the observation that makes the point stick: without the enhanced credits, that person earning $64,000 pays the same premium as someone earning $160,000.⁴

Run your own number

Set your household size and slide your income through the cutoff. The benchmark premium is the second-lowest-cost silver plan available to you, which is the figure the credit is measured against, and it climbs steeply with age.

The tile worth staring at is the last one. Just under the line, one more dollar of income forfeits the entire remaining credit, so the effective marginal rate on that dollar runs into the thousands of percent. No other feature of the tax code behaves like this at ordinary middle incomes.

The number the calculator needs that most people get wrong

Coverage year 2026 does not use the poverty guidelines published in 2026. It uses the ones published in January 2025.

The statute fixes the figure as “the most recently published poverty line as of the 1st day of the regular enrollment period for coverage during such calendar year.”¹ Open enrollment for 2026 ran in late 2025, so the January 2025 guidelines govern: $15,650 for one person, rising $5,500 for each additional person, in the 48 contiguous states and DC.⁵ Using the 2026 table instead would move a single filer’s cliff from $62,600 to $63,840 and tell someone they were safe when they were not. Alaska and Hawaii have separate, higher guidelines.

MAGI is not your salary, and after you retire it is mostly a choice

The income that counts here is a specific construction. Modified adjusted gross income for this purpose means adjusted gross income increased by foreign earned income excluded under section 911, by tax-exempt interest, and by “the portion of the taxpayer’s social security benefits which is not included in gross income.”¹ That third item catches people out: the add-back is the non-taxable portion of the benefit, not the whole benefit.

The reason this matters more in early retirement than during a career is that a paycheck is not negotiable and a withdrawal is. Once wages stop, most of your MAGI comes from decisions you make each December:

• Roth conversions. Converting fills your bracket and your MAGI at the same time. The conversion strategy that looks optimal on income tax alone can be badly wrong once it pushes you over the cliff, and the years between retirement and Medicare are exactly when conversions are otherwise most attractive.
• Which account you spend from. A dollar from a traditional 401(k) is fully MAGI. A dollar of principal from a taxable brokerage account is not, and only the realized gain counts. Roth withdrawals of contributions add nothing at all. Sequencing withdrawals across the three buckets is the main lever you have.
• Realized capital gains. Harvesting gains at the 0% long-term rate is a genuinely good idea that can quietly cost you the subsidy, since the gain lands in MAGI even when the tax on it is zero.
• Interest, including tax-exempt. Municipal bond interest escapes income tax and still counts here.

A useful reframing: for a household under the cliff, the premium tax credit behaves like a second tax schedule running alongside the income tax, with its own brackets and a discontinuity at the top. Planning around only one of the two schedules produces the wrong answer.

One thing that got better in 2026

A provision of the 2025 budget act widened HSA eligibility in a way that fits this situation well. Bronze and catastrophic plans bought through an Exchange now count as high-deductible health plans, so buying one makes you HSA-eligible. The IRS explained the change directly: the law provides that a high-deductible health plan “includes any plan described in subsection (d)(1)(A) or (e) of section 1302 of the Patient Protection and Affordable Care Act that is available as individual coverage through an Exchange,” and this “applies for months beginning after December 31, 2025.”⁶

Before this, many bronze plans failed the test because their out-of-pocket maximum was too high, and catastrophic plans failed because they had to cover three primary care visits before the deductible.⁶ The practical effect for an early retiree is that the cheapest marketplace plan can now also be a tax-deductible savings vehicle, and the deduction itself reduces MAGI, which moves you away from the cliff. The 2026 contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.⁷

When managing to the cliff is the wrong goal

Optimizing MAGI is not free, and for some households the subsidy is the wrong thing to maximize.

• You have employer or retiree coverage. An offer of affordable employer coverage generally disqualifies you from the credit regardless of income, so there is nothing to manage. COBRA and a spouse’s plan change the picture entirely.
• Suppressing income costs you more than the subsidy. Skipping Roth conversions for a decade to stay under the line can leave a larger traditional balance facing higher rates and required minimum distributions later. The credit is worth thousands per year; a conversion strategy can be worth more over thirty.
• Your income is not actually controllable. A pension, rental income, a large taxable dividend stream or a vesting equity schedule can put you well above the line with no realistic path back. Optimizing something you cannot move wastes attention.
• You would rather have the money. Working a partial year, taking consulting income, or realizing a gain to diversify a concentrated position can all be worth more than the credit. The calculation exists to price that trade so you can take it deliberately.
• You are close to 65. If Medicare is a year away, a single expensive year may be simpler than restructuring your withdrawals around it.

The households for whom this matters most are the ones with substantial assets and controllable income: a large taxable account, a Roth balance to draw from, and several years before Medicare. That describes a lot of people who retire early from technology careers.

Frequently asked questions

Is the ACA subsidy cliff back in 2026?

Yes. The enhanced premium tax credits from the American Rescue Plan, extended through 2025 by the Inflation Reduction Act, applied only to taxable years beginning before January 1, 2026. Both the more generous percentage table and the suspension of the 400% eligibility ceiling lapsed together, so the permanent rule limiting the credit to households between 100% and 400% of the poverty line governs 2026 coverage.¹

What income is the 400% cutoff measured against for 2026?

The poverty guidelines published in January 2025, because the statute uses the most recently published line as of the first day of the enrollment period for that coverage year.¹ In the 48 contiguous states and DC that is $15,650 for one person plus $5,500 for each additional person,⁵ which puts the cliff at $62,600 for one person and $84,600 for two.

How much does one dollar over the limit cost?

The entire remaining credit. There is no taper. In KFF’s published example a 60-year-old paid $6,175 at $62,000 of income and $14,931 at $64,000.⁴ The calculator above computes it for your household size and benchmark premium.

Do Roth conversions count toward the ACA income limit?

Yes. A conversion is ordinary income and lands in adjusted gross income, so it raises the MAGI used for the credit. This is the central tension of the pre-Medicare years, because the same low-income window that makes conversions cheap is the window in which the subsidy is available.

Do tax-free municipal bond interest and 0% capital gains count?

Tax-exempt interest is explicitly added back in the statutory MAGI definition.¹ Long-term capital gains taxed at 0% still appear in adjusted gross income, so they count as well. Both can raise your ACA cost while producing no federal income tax.

Can I have an HSA with a marketplace plan in 2026?

Now yes, if it is a bronze or catastrophic Exchange plan. Those count as high-deductible health plans for months beginning after December 31, 2025, regardless of whether they meet the usual deductible and out-of-pocket tests.⁶

What if my income comes in below what I estimated?

The credit is reconciled on your tax return, so underestimating income means repaying part of the advance credit and overestimating means receiving the balance. Estimating too low and landing above 400% is the expensive direction, since the entire advance credit becomes repayable. Repayment caps apply below the cliff but not above it, which is another reason the last few thousand dollars of income deserve attention.

Key takeaways

• The cliff returned for 2026. The enhanced credits expired by their own terms and nothing replaced them.
• The percentage table simply ends at 400%. There is no band above it, so the credit stops rather than tapering.
• The relevant poverty figures are a year old. 2026 coverage uses the January 2025 guidelines, putting the cutoff at $62,600 for one person and $84,600 for two.
• MAGI includes things that carry no income tax. Tax-exempt interest, 0% capital gains and Roth conversions all count.
• Treat the credit as a second tax schedule. Optimizing income tax alone will sometimes hand you a five-figure health insurance bill.
• Managing to the cliff is not always right. A multi-decade conversion strategy, or simply wanting the income, can be worth more than the subsidy.

Related guides

• Withdrawing From a 401(k) or IRA Before 59½ for the mechanics of reaching your money in the years this guide covers.
• The Roth Conversion Ladder for the strategy that most often collides with the subsidy cliff.
• Tax-Aware Decumulation for withdrawal sequencing across taxable, traditional and Roth balances.
• The HSA Investing Strategy for what to do with the account a bronze marketplace plan now makes you eligible for.
• The Complete Guide to Financial Independence for where health coverage fits in an early retirement plan.

Sources and method

1. 26 U.S.C. § 36B. Subsection (c)(1)(A) for the 100% to 400% eligibility range; (b)(3)(A)(iii) and (c)(1)(E) for the temporary 2021 through 2025 provisions and their January 1, 2026 end date; (b)(3)(A)(i) for linear interpolation; (d)(2)(B) for the MAGI definition; (d)(3)(B) for the poverty line vintage rule. Amendment notes confirm the enhancements came from Pub. L. 117-2 § 9661 and were extended by Pub. L. 117-169 § 12001.
2. KFF. ACA Insurers Are Raising Premiums by an Estimated 26%, October 28, 2025. The figure is the amount insurers charge, which KFF notes is not what most enrollees pay.
3. IRS. Revenue Procedure 2025-25, sections 3.01 and 3.02. The 2026 Applicable Percentage Table and the 9.96% Required Contribution Percentage.
4. KFF. A Steep Subsidy Cliff Looms for Older Middle-Income Enrollees, October 8, 2025. The $62,000 versus $64,000 comparison.
5. U.S. Department of Health and Human Services. Annual Update of the HHS Poverty Guidelines, 90 FR 5917, January 17, 2025. Read from the Federal Register PDF.
6. IRS. Notice 2026-5, Expanded Availability of Health Savings Accounts. Bronze and catastrophic Exchange plans as high-deductible health plans, effective for months after December 31, 2025.
7. IRS. Revenue Procedure 2025-19. 2026 HSA contribution limits and HDHP definitional limits.
8. Method: the calculator implements the statutory formula directly, with the applicable percentage interpolated linearly inside each band as § 36B(b)(3)(A)(i) requires. The poverty guidelines and the percentage table were read from the Federal Register and IRS PDFs rather than from summaries, after a fetched secondary source returned fabricated poverty figures during research. As a check, the engine reproduces KFF’s published example exactly: $6,175 at $62,000 and $14,931 at $64,000, at 396% and 409% of the poverty line.

Editor’s note

Educational content, not tax or legal advice. Marketplace premiums vary by age, county and tobacco use, and Medicaid eligibility below 138% of the poverty line depends on whether your state expanded it; neither is modeled here. Alaska and Hawaii use higher poverty guidelines and are out of scope. Two claims common in coverage of this topic were checked and dropped: a widely repeated example of a 64-year-old facing more than $11,000 in additional premiums, which does not appear in the KFF research it is attributed to, and a description of the 26% figure as a benchmark-premium increase, which KFF states is the amount insurers charge. The IRS premium tax credit overview page still described only the 2021 and 2022 rules when checked, so the statute is cited instead. Sources verified on August 3, 2026.