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Yesterday I came across a post by an Obamacare enrollee who in 2026 fell off the newly restored “subsidy cliff” -- the income threshold above which premium subsidies are once again unavailable.
As the Open Enrollment Period for 2026 continues through January 15 in the 30 states that use HealthCare.gov, and as late as January 31 in seven of the twenty state-based marketplaces, I thought (belatedly) that perhaps the info below might help some people take steps to remain subsidy-eligible — that is, to plan to take deductions that will get your income below the cap on subsidy eligibility.
This is a primer. I covered this ground back in the era before the American Rescue Plan Act temporarily eliminated the subsidy cliff in March 2021. Louise Norris at healthinsurance.org probably did a better job of it, but may not have put all the core ways to reduce MAGI in one place. (Louise’s primer for one rather complex deduction is linked to below.)
If you’ve already enrolled in ACA coverage (e.g., if you’re one of the millions who have been auto-re-enrolled to date), you can alter your application up till the end of OEP. If you decided to forgo coverage because you appeared to be subsidy-ineligible and available coverage looked too expensive, you can still enroll in coverage effective Feb. 1 (unless you’re in Idaho, where OEP ended December 15).
Quick background: Democrats abolished the income cap on subsidy eligibility while enhancing subsidies in 2021, but only temporarily, through 2025 (after an extension enacted in 2022). Republicans are refusing to extend the enhanced subsidies further -- so the “cliff” is back, barring any belated (but still possible) legislative deal, which would be retroactive to Jan. 1. As of now, subsidies are not available for households with income above 400% of the Federal Poverty Level (FPL). But the income that counts is malleable -- it can be reduced by various deductions, especially for the self-employed.
The first step is to know the income eligibility thresholds, and regard them as targets. In the 2026 marketplace, they are:
$62,600/yr for a single person
$84,600 for a couple
$106,600 for a family of three
$128,600 for a family of four
Larger families: add $22,000 per person
A household is defined by tax status and so includes spouse and all dependents -- regardless of whether everyone in the household is seeking coverage in the marketplace. If you are married and your spouse is on, say, Medicare, you are a two-person household. In the ACA marketplace, the prior-year FPL amounts are operative (2025 for 2026).
Now for ways to get the Modified Adjusted Gross Income (MAGI) down:
Pension plan contributions. These are an “above the line” deduction that comes straight off of MAGI. For IRAs, the contribution limit in 2026 is $7,500, or $8,600 if you’re over 50. For the self-employed, an individual 401k allows much more: a $24,500 contribution, plus another $8,000 for those over age 50 or $11,250 for those aged 60-63 -- plus up to 25% of business income as the “employer” contribution. Basically you can contribute as much as you can manage if your income is anywhere near the 400% FPL subsidy eligibility threshold. (Income that can figure into the employer contribution is capped at $360,000.) The whole contribution comes off MAGI.
HSA contributions. As of 2026, all bronze plans sold in the ACA marketplace can be combined with a tax-favored Health Savings Account (HSA), and contributions to the HSA come off of MAGI. (Some silver or even gold plans are also HSA-compatible.) The contribution limits for 2026 are $4,400 individual/$8,750/family. Until Republicans passed their megabill this summer, HSA-compatible “high-deductible plans” had to subject all medical services except free preventive care to the plan deductible, and HDHPs had lower allowable annual out-of-pocket maximums than other ACA plans. But the Republican megabill made all bronze plans regardless of structure HSA-compatible. In some states and regions, bronze plans can be zero-deductible (but since the low bronze actuarial value (60-65%) can’t be escaped, those plans have features like $3,000 drug deductibles or $3,000 co-pays for a hospital visit).
Self-employed health insurance tax deduction. If your self-employed income exceeds you plan premium, the whole premium you pay comes off your MAGI. This is a snake-eats-tail deduction, as the deduction itself reduces the premium if you’re on the right side of the subsidy cliff. The inestimable Louise Norris explains how to include this deduction in your MAGI estimate here.
Any bona fide business expense. Need a new computer? Want to go to a somewhat pricey business conference you might otherwise skip? If it saves you, say, $10,000 in insurance premiums, why not? Any legitimate expense documented on a Schedule C comes off your MAGI. (What kinds of income count/do not count as MAGI are spelled out on HealthCare.gov here. )
There’s a catch to maneuvering around the subsidy cliff: if you estimate an income below 400% FPL, and at tax time in early 2027 you have to report an income above the threshold, you will owe back the entire subsidy amount. Some people deal with this risk by only taking part of the subsidy (the “Premium Tax Credit”) on a monthly basis -- or even by not any of it in advance, choosing to claim the full amount as a refund when they file taxes for 2026. But if your income is fairly stable and you can use deductions to get safely below the eligibility threshold, go for it.
In all states, free enrollment help is available from nonprofit enrollment assisters or brokers. HealthCare.gov and the state exchanges generally have a link that connects applicants to assisters and/or brokers. HealthCare.gov’s is here.
To explore what’s available to you and your family in your zip code at different estimated incomes without beginning an application, use the HealthCare.gov shopping app if you’re in the 30 states that use the federal exchange — or better, use the faster/more flexible tool at commercial broker HealthSherpa. If you’re in one of the 12 states that has its own marketplace, go to https://www.healthcare.gov/see-plans/ and punch in your zip code -- the site will provide a link to your state’s marketplace. All state marketplaces also have a shopping tool, though at least a couple of them are pretty bad.
Sorry this is so damned complicated! That’s America, the land of second- third- and fourth-best solutions, as Jonathan Cohn put it toward the end of his epic account of the ACA’s creation, The Ten Year War. Happy New Year.
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