The ACA Subsidy Cliff in 2027: What Changed and What to Do
For several years, the Affordable Care Act’s premium tax credit had no upper income limit, and nobody paid more than 8.5% of income for the benchmark plan. That ended after 2025. For 2026 and 2027, the original law applies again, with its familiar “cliff”: a household whose income is above 400% of the federal poverty line gets no premium tax credit at all. This guide explains what changed, gives the cutoffs for 2027, and covers the legal ways many households can stay under the line.
What happened to the enhanced subsidies
The American Rescue Plan Act of 2021 and later the Inflation Reduction Act temporarily increased the credit for 2021 through 2025: they lowered the percentage of income people were expected to pay and removed the 400% cap. Congress did not extend those provisions beyond 2025, so the credit for plan years 2026 and 2027 is calculated under the original section 36B table. In effect, people with higher incomes and older people in high-premium areas saw the largest increases; people with low incomes see smaller changes.
The 2027 expected-contribution table
| Income, % of poverty line | Initial % | Final % |
|---|---|---|
| Under 133% | 2.15% | 2.15% |
| 133% to under 150% | 3.23% | 4.30% |
| 150% to under 200% | 4.30% | 6.78% |
| 200% to under 250% | 6.78% | 8.66% |
| 250% to under 300% | 8.66% | 10.22% |
| 300% to 400% | 10.22% | 10.22% |
These are the shares of household income that you are expected to pay toward the benchmark (second-lowest-cost silver) plan. The credit makes up the difference between that and the benchmark premium. For 2026 the top rate was 9.96%; the table rises each year because it tracks premium growth against income growth. The same 10.22% figure is the “required contribution percentage” that decides whether employer coverage is affordable for 2027.
Where the cliff sits in 2027
The 400% line is based on the federal poverty guidelines published in the January before the coverage year, so 2027 coverage uses the 2026 guidelines: $15,960 for one person plus $5,680 for each extra person in the 48 states and D.C.
| Household size | 100% of poverty line | Cutoff (400%) |
|---|---|---|
| 1 | $15,960 | $63,840 |
| 2 | $21,640 | $86,560 |
| 3 | $27,320 | $109,280 |
| 4 | $33,000 | $132,000 |
| 5 | $38,680 | $154,720 |
If your household earns $1 over the line, you lose the whole credit. Because the credit for older people in expensive counties can be more than $1,000 a month, the cost of the cliff can be bigger than the income that triggers it. Use the subsidy calculator to see the exact amount at risk.
Which income counts
The test uses modified adjusted gross income (MAGI): your adjusted gross income plus any tax-exempt interest, untaxed foreign income, and the non-taxable part of Social Security benefits. It is household income, which means your own income plus that of everyone in your tax household who is required to file (a spouse and dependents who file). It is the income projected for the whole calendar year, not what you earn right now.
Legal ways to lower MAGI
The following reduce adjusted gross income and therefore MAGI:
- Pre-tax 401(k), 403(b) or TSP contributions. The 2026 employee limit is $24,500 (plus catch-up for those 50 and older).
- Deductible contributions to a traditional IRA, within the annual limit and phase-outs if you or a spouse are covered by a workplace plan.
- HSA contributions if you are in an HSA-eligible plan: $4,500 (self-only) or $9,000 (family) for 2027.
- The self-employed health insurance deduction, one-half of self-employment tax and SEP-IRA or solo 401(k) contributions, if you work for yourself. See our self-employed guide.
- Capital losses and timing. Realizing gains in a year you are close to the cliff can push you over. Deferring a Roth conversion can also keep MAGI lower.
Be honest in applying: the goal is to estimate your real income correctly, and to arrange legitimate, lawful tax choices that affect it. Do not understate income on the application, because the difference comes due on your tax return.
What if you are just over the line
Compare the full cost of the plan to the cost of lowering income. If a $9,000 pre-tax 401(k) contribution moves a couple from $90,000 to $81,000 of MAGI and restores a $9,000-a-year credit, the net cost of saving is negative: you lose no spendable money because you are saving it. If you are far over the line, there is little a household can legitimately do except compare plans, especially lower-premium bronze plans paired with an HSA, and look at employer coverage, a spouse’s plan or a short-term strategy for months with lower income.
Employer coverage and the “family glitch”
You cannot get a premium tax credit if you are eligible for affordable employer coverage that meets minimum value. For 2027, a plan is considered affordable if the employee’s share of the self-only premium is not more than 10.22% of household income. Since 2023, affordability for family members is measured on the cost of family coverage, not self-only, which closed the old “family glitch”: if the family plan is too expensive, your spouse and children may qualify for a subsidy on the Marketplace even if you do not.
Repayment and reconciliation
Advance credits paid to your insurer during the year are reconciled on your tax return with Form 8962. If your final income is higher than your estimate, you owe back the excess. Under the law that took effect with tax year 2026, the old caps on repayment were removed, so the excess is generally repaid in full, and if your income ends up above 400% of the poverty line you must repay the whole year’s advance credit. That is why it is important to report changes in income or household to the Marketplace when they happen, and to keep your estimate honest and a little conservative
A worked example near the line
A couple with two children has a projected 2027 MAGI of $134,000, just above the $132,000 cutoff for a household of four. With a benchmark premium of $2,400 a month ($28,800 a year), the credit they would lose is about $28,800 minus 10.22% of $132,000 ($13,490), or roughly $15,300. A $2,000 contribution to a family HSA plus $3,000 more to a traditional 401(k) would bring MAGI to $129,000, restoring the credit to about $15,600 and, in addition, creating $5,000 of real savings. This is the reason to estimate income carefully each fall and again in the middle of the year. The numbers are illustrative, but the structure is the same for everyone: the cliff is sharp, and the legitimate planning tools are available to people who can save. If you are over by a large amount, or have no flexibility, the better focus is on plan choice rather than on income.