If you buy your health insurance through the Affordable Care Act (ACA) marketplace and receive enhanced premium subsidies, those subsidies are expected to expire at the end of 2025. And that could lead to a significant bump in your health insurance premiums.
About 92% of enrollees in ACA marketplace health insurance plans (that’s 22 million people) receive subsidies (1). Without them, their premiums could more than double in 2026, according to an analysis by KFF, a nonpartisan health policy research group (2).
“It’s one of those phantom taxes that has a tremendous impact,” Tommy Lucas, a certified financial planner at Moisand Fitzgerald Tamayo, told CNBC (3).
It’s still possible that the subsidy cliff could be avoided, with President Trump suggesting on Nov. 25 that he was open to extending subsidies.
But while the possibility of an extension is still unknown, in the meantime, there are still ways to lower your income and qualify for ACA subsidies.
The subsidy cliff affects households with incomes that are above 400% of the federal poverty level (FPL). For 2026 marketplace coverage, that’s about $62,600 for a single person and $128,600 for a family of four in the contiguous U.S (4).
The Biden administration introduced enhanced premium subsidies, or tax credits, in 2021 through the American Rescue Plan (ARP). These credits were then extended through 2025 by the Inflation Reduction Act (IRA).
Enhanced premium subsidies (premium tax credits) were introduced in 2021 under the American Rescue Plan and later extended through 2025 by the Inflation Reduction Act. Those changes did two big things:
If the enhanced credits expire at the end of 2025, that safety net disappears for people over the 400% FPL line. About 1.5 million consumers reported household incomes over 400% of the FPL in 2024, according to the Centers for Medicare and Medicaid Services (5).
“Without the continued expansion of subsidies made available through the American Rescue Plan (ARP) and Inflation Reduction Act (IRA), these consumers would have been ineligible for APTC,” according to Advance Payments of the Premium Tax Credit (APTC),” according to CMS.gov (6).
When enrollees sign up for health coverage on the ACA marketplace, their estimated modified adjusted gross income (MAGI) will determine if they’re eligible for premium subsidies. For those who underestimate their MAGI, they’ll be required to pay back excess subsidies.
An analysis by KFF found that the expiration of the premium tax credits “is estimated to more than double what subsidized enrollees currently pay annually for premiums — a 114% increase from an average of $888 in 2025 to $1,904 in 2026” (7).
And those hardest hit are middle-class Americans just over the income threshold.
KFF research associate Shameek Rakshit writes that a 60-year-old earning $64,000 (which is 409% of the FPL, just over the 400% threshold) would end up paying $14,900 in annual premiums without a tax credit. But another 60-year-old living in the same city making $62,000 (306% of the FPL, which is under the 400% threshold) would receive the premium tax credit and pay just $6,200 (8). That’s a difference of almost $8,700 just for earning $2,000 more.
“While virtually all subsidized enrollees will pay more next year to keep the same plan, older middle-income ACA enrollees will see the largest dollar increases in premium payments due to the return of the subsidy cliff,” he writes (9).
At the same time, 312 insurers that are part of ACA Marketplaces plan to increase premiums, with a median proposed premium increase of 18%, according to KFF (10). Along with expiring tax credits, Marketplace coverage could become unaffordable for many middle-income Americans.
And if you’re even $1 over the cliff, it could cost you thousands of dollars.
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If you estimate that your income will be just over the threshold, you may have some levers to pull to reduce your ACA-specific MAGI and preserve your premium subsidies. To start, talking to a tax or financial professional before making big moves is wise, but there are some other strategies worth mentioning.
Contribute to a pre-tax account: If you put money into an individual retirement account (IRA) or health savings account (HSA), you may be able to reduce your adjusted gross income. However, IRAs do have income limitations based on your MAGI and tax filing status, while HSAs are only available to those enrolled in a high-deductible health plan.
Use Roth IRA withdrawals strategically: A Roth IRA is funded by after-tax dollars and withdrawals are tax-free. That means older adults who meet the age and five-year rules could potentially cover some spending needs with Roth withdrawals instead of taking additional taxable income that would push them over the cliff.
Harvest or realize investment losses carefully: Capital gains, dividends and interest all count toward MAGI, but realized net capital losses can reduce it. If you have investments that are down, selling them to realize a loss may help you keep your MAGI under the subsidy threshold in a given year.
The trade-off: you’re locking in those losses and changing your investment mix, so the decision shouldn’t be driven solely by your health insurance. But when you’re on the margin of the cliff, that kind of tax-aware investing can be part of the toolkit.
But for anyone way over the 400% threshold, your options may be limited unless Congress steps in. While you can’t control what lawmakers ultimately decide, you can prepare: check where your expected income falls, use tax-planning tools to manage your MAGI, and be deliberate about withdrawals or investment moves that might tip you over the edge. The subsidy cliff may be a “phantom tax,” but its impact is real, and the sooner you run the numbers, the better positioned you’ll be if the cliff returns in 2026.
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KFF (1, 2, 7, 8, 9, 10); CNBC (3); Healthcare.gov (4); CMS.gov (5, 6)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
