Since the subsidy cliff is currently set to return in 2026, individuals with high premiums on the HealthCare.gov marketplace (most commonly individuals in their 50s and 60s) may consider some planning actions before the end of 2025. These ideas may be especially relevant for those whose projected 2026 household income will be near or just above 400% of the FPL for their family size. Exceeding this threshold in 2026 will make them ineligible for any PTC, resulting in a sudden and significant increase in net premium costs. Talk to your tax advisor to see if any of the ideas below make sense in your situation. Contact Kyle at taxdomainllc@gmail.com for personalized planning and advice.
What Can an individual do before the end of 2025?
1. Understand the 2026 PTC Rules
- For 2026, the Premium Tax Credit (PTC) will only be available if household income is at least 100% but not more than 400% of the FPL for the family size.
- If income is even $1 over 400% of FPL, the entire PTC is lost (“subsidy cliff”). For example, when I was evaluating 2026 enrollment with a 63 year old, going one dollar over the subsidy cliff would cost about 20k in premium tax credits.
- The PTC is reconciled on the 2026 tax return using actual household income (MAGI), not the estimate provided to the Marketplace at enrollment
2. Project 2026 Household Income
- Individuals should estimate their 2026 household income as defined for PTC purposes: modified adjusted gross income (MAGI) of the taxpayer, spouse (if filing jointly), and any dependents required to file a return.
- MAGI includes AGI plus tax-exempt interest, non-taxable Social Security, and excluded foreign income.
- Compare your income to 400% of the federal poverty line for your family size to see if you are close to the cliff or if its possible to get your income below it.
3. Take steps in 2025 to reduce 2026 Income if your projected 2026 income is close to the subsidy cliff
To avoid exceeding the 400% FPL threshold in 2026, an individual may want to discuss the following ideas with their tax advisor and or financial advisor before the end of 2025 to see if any action is recommended for their situation:
a. Accelerate Income into 2025
- Consider accelerating income (such as IRA distributions, bonuses, or capital gains) into 2025, when the 400% FPL cap does not apply, rather than 2026.
- If you have significant investment income in a taxable account, talk to your advisor about if structuring your investments differently to lower 2026 income makes sense in your situation.
- If self-employed, evaluate putting off paying any major expenses until early 2026 and consider larger contributions to pre-tax retirement plans for 2026.
b. Plan for 2026 cash needs and deductions
- Talk to a healthcare expert or broker to see if a HSA eligible health plan is a good fit for you for 2026. HSA eligible plans allow contributions to an HSA of $4,400 Self-Only/ $8,750 Family with $1,000 catch up if you are over 55. An HSA contribution lowers your income for MAGI purposes. You must be in an HSA eligible health plan for 2026 in order to fund an HSA for 2026.
- Make sure you have enough cash set aside for your 2026 needs outside of retirement accounts or investment accounts where you would need to sell securities at a gain. This would include possible amounts to fund a 2026 HSA or IRA (if available and needed). If you have to draw additional amounts from a traditional IRA or sell securities at a gain for 2026 cash-flow needs during 2026 your 2026 income will increase. Talk to your financial advisor about if this applies to you.
4. Watch for Legislative Changes
- Congress could extend the expanded PTC rules or otherwise change the law before 2026. Individuals should monitor developments, but plan for the not rely on possible extensions when making 2025 year-end decisions.
- One good resource to monitor is healthinsurance.org, specifically this page about the subsidy cliff.
If you are currently enrolled in the healthcare.gov marketplace for 2025 it may be important to you to also keep your Modified Adjusted Gross Income (MAGI) low in 2025 to avoid Advance Premium Tax Credit repayment. However, in 2025 the repayment is phased in and you can still qualify for a credit even if your income goes over 400% of the federal poverty line for your family size. You may need to compare this cost and work with your tax advisor to see if recognizing more income in 2025 in order to lower 2026 income makes sense in your situation.
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