How to stay under the subsidy cliff

Why the cliff is so steep

With the enhanced credits expired, the premium tax credit ends abruptly at 400% of the federal poverty level. There’s no phase-out — a dollar over the line, and the credit drops to zero. For older shoppers, whose premiums are highest, the gap is dramatic. Consider a 60-year-old couple earning about $85,000, just over the line: under the old enhanced rules their benchmark premium would have been capped near 8.5% of income, roughly $7,200 a year, but now, above the cliff, they could owe the full benchmark premium — on the order of $22,000 a year. The same coverage, many thousands of dollars apart, because of a small difference in income.

It’s based on MAGI

The income that matters here isn’t your salary or your take-home pay — it’s your household’s modified adjusted gross income, or MAGI, for the year. That distinction is what creates room to manage it, because MAGI is built from your tax return, and several common moves reduce the figure that lands on that return. Our guide to what counts as income breaks down exactly what’s included.

Levers that lower countable income

Because MAGI flows from your tax return, anything that lowers your taxable income for the year can help keep you under the cliff. The common levers: contributing to pre-tax retirement accounts like a traditional IRA or 401(k); funding a Health Savings Account, if you’re on an HSA-eligible plan; and, for people with flexibility over the timing of income, deciding when to realize capital gains or convert funds to a Roth. Early retirees often have the most control of all — by choosing how much to draw from pre-tax accounts versus Roth or already-taxed savings in a given year, they can shape their MAGI deliberately, since qualified Roth withdrawals don’t count. The self-employed have similar room through the timing of income and expenses.

Cautions before you act

A few warnings keep this from backfiring. Pushing income too low can drop you below the range where Marketplace subsidies apply and into Medicaid territory, which may or may not be what you want. Because the repayment cap is gone, an estimate that turns out too low can mean paying credits back, so build in a margin. And every one of these moves — retirement contributions, Roth conversions, gain harvesting — has tax and retirement consequences well beyond your health premium. Everyone’s situation is different, so these are best run past a tax professional or financial advisor before you act, not treated as a formula.

The bottom line

The cliff is unforgiving, but it’s also predictable, and the income it measures is partly within your control. For households near the line — especially early retirees and the self-employed — a modest, deliberate adjustment to the year’s income can be the difference between a substantial subsidy and none. The key is to plan it before year-end, estimate conservatively, and get professional advice on the trade-offs. When you’re ready to see how different income levels change your cost, you can compare plans through PlanMatch Health.