The 400% FPL subsidy cliff

What makes it a cliff

Most tax thresholds taper. You cross into a higher bracket and the higher rate applies only to the income above the line. Premium tax credits under current law do not work that way.

At 400% of the federal poverty level, eligibility ends. Below the line you get a credit sized by formula. Above it, by any amount, you get nothing — for the whole year. That discontinuity is the cliff.

Where the cliff sits

It is a function of household size and state of residence — not filing status. HHS publishes three separate poverty tables, and Alaska and Hawaii are materially higher.

A note on timing that catches people out: eligibility for a plan year uses the prior year's poverty guidelines. The 2026 plan year runs on the 2025 tables.

What you give up when you cross

The credit covers the gap between a benchmark Silver plan's premium and what the law says your household should contribute:

Applicable percentage, 2026

Because the expected contribution is capped at 9.96% of income from 300% FPL up, the credit shrinks as you approach the cliff — so how much you actually lose by crossing depends on how much was left. That is why the cliff hurts large households and older households far more: their benchmark premium is higher, so more remains to forfeit.

Worked example: a family of four

Married filing jointly, household of four, age 40, in the contiguous states, sitting at 380% FPL with $122,170 of income before converting anything:

Converting $6,600 more costs $12,156 once the forfeited credit is counted — a marginal rate of 184.2% on that increment. The federal tax on it is only $792; the rest is subsidy.

The same edge for a single filer

A single filer at 380% FPL faces the same cliff, but with less at stake — a smaller benchmark premium means less credit remaining to lose. Converting $3,300 more costs $1,829, a 55.4% rate on the increment.

Still punitive, and still several times the statutory bracket rate — but the point is that "what the cliff costs" is not one number. It scales with your premium, which scales with your age and household size.

Why this makes "fill the 12% bracket" misleading

The standard advice is to convert up to the top of the 12% bracket. For a single filer that is $66,500 of gross income — which is well above the $62,600 cliff.

So the advice, followed literally, walks you straight over the edge. The bracket says 12%. The real cost, once the forfeited credit is included, is frequently 22–28% and can be far higher near the boundary. The ACA subsidy calculator plots exactly this as a curve, where the cliff shows up as a vertical spike — and breaks the rate into its parts, so you can see how much of it is the forfeited credit rather than the tax. The ladder calculator shows the same spike across a multi-year plan.

Ways to work with it

• Convert to just under 400% FPL rather than to a bracket ceiling. This is a built-in strategy option in the calculator.
• Alternate years. Convert aggressively in years you are not buying marketplace coverage, and stay under the cliff in years you are.
• Convert heavily after 65. Once you are on Medicare, premium tax credits no longer apply — though Medicare IRMAA surcharges take their place, with a two-year lookback that starts mattering at 63. It is the same shape of problem at a different threshold: how the lookback works, or price it against your own income.
• Watch the 150% FPL step. Cost-sharing reductions make Silver plans much more valuable below 150% FPL, and the actuarial value steps down there. If you use a lot of healthcare, the best conversion target may be lower than premium math alone suggests.
• Cross it deliberately if the math says so. Sometimes forfeiting one year's credit to drain a large pre-tax balance ahead of required distributions is the right trade. The point is to make that choice knowingly rather than discover it in April.

Two traps

Capital gains count. Long-term gains and qualified dividends are included in MAGI for premium tax credit purposes even when they are federally taxed at 0%. If you live off a brokerage account you already have MAGI before you convert a dollar.

Below 100% FPL there is no credit either. Under the floor, premium tax credits do not apply at all — those households are Medicaid-eligible in expansion states, or in the coverage gap otherwise. One consequence is genuinely counterintuitive: a conversion that lifts a household from below the floor into credit range can gain subsidy, making its true marginal rate negative. The calculator reports that rather than hiding it.

Common questions

What is the ACA subsidy cliff?

The ACA subsidy cliff is the point at 400% of the federal poverty level where premium tax credit eligibility ends outright. Below it you receive a credit; one dollar above it you receive nothing at all for the entire year. It is a cliff rather than a phase-out, which is why a small increase in income can cost thousands of dollars.

What is 400% of the federal poverty level in 2026?

For the 2026 plan year in the 48 contiguous states and DC, 400% FPL is $62,600 for a single person and $128,600 for a household of four. Alaska and Hawaii use higher tables: $78,200 and $71,960 respectively for a single person.

Does a Roth conversion affect ACA subsidies?

Yes. A Roth conversion is ordinary income and counts toward the modified adjusted gross income that determines premium tax credit eligibility. A conversion large enough to push MAGI above 400% of the federal poverty level forfeits the entire premium tax credit for that year.

How much does crossing the subsidy cliff cost?

It depends on your benchmark premium, which rises with age and household size. In the worked example on this page, a family of four sitting at 380% FPL forfeits $11,364 by converting $6,600 more — an effective marginal rate of 184.2% on that increment.

Do capital gains count toward the ACA subsidy cliff?

Yes. Long-term capital gains and qualified dividends count toward MAGI for premium tax credit purposes even when they are taxed at 0% federally. An early retiree living off a taxable brokerage account already has MAGI before converting anything.

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