Roth conversion ACA subsidy calculator

The ACA subsidy cliff is the statutory cutoff at 400% of the federal poverty level where Premium Tax Credit (PTC) eligibility ends outright rather than tapering. For 2026, that threshold is $62,600 of Modified Adjusted Gross Income (MAGI) for a single individual, $84,600 for a couple, and $128,600 for a household of four in the 48 contiguous states. One dollar below the threshold you receive a credit; one dollar above it you receive $0 for the entire tax year. The cliff returned because the temporary American Rescue Plan / IRA subsidy enhancements expired on December 31, 2025.

Modified AGI for ACA premium tax credits starts from Adjusted Gross Income (AGI on Form 1040, Line 11) and adds back three specific items: (1) tax-exempt interest (Line 2a), (2) the non-taxable portion of Social Security benefits (Line 6a minus 6b), and (3) foreign earned income exclusions. The standard deduction does NOT reduce ACA MAGI. A Roth conversion enters through ordinary income and increases MAGI dollar for dollar. Long-term capital gains and qualified dividends count toward MAGI in full, even when taxed at 0% federally.

Yes, 100% of the taxable amount of a Roth conversion is included in MAGI. There are no exemptions or special tax treatments. Converting an extra $1,000 increases your ACA MAGI by $1,000, reducing your subsidy and potentially pushing your total household income over the 400% FPL subsidy cliff.

For the 2026 coverage year in the contiguous 48 states, 400% FPL is $62,600 for a household of 1, $84,600 for a household of 2, $106,600 for a household of 3, $128,600 for a household of 4. In Alaska, 400% FPL is $78,200 for 1 person and $105,720 for 2 people. In Hawaii, it is $71,960 for 1 person and $97,280 for 2 people. Premium tax credit eligibility uses the prior year's (2025) HHS poverty guidelines.

Because the federal tax bracket is only one of four costs triggered by a conversion. The four components are: (1) ordinary federal income tax, (2) long-term capital gains pushed out of the 0% bracket into the 15% bracket by conversion income stacking underneath them, (3) lost ACA Premium Tax Credits as MAGI increases, and (4) state income taxes. In the default scenario — a single filer aged 55 with $18,000 ordinary income and $20,000 qualified income — crossing the 400% FPL cliff forfeits $6,605 of annual healthcare subsidies instantly, producing an effective marginal tax rate exceeding 300% on the crossing increment.

When you file your federal return, Form 8962 reconciles the Advance Premium Tax Credit (APTC) paid to your insurer against the credit your actual year-end MAGI allows. From tax year 2026 there is no cap on paying back the difference: the One Big Beautiful Bill Act (§ 71305) repealed the § 36B(f)(2)(B) repayment limits. Any excess is repaid in full, at every income. If your MAGI ends the year above 400% FPL, no credit is allowed at all, so you repay every dollar of advance credit you received.

Cost-Sharing Reductions (CSR) are federal subsidies available exclusively on Silver-tier ACA marketplace plans for households earning between 100% and 250% FPL. CSRs dramatically lower deductibles, copayments, and out-of-pocket maximums by boosting the plan’s Actuarial Value (AV): 94% AV (up to 150% FPL), 87% AV (above 150% to 200% FPL), and 73% AV (above 200% to 250% FPL). Converting income past 150% or 200% FPL can raise your deductible and out-of-pocket maximum without changing your premium.

Yes. Long-term capital gains and qualified dividends are included in AGI and therefore count fully toward ACA MAGI. Even if your taxable capital gains fall within the 0% federal tax bracket, they still consume ACA subsidy headroom and can trigger the 400% FPL cliff.

Yes. Above-the-line deductions (Form 1040 Schedule 1, Part II) directly reduce AGI and therefore reduce ACA MAGI. Contributions to a Health Savings Account (HSA), traditional deductible IRA, or solo 401(k), as well as the self-employed health insurance deduction (IRC §162(l)), lower your MAGI dollar for dollar, helping you stay below the 400% FPL cliff.

Under IRC §162(l), self-employed individuals can deduct qualifying health insurance premiums from gross income. However, the calculation is circular: the deduction lowers MAGI, which increases your Premium Tax Credit (PTC), which in turn reduces the net premium eligible for the deduction. IRS Publication 974 provides two alternative methods (the Iterative Method and the Simplified Calculation Method) to reconcile this interaction on Form 8962.

Late December (between December 15 and December 31). By waiting until late December, you will know your exact realized capital gains, mutual fund year-end dividend distributions, and total annual income. This allows you to calibrate your Roth conversion to the exact dollar to stay safely beneath the 400% FPL cliff.