Colorado residents fill out cards and share their stories for content to send to congressional representatives regarding health-care cuts on Nov. 1, 2025, the first day of ACA open enrollment, in Northglenn, Colorado.
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For the first time in years, many Americans enrolled in a health insurance plan via the Affordable Care Act marketplace will need to keep a careful accounting of their annual income — or risk a hefty federal tax bill.
Enhanced ACA subsidies lapsed at the end of 2025, leaving millions of households on the hook for higher insurance premiums. The lapse also reintroduced the so-called subsidy cliff, whereby households that earn even $1 more than a specific income threshold will lose all eligibility for subsidies, also known as premium tax credits.
That income cutoff, which varies by family size, is $62,600 for a single person, $84,600 for a two-person household and $128,600 for a family of four in 2026, for example.
More than 2 million people enrolled in an ACA marketplace plan have an income near the subsidy cliff. ACA enrollees also tend to have relatively volatile incomes, making it hard to predict their annual earnings, experts said.
Households over the limit would have to pay back any federal subsidies they received for premiums — potentially worth thousands of dollars — when they file taxes next year for 2026.
“Starting February, March, April 2027 is when you’ll start to see the horror stories of people with astronomical tax bills, from the payback of these credits,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo, which was No. 69 on CNBC’s Financial Advisor 100 list for 2025.
The potential financial impact is exacerbated by a multitrillion-dollar legislative package known as the “big beautiful bill” that Republicans passed over the summer, which stripped away guardrails capping the amount of excess subsidies households must repay, experts said.
“I don’t know of anything else that’s as penalizing in the tax code by adding one extra dollar [of income],” Lucas said. “You’ve got to be on your game starting now.”
The total sum households need to pay back to the federal government “could easily be $10,000,” said Cynthia Cox, vice president and director of the Affordable Care Act program at KFF, a nonpartisan health policy research group.
The sum depends on factors like age, geography and family size, Cox said.
An older couple who inadvertently earn too much money and go over the subsidy cliff may need to pay back around $20,000, for example, she said.
Congress could still extend ACA subsidies
There’s a chance Congress may still act to extend enhanced ACA subsidies in some form and prevent a surprise tax bill for many households next year.
Democrats on Capitol Hill have said they want to extend them, while most Republicans have said they’re opposed. However, a group of Republicans has recently engaged in bipartisan talks in the House and Senate that may yield legislative action.
“I think the chances are pretty slim something will pass,” Cox said. “From a personal finance perspective, you have to just count on nothing happening in Congress.”
Millions of people are near ACA subsidy cliff
The subsidy cliff is in effect for the first time since Congress enacted enhanced premium subsidies in 2021 as part of a Covid-19 pandemic relief law.
Now, households with an income in 2026 that exceeds 400% of the federal poverty line are ineligible for any premium tax credits. They’d be on the hook for the full, unsubsidized health insurance premium.
For example, the average 60-year-old with an income of $62,000 would pay about $515 a month in health premiums, or approximately 10% of their annual income, according to a KFF analysis. This person would be eligible for premium subsidies.
However, the same person earning $64,000 would pay $1,244 per month, about 23% of their income, since they would fall over the subsidy cliff, KFF found.
Millions of people have an income near the subsidy cliff.
In 2025, about 3% of ACA enrollees — nearly 725,000 people — earned between 400% and 500% of the federal poverty line, for example, according to a Bipartisan Policy Center analysis of federal data.
Another 7% — about 1.8 million people — earned 300% to 400% of the poverty line, it found. That equates to more than about $47,000 to per year for an individual and about $96,000 for a family of four.
“People around that income [threshold] didn’t have to worry about that for the past five years,” Cox said.
“[Now], if your income is right around that threshold for subsidy eligibility, then you need to be really careful about how much money you’re making.”
How ACA premium tax credit works
About 22 million Americans received premium subsidies, also known as premium tax credits, in 2025.
Households can opt to receive the tax credit in one of two ways: As a lump sum during tax season or as an advanced payment.
Under the latter option, by far the most popular, the federal government issues the tax credit directly to a consumer’s insurer, which then lowers the consumer’s out-of-pocket premium.
Consumers receive those advanced ACA subsidies based on an estimated annual income they provide when signing up for insurance. They must reconcile those subsidies during tax season and repay any excess tax credits to the IRS.
ACA enrollees tend to have relatively volatile incomes, making it difficult to predict their annual pay accurately, Cox said.
About one in five people, 21%, between 19 and 64 years old who shop for insurance on the ACA marketplace are in households with “high levels of income volatility,” according to a KFF study published in May. The researchers define volatility as a difference of at least 20% between estimated and actual income.
Why you should know your ACA ‘cliff number’
The federal government determines eligibility for ACA subsidies based on “modified adjusted gross income.”
Determining MAGI may be challenging, experts said.
It’s one’s adjusted gross income — a line item on households’ tax returns — with some other elements added back. The two “biggies” for most people are any tax-exempt interest, such as from municipal bonds, and any untaxed Social Security benefits, Lucas said.
“It’s definitely important for people on the ACA to know their cliff number, their 400%,” Lucas said.
They should monitor their income monthly to see how it’s trending, he said.
“There are ways to keep an eye on your income and even make changes mid-year to stay eligible for the subsidies, so you don’t have a big surprise come tax time next year,” Cox said.
For example, households can consider making pre-tax contributions to financial accounts like a 401(k), individual retirement account or health savings account, which helps to reduce modified adjusted gross income, experts said.
Additionally, retirees and other households may choose to draw money from Roth retirement accounts, which, with some exceptions, doesn’t count toward taxable income. Savers can withdraw Roth contributions tax-free, even if they’re not yet age 59½.
Consumers who are still working and have some flexibility in their hours and work schedule might also opt to work less to reduce their annual earnings.
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