Over the Subsidy Cliff? What to Do If You Earn Over 400% FPL in 2027

The subsidy cliff is back for 2027 Open Enrollment. Households with income above 400% of the federal poverty level (FPL) generally get no premium tax credit for marketplace coverage. A household just over the line can pay the full premium, while a household just under it still gets help. This guide shows where the 400% line sits for 2027, how marketplace income is counted, and which options fit each side of it.

What is the subsidy cliff?

The subsidy cliff is the income line where marketplace premium tax credits stop. From 2021 through 2025, enhanced federal credits had no upper income limit. Households above 400% FPL paid no more than 8.5% of income for the benchmark Silver plan. Those enhanced credits expired at the end of 2025. For 2026 and 2027 coverage, the original Affordable Care Act rule applies again: above 400% FPL, the credit generally drops to zero.

The subsidy cliff creates a sharp jump in cost. One extra dollar of income can cost a household its entire credit. The cliff hits hardest for older enrollees, larger families, and people in high-premium areas, because their full-price premiums are the highest.

What is 400% of the federal poverty level for 2027 coverage?

The 400% FPL line for 2027 coverage comes from the 2026 federal poverty guidelines. The 2026 guideline is $15,960 for one person in the 48 contiguous states and DC. Each additional household member adds $5,680. Alaska and Hawaii use higher guidelines. The table shows the 400% line by household size.

The poverty guidelines come from the U.S. Department of Health and Human Services. HealthCare.gov and state marketplaces use the 2026 guidelines for 2027 coverage. The 400% column simply multiplies each official guideline by four.

What income does the marketplace count?

Marketplace income means modified adjusted gross income (MAGI), not take-home pay. MAGI starts with the adjusted gross income on your federal tax return. The marketplace then adds back three items:

• Nontaxable Social Security benefits: added back in full
• Tax-exempt interest: added back
• Excluded foreign earned income: added back

Pre-tax deductions lower MAGI before those add-backs. Common examples include traditional 401(k) contributions, deductible IRA contributions, HSA contributions, and the deductible half of self-employment tax. The marketplace compares your estimated 2027 MAGI with the 400% line. Your 2027 tax return settles the final number on Form 8962. An estimate that ends up above the line means repaying the full advance credit at tax time.

How can you lower your MAGI below the 400% line?

Pre-tax savings can lower MAGI when your income sits close to the 400% line. Each option has its own limits and tax rules, so confirm the details with a tax professional.

• Traditional 401(k) or 403(b): employee contributions reduce MAGI dollar for dollar
• Traditional IRA: deductible contributions reduce MAGI, subject to IRS eligibility rules
• Health savings account (HSA): contributions reduce MAGI; 2027 limits are $4,500 self-only and $9,000 family
• SEP-IRA or Solo 401(k): self-employed contributions reduce MAGI
• Income timing: self-employed people may shift invoices or capital gains into another year

HSA contributions require an HSA-eligible plan. Starting in 2026, federal law treats marketplace Bronze and Catastrophic plans as HSA-compatible. A Bronze plan plus a full HSA contribution can lower your premium and your MAGI at the same time.

What are your options above the subsidy cliff?

Households above the 400% line have three main paths for 2027 coverage. Each path fits a different health situation and budget.

• Full-price ACA plan: guaranteed acceptance, no health questions, all essential health benefits; you pay the full premium
• Private plan outside the marketplace: health questions on the application; for healthy people, premiums may be lower; benefits and protections differ from ACA plans
• Employer or spouse's group coverage: often the lowest-cost option when one is offered

A full-price Bronze plan with an HSA often suits healthy households that want ACA protections. Depending on your health and situation, a private plan may cost less. If a private plan isn't the right fit, ACA plans can't turn you down because of a pre-existing condition.

Which mistakes push people over the subsidy cliff?

Income mistakes cause most surprise tax bills for people near the 400% line. Watch for these common errors:

• Take-home pay instead of MAGI: the marketplace counts income before many payroll deductions
• A missing spouse's income: married couples generally must file jointly to get the credit
• One-time income: a Roth conversion, a bonus, or a large capital gain counts in that year
• No mid-year update: report income changes to the marketplace within 30 days
• Social Security left out: nontaxable benefits still count toward MAGI

A careful estimate in November protects you from a large bill in April. Update the estimate whenever your income changes during 2027.

How do you decide what to do near the subsidy cliff?

Your distance from the 400% line decides the best first move. Use these simple decision rules:

• Income well below the line: estimate carefully and keep the credit
• Income within a few thousand dollars of the line: look at pre-tax contributions first
• Income clearly above the line and healthy: compare a full-price ACA plan with private options
• Income above the line with ongoing health needs: choose an ACA plan as the guaranteed option

Get help before you enroll

A licensed broker can run your numbers before Open Enrollment closes. I'll estimate your 2027 MAGI with you, check where you land against the 400% line, and compare ACA and private options side by side. My help is free, and your price is the same whether you enroll on your own or with me. Open Enrollment runs November 1, 2026, through January 15, 2027, in most states. See your state's deadline.