Washington, D.C. — As the enhanced subsidies for Affordable Care Act marketplace health insurance expired at the end of 2025, millions of Americans face a renewed risk of steep tax penalties if their incomes nudge just above federal eligibility thresholds. The so-called subsidy cliff, absent since 2021, now means that households earning even a single dollar over specific limits could lose all premium tax credits, potentially leading to repayment demands of thousands of dollars when they file 2026 taxes in early 2027.
Experts warn that the financial fallout could be severe, particularly for those with fluctuating incomes who might inadvertently cross the line. "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, a firm ranked No. 69 on CNBC's Financial Advisor 100 list for 2025.
The subsidy cliff applies to households whose modified adjusted gross income exceeds 400% of the federal poverty level. For 2026, that threshold stands at $62,600 for a single person, $84,600 for a two-person household, and $128,600 for a family of four, according to federal guidelines. Those above the limit must repay any advance premium tax credits received throughout the year, which could total "easily $10,000," said Cynthia Cox, vice president and director of the Affordable Care Act program at KFF, a nonpartisan health policy research organization.
The situation is compounded by a major legislative change earlier in the year. Over the summer of 2025, Republicans in Congress passed a multitrillion-dollar package dubbed the "big beautiful bill," which removed caps on the repayment amounts for excess subsidies. Previously, households were protected from repaying more than a certain portion, but now there's no such limit, leaving enrollees fully exposed to the full cost.
"I don't know of anything else that's as penalizing in the tax code by adding one extra dollar [of income]," Lucas emphasized. He advised ACA enrollees to closely track their earnings, noting that modified adjusted gross income includes adjusted gross income from tax returns plus items like tax-exempt interest from municipal bonds and untaxed Social Security benefits.
For illustration, consider a 60-year-old individual earning $62,000 annually. With subsidies, their monthly premium might average $515, or about 10% of their income, based on a KFF analysis. But if their income rises to $64,000 — just over the cliff — that same premium jumps to $1,244 per month, consuming roughly 23% of their earnings, with no subsidies available.
An older couple in a similar predicament could face a repayment of around $20,000, Cox noted, depending on factors such as age, location, and family size. The variability in costs underscores the cliff's harshness, especially since ACA marketplace enrollees often experience income volatility. A KFF study from May found that 21% of shoppers aged 19 to 64 in these plans live in households with high income swings, defined as at least a 20% difference between estimated and actual earnings.
About 22 million Americans benefited from premium tax credits in 2025, with most opting for advance payments that reduce monthly premiums directly through their insurers. These advances are based on income estimates provided during enrollment, and any overestimation requires reconciliation — and repayment — on tax returns. With the cliff reinstated, precision in forecasting becomes critical.
Data from the Bipartisan Policy Center, analyzing federal figures, shows the scale of vulnerability. In 2025, nearly 725,000 ACA enrollees — about 3% of the total — had incomes between 400% and 500% of the poverty line, while another 1.8 million, or 7%, fell between 300% and 400%. For a single person, 300% of poverty is roughly $47,000; for a family of four, it's about $96,000.
"People around that income [threshold] didn't have to worry about that for the past five years," Cox said. The enhanced subsidies, enacted in 2021 as part of COVID-19 relief legislation, eliminated the cliff and made credits more generous, shielding enrollees from such abrupt cutoffs. Their lapse marks the first return of the full cliff mechanism since then.
More than 2 million current ACA marketplace enrollees hover near these thresholds, experts estimate, amplifying the potential impact. "[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," Cox added.
Political dynamics add uncertainty to the outlook. Democrats in Congress have voiced support for extending the enhanced subsidies to avert widespread tax surprises, while most Republicans remain opposed. However, recent bipartisan discussions in the House and Senate hint at possible compromise, though Cox expressed skepticism: "I think the chances are pretty slim something will pass." She urged personal financial planning under the assumption of no legislative relief: "From a personal finance perspective, you have to just count on nothing happening in Congress."
To mitigate risks, financial advisors recommend proactive steps. Enrollees should monitor income monthly and consider strategies to lower modified adjusted gross income, such as increasing pre-tax contributions to 401(k)s, individual retirement accounts, or health savings accounts. Retirees might draw from Roth accounts, where contributions can be withdrawn tax-free without age penalties in many cases.
For those with flexible work schedules, reducing hours could also help stay under the limit. "It's definitely important for people on the ACA to know their cliff number, their 400%," Lucas said. "You've got to be on your game starting now." He suggested mid-year adjustments to avoid year-end shocks.
"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 advised. As open enrollment for 2026 ACA plans wraps up, experts predict a surge in inquiries from worried consumers navigating these changes.
The broader implications extend beyond individual finances, potentially straining household budgets amid rising health costs. With no immediate fixes on the horizon, the subsidy cliff's return could reshape how millions approach income planning and health coverage decisions in the coming year. Officials at the IRS and Health and Human Services Department have yet to issue detailed guidance on 2026 reconciliations, but early education campaigns are underway to alert enrollees.
As tax season 2027 approaches, the stories of unexpected bills may dominate headlines, serving as a stark reminder of the ACA's evolving landscape. For now, those near the thresholds are left to navigate the uncertainties alone, hoping for clarity — or congressional action — before the deadlines hit.