Abaque 07 · The hard edge

The premium credit cliff

Nearly every threshold in the tax code is a ramp. This one is a wall. Below 400% of the federal poverty line the premium credit tapers smoothly; one dollar above it, the entire credit is gone — not reduced, not phased, gone. The enhanced credits that removed this wall expired on 31 December 2025, so for the 2026 coverage year it is back, and it governs the finances of anyone retiring before Medicare starts at 65.

Cliff at—
Credit lost—
Dead zone—
RegisterSheet 00
Sheet07 · Rev A
Inputs

Enter the chart here

Household size2
—
Benchmark premium, per year$21,000
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Household income (MAGI)$80,000
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State Medicaid expansion
—
Fig. 1

The credit, and where it stops existing

Annual premium credit The cliff at 400% FPL No credit at all
The credit is the gap between the benchmark premium and what the statute expects you to contribute — a percentage of income that climbs from 2.10% to 9.96% as you move up the poverty scale. Since the expected contribution rises with income while the premium does not, the credit falls away naturally. It would reach zero on its own. Instead, at exactly 400% FPL, the statute cuts whatever is left. Note also the small step at 133%: the expected contribution jumps from 2.10% to 3.14% at a single dollar. A second cliff, rarely mentioned, at the other end of the scale.
Fig. 2

Income left after paying for cover — the notch

Income after premiums Dead zone — worse off than at the cliff If there were no cliff
This is the figure that matters. The line should rise with every dollar earned. Instead it falls off a step at 400% FPL and does not recover until income has risen by the whole value of the lost credit. Inside that dead zone, a raise, an extra shift, or a Roth conversion of the wrong size leaves the household with less money than before. The width of the zone is not a policy choice anyone defends; it is an artefact of writing a cut-off instead of a taper.
Your credit——
You pay——
Headroom to the cliff——
If you cross it——
Fig. 3

Who the cliff actually reaches

Credit lost at the cliff No cliff — no credit to lose
The cliff only bites if you were receiving a credit at 400% FPL in the first place, which requires the benchmark premium to exceed 9.96% of the cliff income. Below that the line is flat at zero and there is nothing to fall off. Since the Act permits premiums to vary with age by up to three to one, this makes the cliff overwhelmingly a problem for older enrollees — which is to say, precisely the people bridging the years between leaving work and Medicare at 65.
Calculation

Every step, at your income

Table 1

Across the poverty scale

% of FPLIncomeExpected shareYou pay CreditAfter premiums
Method, and four things that catch people out

The formula

ratio = household MAGI / federal poverty line for that household size credit = benchmark premium − (applicable % (ratio) × MAGI) …but zero if ratio < 100% or ratio > 400%

The applicable percentage is a banded schedule, interpolated linearly within each band. It runs from 2.10% at the bottom to 9.96% flat across the whole 300–400% stretch. Both the bands and the percentages are re-indexed annually; the 100% and 400% ratios themselves are frozen in statute.

One: it is the prior year's poverty guideline

Eligibility for a coverage year is measured against the poverty guideline published the year before. That is a second lookback, entirely separate from Medicare's two-year one, and the two do not line up.

Two: MAGI here is not the MAGI anywhere else

For this credit MAGI adds back tax-exempt interest, untaxed Social Security benefits, and excluded foreign income. A retiree drawing benefits can be well above the cliff on this measure while looking comfortably below it on a tax return.

Three: an offer of employer coverage can bar the credit entirely

If employer coverage is available and costs less than the required contribution percentage of household income, no marketplace credit is allowed at any income. Income is not the only gate.

Four: the credit is reconciled, so the cliff arrives as a bill

Advance credits are paid to the insurer monthly on an estimate. If the year ends above 400% FPL, the entire advance is repaid at filing, without the repayment caps that limit smaller errors. A December Roth conversion, a capital gain, or an unexpected bonus can therefore generate a five-figure liability months after the money is spent.

What is not modelled

  • Income tax. Fig. 2 shows income after premiums only. Layering ordinary tax on top makes the notch deeper, not shallower.
  • Cost-sharing reductions, which have their own cliff at 250% FPL on silver plans, and which are lost at the same moment.
  • The coverage gap. In states that did not expand Medicaid, people below 100% FPL get neither Medicaid nor a credit. The toggle marks it; it does not price it.
  • Actual premiums. Benchmark premiums vary by age, geography, tobacco use and plan year. The slider is the honest way to handle that.

Confidence

The applicable percentage table, the required contribution percentage, and both eligibility ratios are Verified against Rev. Proc. 2025-25 and the Code. The poverty guideline for additional household members is Approx, derived from the published one- and four-person figures.

This is arithmetic, not advice. Dollar figures are approximate and re-indexed, and premiums in particular vary enormously by age and place — use your own marketplace quote, not the slider default. Legislation to restore the enhanced credits has been proposed but not enacted as of this revision; this sheet shows the law as it currently stands. Eligibility questions belong with a marketplace navigator or a CPA.
Indexed figures are re-set every January and this snapshot will go stale. Get notified when they are re-verified → · All twelve sheets