Subsidy Cliff
Tax Glossary Term
Definition
The subsidy cliff is the sharp cutoff at 400% of the Federal Poverty Level above which households receive zero premium tax credit for ACA marketplace insurance. Below 400% FPL, the government subsidizes the difference between your expected contribution and the benchmark Silver plan premium; above it, you pay the full premium with no help. This creates a "cliff" where a small increase in income can cost thousands of dollars in lost subsidies. The cliff returned in 2026 after the enhanced ARPA/IRA subsidies (which had eliminated it through 2025) expired, and the OBBBA did not extend them. For a single person in 2026, 400% FPL equals $15,650 × 4 = $62,600. Managing MAGI to stay just below this threshold is a common planning strategy for early retirees and self-employed individuals.
Example
Single person. 400% FPL = $15,650 × 4 = $62,600.
At income $62,000 (below cliff):
Expected contribution = 10.0% × $62,000 = $6,175.
If SLCSP = $9,000/year, PTC = $9,000 − $6,175 = $2,825/year.
At income $63,000 (above cliff):
PTC = $0.
A $1,000 increase in income costs $2,825 in lost subsidies.