The ACA Subsidy Cliff Is Back for 2026, and the Cap on Repaying Excess Subsidies Is Gone

Two provisions of the Affordable Care Act's premium tax credit behave differently in the tax year now underway than they did in the five years before it. One is an eligibility limit. The other is what happens on the return if the Marketplace guessed a household's income too low.

How the credit is calculated

The credit is built on a benchmark, not on the plan a household buys. The IRS states the formula as the premium for the second-lowest-cost silver plan available to the coverage family, minus a percentage of household income. If only one silver plan is available, that plan is the benchmark; if the two cheapest silver plans cost the same, that premium is used.

Two asymmetries follow from the design. Tobacco surcharges are excluded from the benchmark premium, but a household's enrollment premiums are what it is actually charged, surcharge included. And the credit can never exceed those enrollment premiums — the IRS puts it directly: the credit cannot be more than the premiums for the plan or plans in which the family enrols. A household that buys a plan cheaper than the benchmark cannot pocket the difference.

The 400% limit applies again

Household income generally has to be at least 100% of the federal poverty line and no more than 400%. The American Rescue Plan Act suspended the upper limit, and the IRS's questions-and-answers page states the 400% ceiling was removed for tax years 2021 through 2025. Its separate eligibility page describes the suspension more narrowly, as applying to 2021 and 2022 — a wording the agency has not reconciled on the page itself. Either way, the ceiling is back for 2026.

The poverty line used is not the current year's. The credit for a coverage year uses the guidelines published as of the first day of that year's open enrollment, and separate guidelines apply to the contiguous 48 states and the District of Columbia, to Alaska and to Hawaii.

The repayment cap has been removed

Most Marketplace enrollees take the credit in advance, paid directly to the insurer on an estimate of their income. Form 8962 reconciles the estimate against the actual credit when the return is filed. If the credit turns out larger, the difference raises the refund. If the advance payments turn out larger, the excess is subtracted from the refund or added to the balance due.

That is where the change bites. For tax years before 2026, a cap limited how much excess advance payment a household had to repay, with the cap depending on income and filing status and applying only below 400% of the poverty line. The IRS states that for tax years after 2025, no cap applies and the full excess is added to the tax liability. A household that ends the year above 400% of the poverty line has always had to repay everything; now the graduated protection below that line is gone too.

What this sits inside

The enhanced credits enacted in 2021 expired at the end of 2025. KFF reported that the expiration raised average out-of-pocket premiums 58% in 2026 and left deductibles about $1,000 higher per person, and that healthier enrollees left the Marketplaces, leaving a smaller and costlier risk pool behind.

Insurers have priced that. The Peterson-KFF Health System Tracker's review of 2027 filings from 276 insurers across all 50 states and the District of Columbia found a median proposed increase of 15%, the second consecutive year of double-digit requests; the earlier July review of 77 filings put the median at 14%, with 20 insurers seeking more than 20%. Insurers attribute about four percentage points of the 2027 increase to the subsidy expiration's effect on the risk pool, on top of underlying medical and drug cost growth they put at 10%. Individual filings are more explicit still: UnitedHealthcare of New York attributed 12.7% of its requested increase to the subsidy expiration and the Marketplace Integrity and Affordability Rule combined.

One household, three years

The tracker follows a 40-year-old in Indianapolis earning $65,000 on an Anthem silver plan. The monthly premium after credits was $316 in 2025, $477 in 2026, and $546 in 2027 if the filing is approved — a two-year increase of $158 a month, or 41%. The unsubsidized 2025 premium for the same plan was $388.

This article explains how the premium tax credit is computed and what changed for 2026. It is not tax or insurance advice, and eligibility turns on facts specific to each household.