What changed
The second cliff nobody is talking about
Repayment caps on excess premium tax credits were quietly eliminated. Guess your income low and you now repay every dollar of the difference, with no ceiling.
Everyone is talking about the 400% cliff. Almost nobody is talking about this one, and it will produce a great many unpleasant surprises in the spring of 2027.
How advance credits work
When you enroll, you estimate what you will earn. The Marketplace calculates a credit from that estimate and pays it directly to your insurer each month, which is why your premium looks smaller than the sticker price. This is an advance credit, based on a forecast.
At tax time, Form 8962 reconciles the forecast against reality. Earn less than estimated, and you get the shortfall back as a refund. Earn more, and you received too much credit, so the excess becomes additional tax owed.
What used to protect you
Until plan year 2025, households under 400% of the federal poverty level were shielded by repayment caps. If your income came in higher than you predicted, your repayment was limited, often to a few hundred dollars for lower-income filers and a few thousand for those nearer the top.
| Income as a share of poverty | Old cap, single | Old cap, other filers |
|---|---|---|
| Under 200% | $375 | $750 |
| 200% to 300% | $950 | $1,900 |
| 300% to 400% | $1,575 | $3,150 |
| 400% and above | No cap | No cap |
What that looks like in practice
Take a self-employed household of two estimating $58,000 for 2027. They receive an advance credit of roughly $900 a month, so $10,800 across the year. A strong fourth quarter takes their actual income to $70,000, which is above the cliff for a couple.
Under the old rules they would have repaid nothing above the cap for their bracket, and in many cases a few thousand dollars. Under the current rules they repay the entire $10,800 when they file. The extra $12,000 of income cost them nearly all of it.
This is the interaction that makes the two cliffs compound. The 400% cliff removes the credit; the repayment change claws back everything already advanced.
How to protect yourself
Estimate carefully, and estimate high if you are unsure
The instinct is to estimate low so the monthly premium looks manageable. That instinct is now expensive. If your income is genuinely uncertain, estimating toward the higher end of your range means a larger monthly premium and a refund at tax time, rather than a small premium and a bill.
Consider taking less of the credit in advance
You are allowed to take a partial advance credit, or decline the advance entirely and claim the full amount on your return. For people with lumpy or unpredictable income, this converts an unbounded liability into a cash flow question. Many self-employed households have moved to this approach since the caps disappeared.
Update the Marketplace when your income changes
You are supposed to report income changes during the year, and it is genuinely in your interest to do it. Reporting a raise in July adjusts your credit for the remaining months and shrinks the reconciliation. Waiting until April guarantees the full correction lands at once.
Watch the levers that reduce income
Deductible IRA contributions, health savings account contributions, and solo 401(k) contributions all reduce modified adjusted gross income and can be made after the year ends in some cases. If you are close to a threshold, these are worth reviewing with a tax professional before you file. The subsidy cliff page covers which levers work and which do not.
Common questions
What changed about subsidy repayment?
Section 71305 of the 2025 reconciliation law eliminated the caps on repaying excess advance premium tax credits, starting with plan year 2026. Previously, households below 400% of the federal poverty level had their repayment limited to between $375 and $3,000 depending on income and filing status. Those limits no longer exist. All excess credit is repaid in full, at any income level.
When will people first feel this?
On returns filed in 2027 for the 2026 plan year. Most people have not encountered it yet, which is exactly why it is worth understanding before you file your 2027 application.
How does the repayment work?
Advance credits are paid to your insurer during the year based on the income you estimated. At tax time, Form 8962 reconciles that against your actual income. If you earned more than you estimated, you received too much credit and repay the difference as additional tax owed. If you earned less, you receive the shortfall as a refund.
Should I take less credit up front to be safe?
That is a legitimate strategy if your income is uncertain, and it is what many self-employed people now do. You can take a partial advance credit, or none at all, and claim the full amount on your return once your income is known. The cost is cash flow during the year; the benefit is no surprise bill and no repayment risk.
Sources
- 1.KFF: How the 2025 budget reconciliation law affects the ACA
- 2.Congressional Research Service R48290: Enhanced premium tax credit
- 3.IRS Rev. Proc. 2026-26 (2027 applicable percentages)
Marketplace rules change through legislation, rulemaking, and litigation. Confirm anything you are about to act on, or call and ask.
Keep reading
Income hard to predict?
That is the situation this change punishes most, and it is the one most worth talking through before you enroll rather than after you file.