How ACA Marketplace Subsidies Are Calculated — and Why Your Tax Return Gets the Last Word

The price a Marketplace website shows you after you type in your income isn't the price of the plan. It's the price of the plan minus a tax credit the government is paying the insurer on your behalf, every month, based on a number you guessed. Nobody checks the guess until you file your taxes the following spring.

That arrangement is the whole story of the premium tax credit, and it has two halves. The first happens now, while you're shopping. The second happens on your tax return, and for coverage in 2026 and later it has quietly become much less forgiving.

The formula is two numbers and a subtraction

The IRS describes the credit as "generally equal to the premium for the second lowest cost silver plan available through the Marketplace that applies to the members of your coverage family, minus a certain percentage of your household income" (IRS questions and answers on the premium tax credit).

Put another way: the government decides what share of your income you're expected to put toward the benchmark plan, and pays the rest of the benchmark's price. That's it. Everything else — which plan you choose, what the website displays, what happens at tax time — is a consequence of those two numbers.

The first number, the benchmark premium, depends on where you live, your age, and who's in your coverage family, which is why two neighbors with the same income can get very different credits. The second number, your expected contribution, comes from a table the IRS publishes every summer.

The table that sets your share

For coverage in 2027, the IRS published the table in Revenue Procedure 2026-26. Your income is converted into a percentage of the poverty guideline, and the table gives the share of income you're expected to contribute. Inside each band the percentage slides smoothly from the starting figure to the ending one.

The 2026 column comes from Revenue Procedure 2025-25. Two things to notice. The percentages creep up a little each year; they're indexed, so the expected share of income drifts upward over time. And the table stops at 400 percent. From 2021 through 2025, a temporary expansion let households above 400 percent qualify and lowered these percentages. The IRS says that expansion does not extend to 2026, and its published 2027 table follows the original structure.

Walkthrough: one credit, computed from scratch

Jordan is single, shopping for 2027 coverage, and expects $40,000 of MAGI in 2027. The benchmark silver plan where Jordan lives costs $620 a month. That premium is a made-up example — real benchmarks vary enormously by county and age — but every other number comes from the official tables.

Now the part that surprises people: that $330.67 is a fixed dollar amount, not a discount on silver. Jordan can spend it on any Marketplace plan. On the benchmark, Jordan pays $289.33 a month. On a $450 bronze plan, $119.33. On a $700 gold plan, $369.33. The credit can't exceed the premium of the plan chosen, so a cheap enough plan can reach $0, but the credit never becomes cash. The trade-offs between those metal levels are deductibles and out-of-pocket maximums, which is exactly what those four insurance words describe.

The cliff at 400 percent

Below 400 percent of the poverty line, the expected contribution rises smoothly. At 400 percent it doesn't rise — the credit disappears. For 2027 coverage, 400 percent for a household of one is $63,840.

Run Jordan's numbers at $63,800, just under the line: 10.22 percent of $63,800 is about $6,520, so the credit is about $920 a year. At $64,000 it's zero. Two hundred dollars of extra income costs roughly $920 of credit.

That's the mild version. The cliff's height equals whatever the credit was just below it, and that depends on the benchmark premium. Marketplace premiums rise with age, so for an older enrollee whose benchmark is, say, $1,300 a month, the same two hundred dollars would erase about $9,080. This is the fact that almost never makes it into the explanations: the 400 percent line is not one cliff but a different cliff for every age and county, and the tallest ones belong to people in their late fifties and early sixties in expensive areas.

The second half: April decides

Everything above ran on an estimate. The advance payments your insurer received were calculated from the income you projected in November. When you file your return, Form 8962 recomputes the credit using your actual income for the year and compares it to what was paid. The IRS says anyone who received advance payments must file it.

Worked example: the same year, three endings

Rewind to 2026 coverage, measured against the 2025 poverty guideline of $15,650 for one person and the 2026 contribution table. Jordan enrolled on an estimate of $40,000, which is 255.6 percent of the guideline, for an expected contribution of about 8.61 percent. With the same $620 benchmark, that produced about $333 a month in advance credit — roughly $3,996 over the year. Three ways the spring can go:

The middle row is the one the 2026 change hits. Before 2026, a household below 400 percent of the poverty line only had to repay excess credit up to an income-based cap, so an overestimate like that was softened. From tax year 2026 on, the whole $2,034 comes due, subtracted from any refund or added to the balance due. The bottom row — income over the line — always meant full repayment; what's new is that the middle of the range now behaves the same way.

Estimating is hardest when income isn't a steady paycheck. If you're self-employed or doing app work, the relevant figure is net profit after expenses, not the gross deposits — the same distinction behind how gig pay really nets out.

What counts as income here — and what doesn't

MAGI starts from the AGI on your tax return, then adds back three things: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. HealthCare.gov's income guide also lists what's left out, including child support received, gifts, loan proceeds, Supplemental Security Income, veterans' disability payments and workers' compensation.

Because the measure begins with AGI, anything that already reduces AGI — pre-tax payroll deductions, for example — also reduces the income the credit is measured against. And because it's one total for the whole year, the credit behaves unlike the marginal logic of tax brackets: below 400 percent, extra income trims the credit gradually; at the line, a single dollar can change everything.

The calendar

On HealthCare.gov, Open Enrollment for 2027 coverage runs from November 1 through January 15, and December 15 is the last day to enroll or change plans for coverage starting January 1. States that run their own Marketplaces can set different dates. Outside that window, you generally need a qualifying life event for a special enrollment period.

The short version

The subsidy is the benchmark premium minus your expected share of income. The share comes from an IRS table that stops at 400 percent of the poverty line. The monthly discount is paid on an estimate, and the tax return settles it with no ceiling on what can be owed back from 2026 on. Anyone who understands those four sentences understands the program better than most of the ads explaining it.