The Ledger · Business · Health · Tax & money
The subsidy cliff: what $2,854 changed for one self-employed reader
In 2026 the health-insurance credit stops at 400% of the poverty line. One worked example, with invented numbers, shows what a single contribution can do.
In 2026 the premium tax credit, the help that lowers a marketplace health plan’s price, ends above 400% of the federal poverty line. There is no gradual fade. One dollar over the line can cost thousands of dollars of help.
Take an example we built with invented numbers: a single 30-year-old, self-employed, a household of one, whose income sits at 418% of the poverty line. That is $2,854 over the line. Federal tax comes to $14,380. The credit is $0, so the marketplace plan costs the full $7,800 for the year.
Now add a traditional IRA contribution of $2,854. It lowers the income the credit is measured on to exactly the line. The credit returns at $2,165, and the plan’s cost after the credit falls to $5,635.
A health savings account contribution of $4,000 does slightly more here: the credit is $2,279 and the cost of cover is $5,521. The money stays hers, in the account. A health savings account needs a qualifying high-deductible plan, and yearly limits apply.
Neither is a discount. The contribution is savings, set aside for retirement or for medical costs, and taking it out early can cost tax and penalties. The gain is the credit, and it only makes sense if the savings were something she wanted to do anyway.
Before acting, check three things: whether you qualify to contribute, the contribution limit and deadline for the year, and whether you can leave the money alone. This is an illustration with invented numbers, not advice for one person’s situation. Model, our scenario tool, lets you try your own.
Members’ depth: test your own numbers
A worksheet that walks through your income, your contribution options and the deadline, step by step. For subscribers.
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