Health insurance is considered affordable under the ACA when your share of the premium falls within a set percentage of your household income, and the exact percentage depends on where the coverage comes from. For job-based coverage in 2026, the cheapest self-only plan your employer offers must cost no more than 9.96% of household income.1Internal Revenue Service. Rev. Proc. 2025-25 For Marketplace plans, a sliding-scale formula tied to the Federal Poverty Level sets what you are expected to pay, with premium tax credits covering the rest. Medicaid eliminates premiums almost entirely for low-income households. Which threshold applies to you decides whether you can get financial help and, in some cases, whether you can shop the Marketplace at all.
Employer Coverage: The 9.96% Test
If your job offers health insurance, the affordability test looks at one number: what you would pay each month for the cheapest self-only plan your employer offers, compared to your household income. If that cost is 9.96% of household income or less for plan years beginning in 2026, the coverage is legally affordable.1Internal Revenue Service. Rev. Proc. 2025-25 The IRS adjusts this percentage each year.
When your employer’s cheapest self-only plan costs more than 9.96% of household income, the coverage is legally unaffordable, and you can shop the Marketplace and potentially qualify for premium tax credits.2Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan If the employer plan passes the test, you generally cannot receive Marketplace subsidies, even if the premium or out-of-pocket costs feel burdensome to you personally.
Minimum Value
Premium cost is only half the test. The employer plan must also provide “minimum value,” meaning it covers at least 60% of the total expected cost of covered benefits.3Internal Revenue Service. Minimum Value and Affordability A plan that passes the 9.96% premium test but falls below 60% actuarial value still fails, and you can seek Marketplace subsidies. Most large-employer plans comfortably clear minimum value, but it is worth checking if your plan combines a very high deductible with limited coverage.
If Family Coverage Costs More
The affordability test for employee-only coverage uses the employee-only premium. A separate test now applies to family members. Under a 2022 IRS regulation, if your employer’s cheapest family plan costs more than 9.96% of household income, your spouse and dependents can qualify for Marketplace premium tax credits based on the family-coverage cost, even though you yourself may still be considered to have an affordable offer.2Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan Before this change, families were often locked out of subsidies because the test only looked at the employee-only premium.
Marketplace Plans and Premium Tax Credits
If you do not have an affordable offer of job-based coverage, you can buy a plan through the Health Insurance Marketplace and may qualify for premium tax credits. The credit is tied to a “benchmark” plan: the second-lowest-cost silver plan available in your area. You are expected to contribute a set percentage of your income toward that benchmark, and the credit covers the rest.2Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan You can apply that credit to a bronze, gold, or platinum plan instead, though the benchmark silver premium is what sets the credit amount.
What Changed for 2026
From 2021 through 2025, the Inflation Reduction Act made premium tax credits more generous. Nobody paid more than 8.5% of household income for the benchmark silver plan, and people earning above 400% of the Federal Poverty Level could receive credits. Those enhanced subsidies expired at the end of 2025.4Internal Revenue Service. Questions and Answers on the Premium Tax Credit For 2026, two changes matter most:
- The income cap is back. Premium tax credits are available only to households with income between 100% and 400% of the Federal Poverty Level. Income above 400% FPL means no subsidy at all.
- Expected contributions are higher. The percentage of income you are expected to pay toward the benchmark premium rises across most income levels compared with 2021 through 2025. People around 150% FPL, who previously owed nothing, now owe a small percentage.
The statutory sliding scale starts at roughly 2% of income for the lowest-eligible earners and climbs to about 9.5% near 400% FPL, with annual IRS indexing.2Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan The 2026 Federal Poverty Level for a single person in the 48 contiguous states is $15,960, which puts the 400% cutoff at $63,840.5HealthCare.gov. Federal Poverty Level (FPL) – Glossary
Advance Payment vs. Claiming at Tax Time
You can take the credit in advance, with payments sent directly to your insurer each month to lower your bill, or claim the full credit when you file your tax return. Most people take the advance payment because it reduces out-of-pocket costs right away. If your income changes during the year, the credit you actually qualified for may differ from what was paid in advance, which is settled on your tax return.
Lower Cost-Sharing on Silver Plans
Premium tax credits lower your monthly bill but do not change what you pay when you see a doctor. A separate benefit, cost-sharing reductions, lowers deductibles, copays, and out-of-pocket maximums if you enroll in a silver-level Marketplace plan and your income is between 100% and 250% of the Federal Poverty Level. Cost-sharing reductions did not expire; they remain a permanent part of the ACA.6Office of the Law Revision Counsel. 42 USC 18071 – Reduced Cost-Sharing for Individuals Enrolling in Qualified Health Plans
The reductions push the plan’s actuarial value up: 94% at 100–150% FPL, 87% at 150–200% FPL, and 73% at 200–250% FPL. The annual out-of-pocket maximum drops well below the standard limit at those income levels. The benefit applies only to silver plans bought on the Marketplace, so choosing a bronze or gold plan at the same income forfeits it.
Medicaid and CHIP
For lower-income households, ACA affordability means coverage that is free or close to it. Medicaid provides health coverage with no monthly premiums for most participants. In states that expanded Medicaid under the ACA, adults with income at or below 138% of the Federal Poverty Level — roughly $22,025 for an individual in 2026 — qualify.5HealthCare.gov. Federal Poverty Level (FPL) – Glossary Not every state expanded Medicaid. In non-expansion states, adults without dependents may not qualify at any income level.
Eligibility uses Modified Adjusted Gross Income, a tax-based figure that includes wages, self-employment income, Social Security benefits, and other taxable income. Lump-sum payments count only in the month received, and qualifying scholarships used for education expenses are not counted.7eCFR. 42 CFR 435.603 – Application of Modified Adjusted Gross Income (MAGI) Most participants pay no premiums. Some states charge small copays, typically $1 to $10, for services like office visits or brand-name prescriptions.
Children qualify at higher income levels through the Children’s Health Insurance Program. CHIP thresholds vary widely by state but commonly reach 200% or 300% of the Federal Poverty Level, and some states set them higher. CHIP covers families who earn too much for Medicaid but cannot afford private coverage, with premiums that are free or very low.8Office of the Law Revision Counsel. 42 USC 1396a – State Plans for Medical Assistance
What Counts Toward Your Out-of-Pocket Costs
Every ACA-compliant plan must cap what you spend on covered services in a year. Once you hit that cap, the plan pays 100% of covered care for the rest of the plan year. For 2026, the maximum is $10,600 for individual coverage and $21,200 for family coverage.9HealthCare.gov. Out-of-Pocket Maximum/Limit – Glossary Cost-sharing reductions push that cap lower for silver-plan enrollees in the eligible income range.
Deductibles, copays, and coinsurance count toward the cap. Monthly premiums do not. Spending on services the plan does not cover, or on out-of-network care when the plan requires in-network care, generally does not count either.
If Your Income Changes During the Year
Premium tax credits are based on your estimated income when you apply. Your final credit is reconciled on your tax return using Form 8962 and the Form 1095-A sent by the Marketplace.10Internal Revenue Service. Questions and Answers About Health Care Information Forms for Individuals If your income ended up higher than you estimated, you received too much credit in advance and will owe some back. If it was lower, you receive the extra as part of your refund.
For 2026 tax returns, there is no cap on how much excess advance credit you may need to repay. The repayment limits that applied in prior years expired after the 2025 tax year.4Internal Revenue Service. Questions and Answers on the Premium Tax Credit A significant mid-year income jump could mean paying back the full difference. Updating the Marketplace promptly when your income or household changes is the practical way to avoid a surprise at tax time.