What is Obamacare (ACA) and who qualifies for subsidies in 2025? Learn how income affects your premium tax credit and how to avoid the subsidy cliff.
What Is Obamacare (ACA)?
The Affordable Care Act (ACA), commonly known as Obamacare, is a federal program that helps low- and middle-income individuals and families get affordable health insurance through premium subsidies.
It is especially useful for early retirees who are not yet eligible for Medicare, as it can significantly reduce monthly premium costs.
Who Qualifies for ACA Subsidies in 2025?
To qualify for ACA premium tax credits (also known as subsidies), your income must fall between 100% and 400% of the Federal Poverty Level (FPL) — or higher in certain states.
| Household Size | 400% FPL Limit (Approx.) | California Exception |
|---|---|---|
| 1 | $58,320 | Up to 600% FPL eligible for extra state subsidies |
| 2 | $78,880 | Same as above |
| 3 | $99,440 | Same as above |
*Alaska and Hawaii have higher FPL thresholds.
How Much Will You Pay for Health Insurance?
The amount you pay is based on your income. The higher your income, the more you contribute toward your health insurance premium.
For example, those between 300%–400% of the FPL are expected to pay up to 9.86% of their income toward premiums.
How ACA Subsidies Are Calculated
ACA subsidies are based on the cost of the second-lowest-cost Silver plan in your state’s marketplace (known as the benchmark plan).
ACA Subsidy = Benchmark Plan Premium – Your Expected Contribution
Example: A family of 3 earns $70,000/year. This is between 300–400% of the FPL, so they are subsidy-eligible.
- Expected contribution = 9.86% of income = $6,902
- Benchmark premium in their area = $20,000/year
- Subsidy = $20,000 – $6,902 = $13,098
You can use this subsidy to purchase any plan. Choose a more expensive plan and pay the difference, or a cheaper one and save more.
What Is the Subsidy Cliff?
The subsidy cliff occurs when your income exceeds 400% of the FPL — even by just $1 — and you lose all ACA subsidies.
To avoid this, make sure to manage your ACA-specific MAGI carefully.
How to Calculate ACA MAGI (Modified Adjusted Gross Income)
Your MAGI is based on IRS rules but modified for ACA purposes:
- Total Income = W-2 wages + interest + dividends + capital gains + business income + etc.
- AGI = Total Income – deductions (IRA, HSA contributions, etc.)
- ACA MAGI = AGI + non-taxable Social Security + foreign income + tax-exempt interest
Note: Receiving Social Security benefits before 65 could increase your MAGI and reduce or eliminate your ACA subsidy. Plan carefully if early-retired.
Quick Tips
- ✅ Stay under 400% FPL to avoid subsidy loss
- ✅ Use official ACA calculators for accurate subsidy estimates
- ✅ California residents may receive subsidies up to 600% FPL
- 💡 Monitor MAGI closely if receiving investment or Social Security income
