What Actually Lowers MAGI for the ACA Subsidy Cliff
The cliff is measured against modified adjusted gross income, and only some things move that number. Here is what counts and what doesn't.
Updated 17 Sept 2026
MAGI for the premium tax credit is adjusted gross income plus tax-exempt interest, untaxed Social Security benefits and excluded foreign income. Deductible traditional 401(k), traditional IRA and HSA contributions reduce it; Roth contributions, itemised deductions and the standard deduction do not.
The cliff is not measured against your salary, your taxable income, or the figure at the bottom of your pay stub. It is measured against MAGI, which is its own definition, and knowing which one it is saves a lot of wasted effort.
What MAGI means here
For the premium tax credit, MAGI is your adjusted gross income plus three things that AGI leaves out:
- tax-exempt interest, including municipal bond interest
- the untaxed portion of Social Security benefits
- foreign earned income that was excluded from AGI
Note what is not in that list: the standard deduction and itemised deductions. They reduce taxable income, which is a later line on the return. They have no effect on AGI, so they have no effect on your credit.
What reduces it
These come out before AGI is calculated, so they genuinely lower the number the cliff is measured against:
- Traditional 401(k), 403(b) or 457 contributions, made through payroll.
- Deductible traditional IRA contributions. Deductibility phases out at higher incomes when a workplace plan is available, so this one is conditional.
- HSA contributions, if you are covered by a qualifying high-deductible health plan. Note the circularity: a Marketplace plan has to be HSA-eligible for this to be available at all.
- Self-employed deductions taken above the line — the deductible half of self-employment tax, self-employed retirement plan contributions, and the self-employed health insurance deduction.
What does not
- Roth contributions of any kind. They are made with money that has already counted.
- Roth conversions move income up, not down, in the year they happen.
- Itemised deductions: mortgage interest, charitable giving, state taxes. All below AGI.
- Capital losses beyond the $3,000 annual limit against ordinary income.
Two things worth knowing before you act
The timing rules differ. A traditional IRA contribution can usually be made up until the filing deadline for that tax year, so it remains available after the year has ended. A 401(k) deferral cannot — it has to come out of payroll during the year.
Going over is settled at tax time, not at enrolment. The credit you receive during the year is an advance based on your estimate. When you file, Form 8962 compares it to your actual income. Above 400% of the poverty line there is no cap on how much of that advance you have to repay, so a household that crosses the cliff in December can owe back a full year of credits.
This is information about how the rules work, not advice about what to do. Whether any of these apply to you, and whether they are worth doing for reasons beyond this one threshold, is worth talking through with a tax professional.