Quick answer
The premium tax credit lowers the cost of a marketplace plan. It equals the price of the benchmark silver plan in your area minus an “expected contribution” based on your income.
For 2026:
- You qualify only if household income is between 100% and 400% of the federal poverty level. For 2026 coverage, 400% FPL is $62,600 for one person and $128,600 for a family of four.
- Your expected contribution ranges from 2.10% to 9.96% of income.
- Earn $1 over 400% FPL and the credit drops to zero. The enhanced credits that removed this cliff expired on January 1, 2026.
- If you took advance credits and your income comes in higher than estimated, you repay the full excess. The old repayment caps no longer apply.
What changed in 2026
| Rule | 2021 to 2025 | 2026 |
|---|---|---|
| Income ceiling | None (capped at 8.5% of income) | 400% FPL |
| Maximum expected contribution | 8.5% of income | 9.96% of income |
| Lowest contribution | 0% | 2.10% |
| Repayment of excess advance credit | Capped for incomes under 400% FPL | Full repayment, no cap |
Proposals to extend the enhanced credits did not become law before 2026 coverage started. Check for any later changes before open enrollment.
How the credit is calculated
- Find your income as a percentage of FPL. Marketplaces use the prior year’s poverty guidelines. For 2026 coverage, that’s $15,650 for one person, $21,150 for two and $32,150 for four (48 contiguous states).
- Find your applicable percentage.
| Income as % of FPL | Share of income you pay (2026) |
|---|---|
| Under 133% | 2.10% |
| 133% to 150% | 3.14% to 4.19% |
| 150% to 200% | 4.19% to 6.60% |
| 200% to 250% | 6.60% to 8.44% |
| 250% to 300% | 8.44% to 9.96% |
| 300% to 400% | 9.96% |
| Above 400% | No credit |
- Subtract. Credit = benchmark silver premium minus (income × applicable percentage). You can use it on any metal tier except catastrophic.
What counts as income for freelancers
The marketplace uses modified adjusted gross income (MAGI). For most freelancers, that’s AGI plus any tax-exempt interest, non-taxable Social Security and excluded foreign income.
Your AGI already reflects:
- Net profit from Schedule C, not your gross receipts.
- Minus half of self-employment tax.
- Minus deductible contributions to a SEP IRA, Solo 401(k) or traditional IRA.
- Minus HSA contributions.
- Minus the self-employed health insurance deduction.
That gives freelancers real levers. A retirement or HSA contribution can pull income back under 400% FPL.
Worked example: the 400% cliff
Priya is 55, single and freelances. Assume her benchmark silver plan costs $1,000 a month ($12,000 a year). This premium is an illustration. Real prices depend on age and location.
| Priya’s MAGI | % of FPL | Expected contribution (9.96%) | Premium tax credit |
|---|---|---|---|
| $50,000 | 319.5% | $4,980 | $7,020 |
| $62,000 | 396.2% | $6,175 | $5,825 |
| $63,000 | 402.6% | Not eligible | $0 |
Going from $62,000 to $63,000 of MAGI costs Priya $5,825 in credits. If her MAGI is heading toward $63,000, a $2,000 Solo 401(k) or HSA contribution brings it to $61,000 and keeps a credit of about $5,924.
If Priya had received advance credits all year based on a $62,000 estimate, she would repay the entire $5,825 on her 2026 return. Before 2026, repayment for someone under 400% FPL was capped.
Estimating income when it’s irregular
The credit you get each month is based on your estimate. The final credit is settled on Form 8962 with your tax return.
- Base the estimate on expected net profit, not revenue, after business expenses and half of SE tax.
- Update the marketplace when income changes. You can report changes any time during the year.
- Take less in advance if you’re unsure. You can choose to apply only part of the credit monthly and claim the rest at tax time.
- Watch the fourth quarter. A big December invoice can push you over 400% FPL for the whole year.
- Keep your year-to-date profit current, as you do for quarterly estimated taxes.
If income falls below 100% FPL but you estimated in good faith above it, you generally keep the advance credits.
How the credit interacts with the SE health insurance deduction
The two benefits affect each other. The SE health deduction lowers MAGI, which raises the credit. A higher credit means less premium you paid yourself, which lowers the deduction.
Rules to know:
- You can deduct only premiums you actually paid, not the part covered by the credit.
- The IRS allows an iterative calculation or a simplified method to solve the loop. Details are in the instructions for Form 7206 and Publication 974. Tax software handles it automatically.
- The deduction is limited to your net profit.
See the Self-Employed Health Insurance Deduction for the basics.
Ways freelancers can manage MAGI
Legal ways to lower MAGI include:
- Retirement contributions: traditional Solo 401(k), SEP IRA or traditional IRA contributions.
- HSA contributions: up to $4,400 self-only or $8,750 family for 2026.
- Timing: if you use cash accounting, invoicing a large project in January instead of December moves income to the next year. The work and payment dates have to be real.
- Business expenses: legitimate purchases you’d make anyway, such as needed equipment.
Roth contributions and Roth conversions don’t lower MAGI. A conversion adds to it.
Frequently asked questions
What FPL figures apply to 2027 coverage?
Marketplaces use the 2026 guidelines: $15,960 for one person, so 400% is $63,840. The top applicable percentage for 2027 rises to 10.22%.
Can I get a credit if my spouse has an employer plan?
Usually not, if the employer coverage is affordable and meets minimum value. For 2026, “affordable” means the employee’s cost for self-only coverage is under 9.96% of household income.
Should I use a bronze plan with the credit?
It can make premiums very low. Bronze plans are now HSA-eligible too. Silver matters if your income qualifies for cost-sharing reductions, generally up to 250% FPL.
What if I don’t file Form 8962?
If you received advance credits and don’t reconcile them, you may lose advance credits for future years.
This article is general information, not tax or insurance advice. Consult a CPA, Enrolled Agent or licensed insurance agent for your situation. Prices and rates change often.
Related guides
- Disability Insurance for Freelancers: Is It Worth It?
- Best Life Insurance for Self-Employed Workers
- Retirement Plans for Self-Employed: SEP IRA vs Solo 401(k) vs SIMPLE IRA
- Best Solo 401(k) Providers for Freelancers
About this guide
Written by the Freelancer Tax HQ editorial team, based on our professional experience, official US government sources (IRS, SSA and other agencies) and reputable informational articles listed in the sources below. Last reviewed on . Tax rules change often, and we update this guide when they do. Read our editorial policy or report an error.
Sources
IRS Rev. Proc. 2025-25 (2026 applicable percentages); IRS: Questions and answers on the premium tax credit; Healthinsurance.org: Federal poverty level for 2026 coverage; The Finance Buff: ACA premium tax credit percentages; ASTHO: ACA enhanced premium tax credits in 2025 and 2026; IRS Publication 974. Example figures are FreelancerTaxHQ illustrations.
Official resources linked in this guide: IRS: Tax preparer credentials; IRS: About Form 7206.