Your Insurance Detective › Who is not eligible for the premium tax credit
Income is only half the testWho Is NOT Eligible for the Premium Tax Credit in 2026? The 12 Knockouts People Find Out About at Tax Time
By Dick Tracy · Published August 29, 2026
Who is not eligible for the premium tax credit? Anyone who is married and files separately, anyone claimed as someone else's dependent, anyone who could enroll in an affordable job plan (yours or your spouse's) even if they said no to it, anyone enrolled in an employer plan, COBRA, or a retiree plan, anyone eligible for Medicare, Medicaid, CHIP, TRICARE, or VA care, and anyone whose household income lands under 100% or over 400% of the federal poverty level. That is the short list. The marketplace website does not check most of it for you. The IRS does, on Form 8962, after the money has already been spent. And for 2026 coverage there is no cap on what you pay back. I educate, you decide.
I'm Dick Tracy, an independent health insurance broker in Buffalo, licensed in 25 states with 80+ carriers. I spent years on the healthcare side of this business before I became a broker, so I read the fine print for a living. This page exists because every spring I get calls from people who got a subsidy all year, filed their taxes, and found out the IRS wanted it back. Not because they cheated. Because nobody asked them these questions. So here they are.
(was up to $3,250)
job coverage in 2026
the marketplace actually uses
Affordability percentage: IRS Rev. Proc. 2025-25 via Mercer. Household income definition: IRS Form 8962 instructions.
The 12 knockouts: who cannot take the premium tax credit
The premium tax credit is the subsidy that lowers your marketplace premium. The marketplace pays it to your insurer in advance based on what you tell it. Then the IRS checks. Any one of these makes the credit zero for the person it applies to, no matter what the income number says.
Married, filing separately
Married couples have to file a joint return to claim the credit. File separately and the credit is zero, and any advance subsidy already paid during the year gets repaid in full. One exception: a spouse who is a victim of domestic abuse or spousal abandonment, living apart, who checks the box on Form 8962. That exception runs three consecutive years, max.
Detective note: the marketplace application asks your filing status once. If you change your mind in April to save on something else, the subsidy comes back with it.
Claimed as someone else's dependent
If a parent or anyone else claims you on their return, you cannot take the credit for yourself. Their household income is the one that counts, and you are part of their household size. The 24-year-old who "got their own plan" while still on Mom's return is the classic version of this.
Offered affordable job coverage, yours or your spouse's, even if you turned it down
If an employer offers you coverage that the IRS calls affordable and minimum value, you are out. Not "if you enrolled." If it was offered. For 2026, affordable means your share of the cheapest self-only plan is 9.96% of household income or less. Minimum value means the plan pays at least 60% of covered costs. This applies to a spouse's employer too.
Run it in 30 seconds: my employer coverage affordability calculator does the 9.96% math for you and your family. The one break: since 2023, the spouse and kids are tested separately on what FAMILY coverage costs. If the employee's own premium is affordable but adding the family is not, the family can qualify while the employee cannot. Cash the employer pays you for waiving coverage, if it comes with no strings, gets added to your cost when the IRS tests affordability.
Enrolled in an employer plan, COBRA, or a retiree plan
Enrolled beats everything. If someone in the household is signed up for a job plan, they are ineligible every month they are enrolled, even if that plan is unaffordable by the IRS test. COBRA and retiree coverage are different: being offered them does not knock you out. Only signing up does. So you can decline COBRA and take the marketplace with a subsidy, but you cannot do both.
Detective note: if you're weighing COBRA in New York, read Is COBRA worth it in New York? first. The 60-day election window lets you price everything with no gap.
Eligible for Medicare, Medicaid, CHIP, TRICARE, or VA care
Eligible, not enrolled. If you qualify for premium-free Medicare Part A, you're out, whether you signed up or not. Same for Medicaid, CHIP, TRICARE, and most VA care. In New York, Medicaid reaches 138% of the poverty level and the Essential Plan covers up to 200% (it was 250% until July 1, 2026), so lower-income New Yorkers get routed to those programs instead of a subsidized marketplace plan. One protection: if you gave the marketplace accurate information and it decided you were not Medicaid-eligible, you keep the credit for that coverage period even if Medicaid would have taken you.
Turning 65 this year
This is the one that gets retirees. The credit ends the month you become eligible for premium-free Part A. The marketplace does not turn it off for you, and your insurer keeps cashing the advance payments. Every month past your eligibility date gets repaid on Form 8962. Call the marketplace the month before your birthday, enroll in Medicare in your initial window, and price a supplement (I do those) if you want one.
Household income under 100% of the poverty level
Below 100% of the federal poverty level ($15,650 for one person, $32,150 for a family of four, for 2026 coverage) the credit is not available. In New York and the other states that expanded Medicaid, that is not a gap, because Medicaid picks you up. In states that did not expand (Florida, Texas, Georgia, and others where I'm licensed), it is a real hole: too little income for the marketplace, too much for that state's Medicaid.
Household income over 400% of the poverty level (the cliff)
Over the line by a dollar and the credit is zero for the whole year. For 2026 coverage that is roughly $62,600 for one person, $84,600 for a couple, $106,600 for three, and $128,600 for four. The full explanation and the household-by-household lines are on the 2026 subsidy cliff page, and my free calculator tells you which side you're on in 60 seconds.
Immigration status
Two changes for 2026. DACA recipients lost marketplace eligibility entirely as of August 25, 2025. And lawfully present immigrants with income under 100% of the poverty level, who used to get the credit during the five-year Medicaid waiting period, lost that special rule on January 1, 2026. Anyone not lawfully present has never been able to claim the credit for their own coverage, but a citizen spouse or citizen kids in the same household still can.
Did not reconcile a prior year (no Form 8962)
Take an advance subsidy, then skip Form 8962 at tax time, and the marketplace can cut off future advance credits until you fix it. Right now the rule bites after two years in a row; the one-year version for 2026 is tied up in court. Starting with the 2028 plan year, federal law makes it a permanent one-strike rule. If you got a letter about "failure to reconcile," file the missing form before open enrollment.
Bought outside the marketplace, or a catastrophic plan
The credit only exists inside the marketplace. Private plans bought directly from a carrier, off-exchange plans, and pre-established ERISA group plans do not come with a subsidy. Neither do catastrophic plans, even when bought on the exchange. That is not a bad thing for people over the cliff, since those doors are not income-tested and can be cheaper than an unsubsidized marketplace plan. It just means you cannot have both.
An employer that gives you money to buy your own plan
Some employers, instead of offering a group plan, reimburse you for an individual plan you buy yourself. If that reimbursement is big enough to make coverage "affordable" under the same 9.96% test, it counts as an employer offer and knocks you out of the credit. If you take the reimbursement, you are out regardless. Rare, but it surprises people.
The income traps: things that quietly move your number
The other way people end up repaying is simpler: the income they told the marketplace was not the income the IRS saw. Here is what counts, what does not, and where the self-employed get burned.
Counts toward household income
- Wages and tips, as they land on your W-2 (after 401(k) and pre-tax premiums come out)
- Self-employment net profit (Schedule C, after deductions)
- Taxable interest, dividends, capital gains, including a home sale above the exclusion
- Traditional IRA and 401(k) withdrawals, pensions, Roth conversions
- Rental profit, unemployment, alimony from pre-2019 agreements
- The untaxed part of Social Security (added back)
- Tax-exempt municipal bond interest (added back)
- Foreign earned income you excluded (added back)
- A dependent's income, if they earn enough to be required to file
Does not count
- Gifts and inheritances
- Child support received
- Supplemental Security Income (SSI)
- Workers' compensation
- VA disability payments
- Roth IRA withdrawals (qualified)
- Life insurance proceeds
- Pre-tax payroll deductions (401(k), HSA, FSA, employer premiums)
- Alimony from agreements dated 2019 or later
Self-employed? Use line 11, not your draw
This is the single most common mistake I see, so it gets its own section. When the marketplace asks a sole proprietor or single-member LLC owner for income, most people type in what they pay themselves. That is not income to the IRS. The number the marketplace reconciles against is modified adjusted gross income, which starts at line 11 of Form 1040. For your business that means:
| Start with | Then subtract | Then add |
|---|---|---|
| Schedule C net profit: gross receipts minus every business deduction (mileage, home office, equipment, software, supplies, contractor payments) | Half of your self-employment tax SEP-IRA or Solo 401(k) contributions The self-employed health insurance deduction (the premium you actually paid after the credit) |
Any other household income: a spouse's W-2, interest, dividends, capital gains, the untaxed part of Social Security, a working dependent's income if they must file |
Notice what is not on that list: your owner's draw, your gross receipts, and what landed in your checking account. If you paid yourself $60,000 but the business netted $95,000, the marketplace wants $95,000. The reverse also happens: a business that grossed $150,000 with $90,000 in real deductions has $60,000 of countable income, and a lot of owners never get the subsidy they qualify for because they entered the gross. My MAGI calculator for the self-employed does this arithmetic for you. Run the actual numbers with your tax professional, then bring me the result. One more wrinkle for the self-employed: the health insurance deduction and the credit depend on each other, so tax software runs a circular calculation the IRS laid out in Revenue Procedure 2014-41. Let the software do it; just get the inputs right.
2025 vs. 2026: what changed
| 2025 coverage | 2026 coverage | |
|---|---|---|
| Subsidy above 400% FPL | Yes, premiums capped at 8.5% of income | None. The cliff is back. |
| Repayment cap if income came in high | $375 to $3,250 depending on income (under 400% FPL) | No cap. Repay every excess dollar. |
| "Affordable" employer coverage | Employee share at or under 9.02% of household income | At or under 9.96% |
| Lawfully present immigrants under 100% FPL | Eligible for the credit | Not eligible |
| DACA recipients | Eligible until August 25, 2025 | Not eligible |
| $0-premium auto-renewals | Renewed automatically | Billed at least $5/month until you confirm eligibility; no auto-renewal with a subsidy at all for 2027 |
| NY Essential Plan income limit | 250% FPL | 200% FPL as of July 1, 2026 |
What to do if the marketplace says your household is not eligible
That notice almost never tells you which rule you tripped. Go down the 12 above in order. Nine times out of ten it is one of three things: an employer offer somebody in the house forgot to mention, income over the line for your household size, or a filing-status answer. If it is the employer offer, get the actual employee-only premium for the cheapest plan and do the 9.96% math yourself; the marketplace sometimes gets this wrong in both directions. If it is income, re-run the line 11 number, not the pay-stub number. And if the answer is "you're really not eligible," that is not the end of the conversation. It just means the marketplace is not where your price advantage lives. In New York, healthy people and families can merge into pre-established ERISA group plans at group rates. Elsewhere, private plans priced on you instead of your zip code often beat full-price marketplace. I show all of it side by side, no hard sell.
Common questions about premium tax credit eligibility
Who is not eligible for the premium tax credit?
You cannot claim the premium tax credit if you are married and file separately (outside a narrow abuse or abandonment exception), if someone else claims you as a dependent, if you or your spouse are offered affordable minimum-value coverage through a job (even if you declined it), if you are enrolled in any employer plan, COBRA, or retiree plan, if you are eligible for Medicare, Medicaid, CHIP, TRICARE, or VA care, if your household income is under 100% or over 400% of the federal poverty level, if you are not lawfully present or are a DACA recipient, if you failed to reconcile a prior year's subsidy on Form 8962, or if you bought a plan outside the marketplace or a catastrophic plan.
What does "household not eligible for a premium tax credit" mean?
It means the marketplace ran your application against the IRS rules and found a knockout. The most common causes: household income above 400% of the poverty level for your household size, income below 100% in a state that expanded Medicaid (you get routed to Medicaid instead), an employer plan someone in the household could enroll in that the IRS considers affordable, a spouse who files separately, or a dependent listed who is claimed by someone else. The notice usually does not say which one. Re-check each rule on this page, then call the marketplace or a broker.
Can you get the premium tax credit if married filing separately?
No, with one exception. Married couples must file a joint return to claim the credit. File separately and the credit is zero and any advance subsidy paid to your insurer during the year must be repaid in full on Form 8962. The exception is a spouse who is a victim of domestic abuse or spousal abandonment, is living apart, and checks the certification box on Form 8962. It can be used for at most three consecutive years.
Do you have to pay back the Obamacare subsidy in 2026?
Yes, if your actual income ends up higher than what you told the marketplace, and for 2026 coverage there is no cap on the repayment. From 2014 through 2025 the clawback was limited to between $375 and $3,250 for households under 400% of the poverty level. Public Law 119-21 removed those caps starting with the 2026 plan year. Whatever advance credit you were not entitled to, you repay all of it on the return you file in 2027. Going over 400% by even a dollar means repaying the entire year.
What income counts for the ACA subsidy?
Modified adjusted gross income for the coverage year: line 11 of Form 1040, plus tax-exempt interest, the untaxed part of Social Security, and excluded foreign earned income. That includes wages, self-employment net profit, interest, dividends, capital gains, pension and traditional IRA or 401(k) withdrawals, Roth conversions, rental profit, unemployment, and pre-2019 alimony, for you, your spouse, and any dependent who earns enough to be required to file. It does not include gifts, inheritances, child support, SSI, workers' comp, VA disability, Roth withdrawals, or pre-tax payroll deductions.
What income does a self-employed person use for the marketplace subsidy?
Net profit, not what you pay yourself. Schedule C net profit, less half of self-employment tax, less SEP-IRA or Solo 401(k) contributions, less the self-employed health insurance deduction. That is what flows to line 11. Not your owner's draw, your gross receipts, or what landed in your checking account. Entering the draw is the most common self-employed subsidy mistake, and for 2026 it lands as an uncapped repayment at tax time.
Can I refuse my employer's health insurance and get a marketplace subsidy?
Usually not. If your employer or your spouse's offers coverage that is affordable and minimum value, everyone who could enroll in it is ineligible whether they signed up or not. For 2026, affordable means the employee's share of the cheapest self-only plan is 9.96% of household income or less. Since 2023 the spouse and children are tested separately against the cost of family coverage, so they can qualify when the employee cannot. If the offer is unaffordable and you enroll anyway, you are still ineligible for the months you are enrolled.
Can I keep a marketplace subsidy when I turn 65?
No. The credit ends the month you become eligible for premium-free Medicare Part A, whether or not you enrolled in Medicare. The marketplace does not turn it off for you. If the advance credit keeps paying your insurer after that month, you repay it on Form 8962. Contact the marketplace the month before your 65th birthday, enroll in Medicare during your initial enrollment period, and price a supplement if you want one.
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