Open enrollment for 2027 coverage starts November 1, and for the second year running the arithmetic behind the subsidy has teeth in it. Understanding how premium tax credits work matters more now than it did three years ago, because two features of the original law came back at the start of 2026 after a four year vacation: a hard income ceiling above which the credit is zero, and no limit on how much of the credit you can be made to repay.
The credit is not a percentage off your premium, which is how almost everyone pictures it. It is a fixed dollar amount per month, calculated once from your income and household size, and it does not change when you switch plans.
The credit is a dollar figure, not a discount
Most people picture the premium tax credit as a coupon: pick a plan, the government pays some share. That is not the mechanism.
The Marketplace calculates one number for your household, in dollars per month. That number is the gap between what the law says you should be able to afford and what a specific reference plan costs in your county. Once it is set, you can spend it on any plan on the exchange. Buy something cheaper than the reference plan and the credit covers more of the premium, sometimes all of it. Buy something more expensive and you pay the whole difference yourself.
HealthCare.gov calls the monthly version of this an advance payment of the premium tax credit. You can take all of it, some of it, or none of it. The Marketplace sends whatever you take straight to the insurance company, and you never touch the money.
How premium tax credits work starts with a plan you will probably never buy
The reference plan is the second lowest cost silver plan available to your household in your area. It is usually called the benchmark plan, and its only job is to set the credit. Most enrollees do not buy it.
Which produces an effect that catches people every January. The benchmark premium drives your subsidy, and it moves for reasons that have nothing to do with your plan. If a new insurer enters your county and undercuts the silver market, the benchmark premium drops, your credit shrinks with it, and the bronze plan you have held for three years costs you more out of pocket even though its own price never moved.
This is also why the credit and the cost sharing help are two different things. The credit follows you to any metal tier. Cost sharing reductions, which lower your deductible and copays, only attach if you buy a silver plan.
The applicable percentage table is the whole formula
The other half of the calculation is a table the IRS republishes every summer. It converts your household income, expressed as a percentage of the federal poverty line, into the share of income you are expected to contribute toward the benchmark premium.
Revenue Procedure 2026-26, issued in July 2026, sets the 2027 table. Households below 133% of the poverty line contribute 2.15% of income. From 133% to 150%, the required share slides from 3.23% to 4.3%. From 150% to 200% it runs 4.3% to 6.78%, from 200% to 250% it runs 6.78% to 8.66%, and from 250% to 300% it runs 8.66% to 10.22%. From 300% up to 400% the rate stops sliding and sits flat at 10.22%.
The poverty line itself comes from the Department of Health and Human Services, and the Marketplace always uses the prior year’s figures. So 2027 coverage is priced against the 2026 guidelines: $15,960 for a household of one in the contiguous states, $33,000 for a household of four.
Your credit is the benchmark premium minus that required contribution. If the required contribution exceeds the benchmark premium, the credit is zero, which is why higher earners in low premium counties get nothing even below the ceiling.
Above 400% of the poverty line, the subsidy does not taper. It stops.
The percentages above only go up to 400%. Past that point there is no rate, because there is no credit.
From 2021 through 2025 Congress suspended that ceiling, and households above 400% could still qualify if the benchmark premium exceeded 8.5% of their income. That suspension expired at the end of 2025. The IRS restated the standing rule in its premium tax credit guidance, updated in February 2026: eligibility generally requires household income of at least 100% and no more than 400% of the federal poverty line.
Here is what that looks like in dollars for a single 2027 enrollee. Four hundred percent of $15,960 is $63,840. Earn $63,000 and you are at 394.7% of the poverty line, inside the top bracket, so your required contribution is 10.22% of $63,000, or $6,438.60 a year, which is $536.55 a month. If the benchmark silver plan in your county runs $700 a month, your credit is $163.45 a month, or $1,961.40 for the year.
Now earn $64,000 instead. That is 401% of the poverty line. Your credit is zero.
An extra $1,000 of income costs $1,961 of subsidy, so the effective marginal rate on that last thousand dollars is about 196%, before a dollar of actual income tax. You end the year with $961 less than if you had earned less. A year end bonus, an unexpectedly good freelance December, a Roth conversion, a capital gain you did not plan: each one can carry you over a line you cannot see from inside the year.
The repayment cap is gone, which changes what your income estimate is worth
This is the part that has not made it into most explanations yet, and it is the reason the cliff bites harder in 2026 and 2027 than it did the last time it existed.
Because the advance credit is paid monthly on an estimate, you settle up at tax time. You get Form 1095-A from the Marketplace, you file Form 8962, and the IRS compares what you received with what you were actually entitled to. Under the old rules, if you received too much, a repayment cap limited how much you had to give back, scaled to income and filing status, and it applied to anyone who ended up under 400% of the poverty line.
That cap no longer exists. In its premium tax credit questions and answers, updated December 23, 2025, the IRS states it directly: there is no repayment cap for tax years after 2025, and you must repay the full amount by which your advance credit payments exceed your premium tax credit. The excess is added to your total tax liability, reducing your refund or increasing your balance due.
For the enrollee in the example above, guessing $63,000 and finishing the year at $64,000 means writing a check for the entire $1,961.40 the following April. Not a capped portion of it. All of it.
So the income figure you type into the application in November is no longer a rough starting point. It is the basis for twelve monthly payments the government makes on your behalf, all of which you are on the hook for if the estimate turns out to be low. Employer coverage never works this way, which is part of why the exposure surprises people who have only ever had a plan through a job. If you want the contrast, our explainer on how self-funded employer health plans work walks through who actually pays the claims in that arrangement, and how HSAs work covers the one Marketplace tier that pairs with a tax-advantaged account.
What the mechanism tells you to do between November 1 and January 15
Enrollment for 2027 runs from November 1 through January 15, with coverage starting January 1 if you enroll by December 15. Premiums are climbing into that window. The Congressional Budget Office estimated that ending the enhanced credits would push average gross benchmark premiums up 4.3% in 2026, 7.7% in 2027, and 7.9% on average across 2026 through 2034, as healthier enrollees leave and insurers reprice the remaining risk pool.
Three things follow from the mechanism itself. Estimate income high rather than low, because taking less advance credit than you qualify for gets refunded to you at filing, while taking more now gets clawed back in full. Watch the 400% line as a real cliff and know your household’s dollar figure, not just the percentage. And report income changes to the Marketplace during the year rather than at the end of it, since HealthCare.gov recalculates the credit from the date you report, which is the only lever that shrinks a repayment before it lands.
How premium tax credits work has not changed since 2010. What changed is that the guardrails Congress added in 2021 came off, and the formula underneath them was never designed to be gentle.