How to Stay Under the ACA Subsidy Cliff in Texas: Legal Ways to Lower Your MAGI

First, understand MAGI (it's not your gross pay)

Marketplace subsidies aren't based on your salary or your gross revenue — they're based on your Modified Adjusted Gross Income (MAGI) for the year. For most people, MAGI is your adjusted gross income plus a few add-backs (like tax-exempt interest and certain foreign income). For the majority of Texans, MAGI is very close to the AGI on your 1040.

The key insight: MAGI is after many deductions. If you're self-employed, it's based on your net profit, not the money that came in the door. That means there are legitimate levers you can pull to move your MAGI — and now that the 400% cliff is back for 2026, those levers can be worth serious money.

The cliff math: why $1 matters again

With the enhanced subsidies expired, the premium tax credit ends abruptly at 400% of the federal poverty level. Consider a healthy 45-year-old Texan whose projected MAGI is a few thousand dollars over the line:

The credit lost by crossing the line is often far larger than the extra income that pushed you over. That's the whole reason reducing MAGI can pay off — you're not avoiding tax, you're staying eligible for help.

Legal levers to lower your MAGI

These are standard, IRS-recognized ways to reduce countable income. Each also has its own rules and limits, so confirm your specifics with a tax professional:

• HSA contributions. If you have an HSA-eligible high-deductible plan, 2026 lets you contribute up to $4,400 (self-only) or $8,750 (family), plus a $1,000 catch-up if you're 55+. HSA contributions reduce your AGI.
• Retirement contributions. A SEP-IRA, Solo 401(k), or traditional IRA can move meaningful income off your MAGI. The self-employed retirement limits are generous and are one of the most powerful levers for 1099 earners.
• Legitimate business deductions. If you're self-employed, ordinary and necessary business expenses reduce net profit — and therefore MAGI. Don't invent expenses, but don't leave real ones unclaimed either.
• Timing income. Deferring a late-December invoice into January, or holding off on a Roth conversion, can keep this year's MAGI under the line.

A note on the HSA lever

Watch-outs and honest caveats

A few more honest points:

• This is a subsidy-eligibility strategy, not tax advice — a CPA or enrolled agent should confirm your numbers.
• Don't distort real business or financial decisions purely to chase a subsidy; the goal is to capture deductions you're legitimately entitled to.
• Your spouse's income counts too if you file jointly — plan around household MAGI, not just yours.

A worked example

Say you're self-employed in Texas with a projected net profit of about $65,000 — just over the single-person cliff, which would wipe out your subsidy. You:

1. Contribute $8,000 to a Solo 401(k).
2. Contribute $4,400 to an HSA (you're on an HSA-eligible plan).

That's $12,400 off your countable income, dropping your MAGI back under the 400% line — potentially restoring a premium tax credit while also building retirement and medical savings. Same income, very different outcome. The exact figures depend on your household and county, which is why it's worth modeling before open enrollment.