COBRA vs ACA at $75K MAGI: Family of 4 Premium Math

You are the primary earner of a family of four (you, spouse, two children under 18), just laid off. Your projected 2026 MAGI is $75,000 — including severance, your pre-layoff wages, your spouse's part-time income, and unemployment benefits. The COBRA quote for family coverage: $2,040/month. The ACA Marketplace alternative at this income level: approximately $406/month for a Silver plan, under the IRC §36B premium tax credit. Savings: $1,634/month, or $19,608/year. At $75K family MAGI, the math overwhelmingly favors the Marketplace — but only if your year-end MAGI stays below the $124,800 cliff for a family of four.

The quick answer: At $75K MAGI for a family of 4, you are at ~240% of FPL ($124,800 = 400% threshold). The ACA PTC caps your Silver plan premium at ~6.5% of MAGI = $406/month. COBRA at $2,040 family is far more expensive.

The family-of-four FPL math

For 2026, the Federal Poverty Level for a household of four is approximately $31,200. 400% FPL is approximately $124,800. The PTC cap structure under IRC §36B:

The benchmark family Silver plan math

At $75K family MAGI, the PTC cap is approximately 6.5% × $75,000 = $4,875/year = $406/month for the benchmark Silver plan.

The PTC is calculated against the cost of the benchmark Silver plan in your geographic area (second-lowest-cost Silver). For a family of four with two adults age 35-45 and two kids:

• Unsubsidized benchmark Silver plan: typically $1,800-$2,400/month
• PTC subsidy at $75K MAGI: $1,800 − $406 = $1,394/month subsidy (or higher if benchmark costs $2,400)
• Your actual premium for benchmark Silver: $406/month
• If you choose Bronze plan at $1,300/month full price, your premium = $1,300 − $1,394 = $0 (Bronze plans often have $0 net premium for families in this MAGI range — but watch the deductible)
• If you choose Gold plan at $2,800/month, your premium = $2,800 − $1,394 = $1,406/month

What counts in family MAGI

Under IRC §36B(d)(2)(B), household MAGI is the sum of all tax-household members' MAGI. For a typical laid-off-primary-earner family:

• Primary earner's pre-layoff W-2 wages + severance + unemployment
• Spouse's W-2 wages (if working)
• Investment income (interest, dividends, capital gains)
• Rental income (Schedule E net)
• 401(k) traditional distributions or Roth conversions
• Spouse's 401(k) distributions if applicable
• Tax-exempt municipal bond interest (specifically added back)
• Foreign earned income exclusion (specifically added back)

NOT counted in MAGI:

• Roth IRA basis withdrawals
• HSA distributions for qualified medical expenses
• Life insurance proceeds
• Inheritances and gifts
• Children's W-2 income (if minor with no required filing)

Worked example: Denver family of 4, primary earner laid off

A 42-year-old engineering project manager in Denver, married filing jointly, two kids ages 8 and 11. Spouse works part-time earning $24,000/year. Primary earner laid off March 1, 2026.

• Primary earner Q1 wages (Jan-Feb): $20,000
• Severance (lump sum, March): $25,000
• Unemployment (April-September, 6 months × $2,300): $13,800
• Spouse 2026 wages: $24,000
• Joint bank interest: $400
• Children's income: $0
• Anticipated freelance work (Q4): $5,000
• Total projected family MAGI: $88,200

At $88,200 (~283% FPL for family of 4), the PTC cap is approximately 7.5% × $88,200 = $6,615/year = $551/month. If benchmark Silver in Denver costs $2,000/month, subsidy = $1,449/month. Family pays $551/month.

COBRA quote at this Denver tech employer: $2,160/month family. Annual: $25,920. Annual Marketplace cost: $6,612. Marketplace saves $19,308 over 12 months.

The cliff at $124,800: what to avoid

For families of four, the cliff is at $124,800. Common ways to inadvertently cross at the $75-95K MAGI range:

1. 401(k) traditional distribution

A $35K 401(k) distribution to bridge expenses or pay off debt adds $35K to MAGI. At $75K base + $35K distribution = $110K — still below cliff. But at $85K base + $35K = $120K — within striking distance. At $95K base + $35K = $130K — past the cliff. Annual cost: ~$19,600 of forfeited PTC.

2. Roth conversion

Roth conversions add to MAGI. A $25K conversion at $85K base = $110K — fine. At $100K base + $25K conversion = $125K — just past cliff. Annual cost: ~$19,600.

3. Spouse hours increase

If the spouse picks up full-time hours to compensate for the lost primary income, the spouse's income can move from $24K to $48K — pushing family MAGI from $88K to $112K. Still below cliff, but watch closely if MAGI is borderline.

4. Capital gains realization

Selling appreciated stock (even at 0% LTCG bracket federally) adds gains to MAGI. A $30K gain at $90K base = $120K — within striking distance.

5. New job started mid-year at higher pay

If the primary earner finds a new $150K role in September 2026, the new salary brings ~$45K of partial-year income (Sep-Dec). Combined with $75K already-earned: $120K. Close to cliff. Update Marketplace projection within 30 days of new employment.

The reconciliation math on Form 8962

APTC received during the year is reconciled at tax time:

• Actual MAGI lower than projected (below 400% FPL): Additional PTC paid at tax filing
• Actual higher but still below 400% FPL: Repayment capped under IRC §36B(f)(2)(B): family income up to 200% FPL caps repayment at $1,350; 200-300% FPL caps at $3,450; 300-400% FPL caps at $5,650 (2026)
• Actual above 400% FPL: UNCAPPED repayment of entire APTC received

For a family of four with $75K projected, $130K actual MAGI: the entire ~$19,600 of APTC received during the year is owed back at tax filing. This is the cliff repayment trap that catches families whose income trajectory accelerated unexpectedly.

The spouse-coverage alternative — often the best option

Before deciding between COBRA and ACA Marketplace, check whether your spouse has employer-sponsored coverage available. The spouse's employer plan during your layoff is a qualifying event for Special Enrollment under federal HIPAA rules.

Typical spouse-plan economics:

• Spouse's employee-only premium (typically already paid via paycheck): $0 additional
• Adding family to spouse's plan: typically $400-$800/month additional payroll deduction
• No PTC subsidy needed — coverage is at group-employer rate

For the Denver family above, if the spouse's employer offers family coverage at $600/month additional payroll deduction (vs $551/month subsidized Marketplace), the spouse plan is roughly equivalent on premium but:

• No MAGI sensitivity — coverage is independent of income
• No cliff repayment risk
• Family stays on a single plan
• Pretax payroll deduction (lowers spouse's federal tax)

Always check the spouse-plan option first. It's often the cleanest answer when the spouse has access.

The COBRA-then-Marketplace strategy for borderline cases

For families whose projected MAGI is between 350-400% FPL ($109,200-$124,800 for family of 4), the cliff risk is real. A two-step strategy:

1. Elect COBRA for months 1-3 of the layoff. Pay the $6,120 ($2,040 × 3) cost.
2. By month 3, monitor income trajectory: new job started? Severance fully paid? Freelance income materializing?
3. If MAGI projection is confidently below cliff: drop COBRA, trigger SEP, enroll in Marketplace
4. If MAGI projection is near or above cliff: continue COBRA through the full 18 months or until Medicare/new-employer coverage

The $6,120 of COBRA premium in months 1-3 is insurance against the cliff repayment trap that could cost $19,600+ at tax time. For income-uncertain families, this is often the right move.

The state-by-state family Marketplace premium variation

Family Marketplace premiums vary by state, geography, and family ages. For a family of four with two adults age 40 and two kids:

• Texas (Dallas): Benchmark Silver ~$1,650/month family; PTC cap $406 = subsidy $1,244; net $406
• California (LA): Benchmark Silver ~$1,920/month; PTC cap $406 = subsidy $1,514; net $406
• Florida (Tampa): Benchmark Silver ~$1,780/month; PTC cap $406 = subsidy $1,374; net $406
• New York (Westchester): Benchmark Silver ~$2,180/month; PTC cap $406 = subsidy $1,774; net $406
• Pennsylvania (Pittsburgh): Benchmark Silver ~$1,620/month; PTC cap $406 = subsidy $1,214; net $406

The PTC equalizes net premium across states (capped at % of MAGI). Unsubsidized cost varies dramatically — which is why crossing the 400% FPL cliff hurts so much more in high-cost states.

Worked example: NYC family, severance and the cliff

A 45-year-old NYC marketing director, married filing jointly, two kids ages 14 and 16. Spouse is a freelance designer earning $40,000/year (1099 income). Primary earner laid off in April 2026.

• Primary earner Q1 wages: $35,000
• Severance (8 months salary continuation): $80,000
• Unemployment (12 months × $2,400 NYC max): $28,800
• Spouse self-employment income: $40,000
• Investment income: $3,000
• Projected MAGI: $186,800 — well above $124,800 cliff

For this NYC family, MAGI exceeds the 400% FPL cliff by $62,000. They receive NO premium tax credit. Marketplace Silver family plan unsubsidized: ~$2,180/month. COBRA family: ~$2,200/month. Roughly equivalent cost.

For this family, COBRA is the right call:

• Network continuity (existing pediatrician for the 14-year-old, established specialist relationships)
• Deductible carryover (if they've already met part of the family deductible in Q1)
• No clawback risk (Marketplace would have no subsidy to claw back, but eliminating PTC mid-year if MAGI projection changes is also not relevant here)
• Bridge to new employment within COBRA's 18-month window

Could they get under the cliff?

For this NYC family to qualify for PTC, they'd need to cut MAGI by $62K — likely impossible given the severance + spouse income are largely fixed. The only lever: shift severance into 2027 calendar year if structured as continuation. But $80K of severance shifted entirely doesn't cut MAGI enough — it would still be $106K, above 340% FPL but below the cliff. They could qualify at $106K for some subsidy.

If they could negotiate the severance structure (e.g., $40K in 2026 and $40K in 2027 paid over 18 months bridging into 2027), 2026 MAGI drops to $146,800 — still above cliff. 2027 MAGI of $40K severance + $40K spouse + new wages would depend on when the new job starts.

The cliff is hard to engineer around at higher household income levels. NYC families above $150K MAGI typically have to accept COBRA or unsubsidized Marketplace as the practical reality.

The decision matrix for family of 4 at $75K MAGI

Recommended action for family of 4 at $75K MAGI

1. Check spouse's employer coverage first. The qualifying event SEP allows adding family to spouse's plan within 30 days. Often the cheapest option.
2. If no spouse coverage, project full-year family MAGI. Include severance, both spouses' income, unemployment, anticipated freelance, planned 401(k) distributions.
3. If MAGI is confidently below 350% FPL ($109,200): Enroll in Marketplace Silver immediately. Save $19,000+/year vs COBRA.
4. If MAGI is between 350-400% FPL: Either decline APTC (pay full premium during year, claim at tax filing) or take COBRA for first 3-4 months while income clarifies.
5. If MAGI is at or above 400% FPL: COBRA is generally the right call. Marketplace unsubsidized costs roughly the same and offers less network access.
6. Verify the Marketplace plan covers your kids' pediatrician and any specialists. Family network access is often the deciding factor when costs are similar.
7. Update MAGI projection within 30 days of any material income change. Mid-year updates prevent the year-end reconciliation surprise.

Key takeaways

• At $75K family-of-4 MAGI (~240% FPL), the IRC §36B premium tax credit caps Marketplace Silver premium at approximately 6.5% of MAGI: $406/month.
• COBRA family coverage at typical $2,040/month costs $19,608/year more than subsidized Marketplace at this income level.
• The 400% FPL cliff for family of 4 is $124,800 — crossing it forfeits the entire premium tax credit.
• Family MAGI includes both spouses' income, severance, unemployment, 401(k) distributions, Roth conversions, and investment income.
• Form 8962 reconciliation can claw back the entire APTC (uncapped) if year-end MAGI crosses the cliff.
• Always check spouse's employer coverage first — often the cheapest option with no MAGI sensitivity.
• For families with MAGI projections near the cliff (350-400% FPL), COBRA-first-then-Marketplace can hedge against the clawback trap.
• Network continuity for established pediatrician, specialist, and prescription relationships is often the deciding factor when premium costs are similar.