A family of three in Texas: the 2027 tax credit and CHIP

Carlos Morales is 38 and works for himself as an HVAC technician, fixing air conditioners through the Texas summer and furnaces in the winter. His wife, Jessica, is 37 and works the front desk at a small veterinary clinic in Garland, northeast of Dallas, where they rent a house with their son, Noah, who is 9. The clinic offers no health insurance and no retirement plan. Carlos’s one-man business has neither.

For 2027 they want coverage through HealthCare.gov from January 1. Between Carlos’s business and Jessica’s paycheck, they expect about $55,000 for the year.

Can a family of three with $55,000 in Texas get a tax credit on a 2027 marketplace plan? Yes. At about 201% of the poverty guideline, the parents are expected to pay about 6.83% of their income, about $313 a month, toward the benchmark Silver plan, and the credit covers the rest. Their son is checked for CHIP first, and qualifies.

Carlos, Jessica and Noah are fictional. The rules in their story come from HealthCare.gov, CMS and the IRS.

How the credit, cost-sharing reductions and CHIP work, in brief

Open enrollment for 2027 coverage runs November 1, 2026 to January 15, 2027. Texans enroll through HealthCare.gov: pick a plan by December 15, 2026 for coverage from January 1, or by January 15, 2027 for coverage from February 1. In short:

• The tax credit. For household incomes from 100% to 400% of the poverty guideline, for people buying through the marketplace who can’t get other qualifying coverage, such as Medicaid, CHIP or affordable job-based coverage.
• How it’s figured. You’re expected to pay a set share of household income, the “applicable percentage”, toward the benchmark plan: the second-lowest-cost Silver plan where you live, for the people enrolling. The credit covers the rest of the benchmark’s premium. Choose the benchmark itself and your premium after the credit is your expected contribution; a pricier plan costs more, a cheaper one less. The credit can be used on any metal level.
• Cost-sharing reductions. Only with a Silver plan. Standard Silver has a 70% actuarial value. With income from 100% to 150% of the guideline, it rises to 94%; over 150% to 200%, to 87%; over 200% to 250%, to 73%, the smallest step. Above 250%, there are none. Higher actuarial value means the plan pays a bigger share of covered costs, through lower deductibles and copays.
• Children. The application checks children for Medicaid and CHIP first, and children’s income limits are higher than adults’. A child who qualifies can’t get the premium tax credit. You can apply for Medicaid and CHIP any time of year.
• Texas. Texas didn’t expand Medicaid, and its limit for parents is very low. Adults under 100% of the guideline are in the “coverage gap”: Medicaid doesn’t cover most of them, and their income is below the range for marketplace savings.
• Settling up. The credit is settled at tax time on the whole year’s income. If income comes in higher than the estimate, the extra advance credit goes back: “There is no repayment cap for tax years after 2025,” the IRS says. If it comes in lower, you may get more back.

The larger tax credits of 2021 to 2025, a temporary expansion, ended after 2025, so figures worked out under those rules don’t apply to 2027 coverage.

The Morales family’s story

Sunday night at the kitchen table

Open enrollment opens on Sunday, November 1. That night, after Noah is asleep, Jessica sits at the kitchen table with a laptop, Carlos’s invoice book and her pay stubs.

HealthCare.gov asks self-employed people to “include the income you expect to make from your business after expenses.” After parts, fuel, tools, the van and his liability insurance, Carlos has netted close to $33,000 two years running, and they expect about the same in 2027. Jessica expects about $22,000 in wages. Wage earners can subtract what an employer takes out of their pay for child care, health coverage and retirement plans, but the clinic takes out nothing of the kind.

$33,000 plus $22,000 is $55,000.

Three in the household, two on the plan

Their household is three people. A dependent’s income counts only if the dependent has to file a tax return, and Noah doesn’t. Against the poverty guideline for three, $27,320, their $55,000 is about 201%.

The application checks Noah for Medicaid and CHIP first. If he qualifies for CHIP, he can’t get the tax credit and will be covered through CHIP instead of his parents’ plan. He still counts in the household of three, but the benchmark plan, and the expected contribution toward it, are then for the people enrolling: Carlos and Jessica.

Neither parent has an offer of job-based coverage, so the affordability test for employer plans doesn’t come into it.

$360 over a line

At about 201%, their applicable percentage sits at the bottom of the 200% to 250% band: about 6.83%. Their expected contribution is about $3,756 a year, or about $313 a month, toward the benchmark plan for the two of them.

The cost-sharing reductions are where the line bites. Over 200% to 250%, a Silver plan’s actuarial value is 73%: the smallest step, a little above standard Silver’s 70%. The 200% line for three people is $54,640. Their estimate is $360 over it. Under it, the step would be 87%.

A deduction the application allows

Their estimate has to be an honest best guess, not a number shaded to fit a line. But HealthCare.gov lets applicants subtract certain deductions, including “IRA contributions (if you don’t have a retirement account through a job)” and Health Savings Account contributions. Child care paid out of pocket, medical expenses, mortgage interest and charity aren’t on the list.

Neither Carlos nor Jessica has a retirement account through a job. The IRS notes that “Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work.” On Tuesday, Carlos calls the tax preparer who does his business return each spring. For their situation, she tells him, a $500 traditional IRA contribution for 2027 would be deductible.

$55,000 minus $500 is $54,500, about 199.5% of the guideline and $140 under the 200% line. Their Silver plan’s actuarial value would be 87% instead of 73%. Their applicable percentage, near the top of the 150% to 200% band, would be about 6.75%, for an expected contribution of about $307 a month. What they pay toward the benchmark barely moves. The plan itself changes.

They decide to do it. Jessica opens a traditional IRA at their credit union, with monthly transfers from January that total $500 for 2027.

Comparing plans

With cost-sharing reductions at 87%, Silver is the clear choice for them, and they look only at Silver plans. At 73%, they would have compared Gold too. Texas has Silver plans on HealthCare.gov priced with a 1.40 cost-sharing reduction factor from 2026 plans, under a state rule, and in 2026, 41.3% of Texans who picked a marketplace plan chose Gold.

After the credit, the benchmark would cost them about $307 a month, a pricier Silver plan more, a cheaper one less. They check which plans include Jessica’s doctor and cover Carlos’s blood pressure prescription.

Texas insurers asked for 2027 rate changes from 1.30% to 33.96%, depending on the insurer. Because the expected contribution is set by income, when the benchmark’s premium goes up, the credit goes up with it, for the same income and household.

Applying in December

On Saturday, December 5, they fill in the application with an estimate of $54,500: Carlos’s $33,000 and Jessica’s $22,000, less the $500 IRA contribution.

The application checks Noah for Medicaid and CHIP first, and he qualifies for CHIP. Carlos and Jessica qualify for the credit and for cost-sharing reductions at 87%. They take the credit in advance, which lowers what they pay each month, and pick a Silver plan that afternoon, 10 days ahead of the December 15 deadline for coverage from January 1.

The year ahead

Their coverage starts on Friday, January 1, 2027, and so do the IRA transfers. Jessica keeps a running total of Carlos’s net in the back of the invoice book. With $140 of room under the 200% line, a busy July could close the gap. Enrollees must report changes in income within 30 days. At tax time in 2028, the credit is settled on their actual income for 2027.

The numbers

Step by step, with the poverty guidelines used for 2027 coverage. The household is 3 people. The benchmark plan is for the 2 enrolling, Carlos and Jessica, because Noah qualifies for CHIP.

Their first estimate: $55,000

Step 1. Income: Carlos’s $33,000 net business income plus Jessica’s $22,000 in wages is $55,000.

Step 2. Poverty guideline for 3 people: $27,320. $55,000 divided by $27,320 is 2.013, or about 201%.

Step 3. Applicable percentage. From 200% to 250%, it rises on a sliding scale from 6.78% to 8.66%. At 201%, just past the start of the band, it is about 6.83%.

Step 4. Expected contribution: $55,000 times 6.83% is about $3,756 a year. Divided by 12, that’s about $313 a month.

Step 5. Cost-sharing reductions: over 200% to 250%, a Silver plan with 73% actuarial value, the smallest step. $55,000 minus the 200% line of $54,640 is $360.

With a $500 traditional IRA contribution: $54,500

Step 1. Income: $55,000 minus $500 is $54,500, if the contribution is made and is deductible.

Step 2. $54,500 divided by $27,320 is 1.995, or about 199.5%.

Step 3. Applicable percentage. From 150% to 200%, it rises from 4.3% to 6.78%. At 199.5%, almost at the top of the band, it is about 6.75%.

Step 4. Expected contribution: $54,500 times 6.75% is about $3,679 a year. Divided by 12, that’s about $307 a month.

Step 5. Cost-sharing reductions: over 150% to 200%, a Silver plan with 87% actuarial value. $54,640 minus $54,500 is $140.

Step 6. The difference: $3,756 minus $3,679 is $77 a year, about $6 a month. The larger change is the step from 73% to 87%.

The lines for three

For 3 people and 2027 coverage:

• 100%: $27,320. The tax credit starts here. Below it, Texas adults are in the coverage gap.
• 150%: $40,980. The top of the 94% step.
• 200%: $54,640. The top of the 87% step.
• 250%: $68,300. The top of the 73% step. No cost-sharing reductions above it.
• 400%: $109,280. No tax credit above it.

2027 plan prices weren’t published when this example was written, and premiums depend on age, ZIP code, plan and insurer, so it gives no dollar figure for a premium or for the credit.

What could go wrong

Counting a contribution that never happens. The $500 lowers their income only if Jessica makes the contribution and it’s deductible. If the transfers stop, their income comes in at about $55,000, their credit for the year is figured at about 201%, and the extra advance credit goes back at tax time, every dollar of it, with no repayment cap. If that changes, they report it within 30 days.

A busy summer. $140 isn’t much room. A few more air-conditioner replacements in a hot July could push Carlos’s net past it. The answer is the same: update the estimate within 30 days rather than wait for tax season.

Lowering income too far. In Texas, lower isn’t always better. Under 100% of the guideline, $27,320 for three people, adults are in the coverage gap. In a state that didn’t expand Medicaid, the bottom line matters as much as the top.

Questions to work through

How close are you to a line? For three people, the 2027 lines are $40,980 (150%), $54,640 (200%) and $68,300 (250%). Near one of them, a few hundred dollars can move your Silver plan to a different cost-sharing step.

Does either of you have a retirement plan at work? If not, HealthCare.gov lets you subtract IRA contributions. If so, the IRS says the deduction may be limited. Either way, a tax professional can confirm what’s deductible for you, and a contribution counts only if you make it.

Have your children been checked for Medicaid and CHIP? The application does it first. A child who qualifies can’t get the tax credit, but still counts in your household.

Which cost-sharing step are you on? At 94% or 87%, your Silver plan pays a much bigger share of covered costs than standard Silver’s 70%. At 73%, the smallest step, or with none, compare Gold with Silver too, especially in Texas. A licensed broker can work through these numbers with you.

The short version

Carlos and Jessica Morales of Garland expect about $55,000 for 2027, about 201% of the poverty guideline for three. Noah qualifies for CHIP, so the credit is figured for his parents: about $313 a month toward the benchmark Silver plan, with cost-sharing reductions at 73%. A $500 traditional IRA contribution, which their tax preparer confirms is deductible for them, brings their estimate to $54,500, about 199.5%: about $307 a month, and a Silver plan at 87%. It holds only if they make the contribution, so they’ll report any change within 30 days.

This is a summary of how the rules work, not legal or tax advice. HealthCare.gov, your plan’s documents and your own tax situation have the final word.