Enhanced PTC Expiration: What Pastors Must Know About Health Insurance in 2026

The Enhanced Premium Tax Credits that made ACA marketplace plans affordable for millions expired on December 31, 2025, triggering average premium increases of 114% for subsidized enrollees. However, pastors have a significant but often overlooked advantage: clergy housing allowance is completely excluded from MAGI for ACA subsidy calculations, potentially keeping many pastors eligible for substantial credits even under the reverted rules.

This creates a critical planning opportunity. While a pastor earning $70,000 in total compensation might appear ineligible for subsidies, the housing allowance exclusion can reduce their ACA-countable income to levels that qualify for significant assistance—a benefit that most insurance brokers unfamiliar with clergy tax rules frequently miss.

What expired and why it matters

The American Rescue Plan Act (2021) and Inflation Reduction Act (2022) temporarily enhanced ACA premium tax credits by eliminating the 400% Federal Poverty Level income cap and ensuring no one paid more than 8.5% of household income for benchmark silver plan coverage. These enhancements expired December 31, 2025 with no congressional extension.

Starting January 1, 2026, the "subsidy cliff" returns. Households earning above 400% FPL—$62,600 for individuals, $128,600 for families of four—lose all subsidy eligibility. Those below the cliff face sharply higher expected contributions: households at 150% FPL jump from paying 0% to approximately 4.23% of income; those at 300% FPL go from 6% to roughly 9.5%.

The impact is staggering. According to Kaiser Family Foundation analysis, subsidized enrollees will see premiums rise from an average of $888 to $1,904 annually—an average loss of $1,016 per person. For a 60-year-old couple earning $85,000 (just above 400% FPL), annual premiums could exceed $22,600, consuming more than 25% of their income.

Approximately 22.4 million Americans (92% of marketplace enrollees) received advance premium tax credits in 2025. The Congressional Budget Office projects 2.2 million people will become uninsured in 2026 due to premium increases, with the Urban Institute estimating up to 4.8 million could lose coverage entirely.

The clergy housing allowance advantage

Here is the critical finding for pastors: clergy housing allowance does not count toward Modified Adjusted Gross Income (MAGI) for ACA premium tax credit purposes. This is not a loophole—it's the straightforward application of how ACA MAGI is calculated.

ACA MAGI starts with Adjusted Gross Income (Form 1040, Line 11) and adds back only three specific items: non-taxable Social Security benefits, tax-exempt interest, and foreign earned income exclusions. The clergy housing allowance under IRC Section 107 is excluded from gross income before reaching AGI, and is not among the items added back. Therefore, it never enters the ACA calculation.

This is confirmed by Healthcare.gov's official MAGI definition, Treasury regulations (26 CFR 1.36B-1(e)(2)), UC Berkeley Labor Center analysis, and clergy tax specialists including GuideStone and Clergy Financial Resources. As one specialist notes: "Your AGI comes from your tax return, Form 1040, and does not include the housing allowance. Neither is it added back in."

Practical example: A pastor with a family of four earning $70,000 total compensation, with $30,000 designated as housing allowance (used for qualifying housing expenses), has an ACA MAGI of only $40,000. At the 2025 Federal Poverty Level of $31,200 for a family of four, this represents just 128% of FPL—well below the 400% cliff and potentially qualifying for substantial credits and cost-sharing reductions on Silver plans.

Without the housing allowance exclusion, that same $70,000 income would equal 224% FPL, dramatically reducing available assistance.

The SECA tax contrast illuminates the distinction

Understanding when housing allowance does count for tax purposes clarifies why the ACA exclusion matters. The IRS explicitly states: "A minister's housing allowance is excludable from gross income for income tax purposes but not for self-employment tax purposes."

Under IRC Section 1402, clergy pay the full 15.3% SECA tax (Social Security and Medicare) on their ministerial earnings including housing allowance. A pastor earning $39,000 salary with a $12,000 parsonage value must include the full $51,000 when calculating self-employment tax, per IRS Publication 517's example.

This creates a significant tax burden but also highlights the exceptional nature of the ACA treatment. The housing allowance counts for SECA, counts for some state income taxes, but does not count for federal income tax or ACA MAGI calculations.

Most pastors lack church-provided coverage

The Enhanced PTC expiration hits clergy particularly hard because 61% of full-time senior pastors receive no medical coverage from their churches, according to the 2024 Southern Baptist Church Compensation Study conducted by LifeWay Research and GuideStone (5,835 respondents).

The coverage gap widens dramatically by church size:

• Churches with 1-49 attendance: 67% of pastors receive no medical coverage

• Churches with 50-99 attendance: 66% receive no coverage

• Churches with 100-249 attendance: 52% receive no coverage

• Churches with 250+ attendance: 30% receive no coverage

This matters because approximately 65-70% of American churches have fewer than 100 in weekly attendance, according to Faith Communities Today research. These small churches—averaging 60 worshipers and often spending 50% or more of their budget on personnel—simply cannot afford the $21,000+ annual cost of family health coverage through traditional group plans.

Pastors at these churches typically earn between $48,000-$55,000 annually (Vanderbloemen data for churches under 100), with Bureau of Labor Statistics reporting a median clergy salary of $58,920 as of May 2024. Many supplement income through bi-vocational work.

Strategies to maximize ACA eligibility

Given the housing allowance MAGI advantage, pastors can take several concrete steps to optimize their ACA subsidy eligibility.

Maximize housing allowance designation. Work with your church board to designate the highest legally permissible housing allowance—the lesser of your actual housing expenses, the fair rental value of your home (furnished, with utilities), or the amount officially designated in advance. Qualifying expenses include mortgage or rent, utilities, insurance, repairs, furnishings, and maintenance. This designation must occur before the compensation is paid.

Increase retirement contributions. Pre-tax contributions to 403(b)(9) plans (the clergy-specific retirement vehicle) reduce your AGI and therefore your ACA MAGI. The 2025 employee deferral limit is $23,000 ($30,500 if age 50+), with total annual additions potentially reaching $69,000 including employer contributions. Clergy retirement plans from Envoy, GuideStone, Wespath, and denominational boards offer a unique "triple tax benefit"—contributions reduce current taxes, growth is tax-deferred, and distributions can be designated as housing allowance in retirement.

Sample calculation: Consider a pastor with $65,000 total compensation. With a $28,000 housing allowance and $12,000 in 403(b) contributions, their ACA MAGI drops to $25,000. For a single individual, this equals approximately 160% FPL, qualifying for substantial premium credits and potentially cost-sharing reductions.

Consider church-sponsored HRA options. For churches unable to provide traditional group coverage, Qualified Small Employer HRAs (QSEHRAs) allow tax-free reimbursement up to $6,450 individual / $13,100 family in 2026. However, QSEHRA amounts reduce premium tax credits dollar-for-dollar if deemed "affordable," requiring careful coordination. Individual Coverage HRAs (ICHRAs) offer more flexibility but require waiving PTC entirely.

Open enrollment timing and immediate actions

For 2026 coverage, pastors should act during the current open enrollment period ending January 15, 2026 (in most states). Key immediate steps include:

Calculate your true ACA MAGI by starting with your AGI (not total compensation) and verifying that housing allowance is properly excluded. Many insurance marketplace navigators and brokers unfamiliar with clergy tax rules incorrectly include housing allowance, as Brotherhood Mutual Insurance has documented.

Use the Healthcare.gov application carefully. When reporting income, use your actual taxable income—not your total church compensation. The housing allowance should already be excluded from your W-2 Box 1 wages if your church processes payroll correctly.

Consider working with a clergy tax specialist or navigator familiar with ministerial taxation. Organizations like GuideStone, Clergy Financial Resources, and denominational benefit boards can provide guidance specific to pastoral situations.

Conclusion

The Enhanced PTC expiration creates genuine hardship for millions, including the majority of pastors who lack church-sponsored health coverage. Yet the clergy housing allowance exclusion from ACA MAGI provides a significant but under-utilized advantage. A pastor whose $70,000 total compensation includes substantial housing allowance may qualify for subsidies that would be unavailable to secular workers at the same income level.

The key insight is structural: housing allowance is excluded from federal income tax and ACA calculations, though included for SECA purposes. This isn't special treatment—it's the straightforward application of how each tax provision defines income. Understanding and properly applying this distinction could save pastoral families thousands of dollars annually in health insurance costs, potentially making the difference between affordable coverage and joining the growing ranks of uninsured Americans.