Orlando Harmon
Health insurance is an important consideration when it comes to filing your taxes. While the fee for not having health insurance, known as the Shared Responsibility Payment or mandate, was abolished in 2018, meaning there is no longer a tax penalty for lacking health coverage, there are still some things to keep in mind. If you live in a state that requires health coverage and you don't have it, you may be charged a fee when filing your state taxes. Additionally, if you have health insurance, you may be eligible for tax credits or deductions, so it's important to keep proper documentation and understand the relevant forms, such as Form 1095-A and Form 8962, to ensure accurate reporting and maximize any potential tax benefits.
Does not having medical insurance affect your taxes?
| Characteristics | Values |
|---|---|
| Tax penalty for not having health insurance | No longer applicable after 2018 |
| State tax penalty | Applicable in certain states |
| Form 1095-A | Not applicable unless someone in the household had Marketplace coverage |
| Form 1040 | Required for filing taxes |
| Premium tax credit | Can be used to lower monthly insurance payments |
| Excess premium tax credit | Must be reported on the tax return and may result in owing taxes |
| Refund or lower taxes | Possible if less of the premium tax credit was used than qualified for |
| Form 8962 | Required when claiming a net premium tax credit |
| Form 1095-B | Sent by health insurance providers with coverage information |
| Form 1095-C | Sent by certain employers with information on offered coverage |
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What You'll Learn
No health insurance fee/tax penalty
In most states, there is no longer a penalty for being without health insurance. The ACA's federal tax penalty for not having minimum essential coverage was eliminated after 2018 under the Tax Cuts and Jobs Act of 2017. However, some states have implemented their own health coverage requirements, with penalties for residents who do not maintain coverage. Therefore, if you live in a state that requires you to have health coverage and you don't have coverage or an exemption, you may be charged a fee when filing state taxes.
Massachusetts implemented an individual mandate and penalty in 2006, which continues to be in effect. The penalty only applies to adults, and the amount is based on the person's income and the cost of health plans available via the Massachusetts health insurance exchange. The District of Columbia and New Jersey also implemented individual mandates and penalties that took effect in January 2019. The penalty amounts are based on the federal penalty that applied in 2018: a flat rate of $695 per adult, half of that for a child, or 2.5% of income, whichever is higher.
It is important to note that, while the IRS is not penalizing people who are uninsured, states still have the option to do so. Therefore, it is advisable to check with your state or a tax preparer to understand the specific requirements and potential fees for your state. Additionally, there may be exemptions from the fee for not having health coverage in certain cases, so it is worth exploring your state's specific rules and requirements.
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State tax penalties
While the Affordable Care Act (ACA) instituted the federal individual mandate in 2010, some states have their own requirements and penalties for residents without health insurance. Here are some state tax penalties for not having health insurance:
- California: In 2020, California adopted an individual mandate requiring residents to have qualifying health coverage. Those who choose to go without coverage may face a financial penalty unless they qualify for an exemption. The penalty for not having coverage for the entire year when filing state income tax returns can be significant. For example, a family of four that goes uninsured for a year could face a penalty of at least $2,700.
- Massachusetts: Massachusetts implemented an individual health care shared responsibility payment in 2007, before the ACA's federal mandate. To prevent residents from paying both federal and state penalties, Massachusetts allows a reduction in the state penalty equal to the amount of the federal individual shared responsibility payment.
- District of Columbia: The District of Columbia adopted an individual mandate requirement in 2019. Residents must have qualifying health coverage or meet an exemption to avoid a shared responsibility payment. Those without full health coverage for the year must include Schedule HSR, DC Health Care Shared Responsibility, with their state income tax return to claim an exemption or calculate the penalty.
- New Jersey: While New Jersey has specific filing requirements for employers, including out-of-state companies that employ New Jersey residents, it is unclear if there is a direct penalty for individuals without health insurance.
- Rhode Island: Rhode Island's mandate, effective in 2020, requires individuals to have qualifying health coverage unless exempt. On their state income tax returns, residents must certify that they had health coverage all year or include Form IND-HEALTH and the Shared Responsibility Worksheet if a penalty applies.
- Vermont: Vermont's individual health coverage mandate took effect on January 1, 2020, requiring residents to report their health coverage status on state income tax returns. However, Vermont does not currently impose a penalty for those without health coverage.
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Premium tax credits
In the United States, a premium tax credit is a tax credit that you can use to lower your monthly insurance payment (your "premium"). You are eligible for the premium tax credit if you meet the following requirements:
- You have household income that falls within a certain range. For instance, for the year 2021, you or your spouse (if filing a joint return) received or were approved to receive unemployment compensation for any week.
- You do not file a tax return using the filing status of "Married Filing Separately". An exception to this rule is if you qualify for a special rule that allows certain victims of domestic abuse and spousal abandonment to claim the credit using the "Married Filing Separately" filing status.
- You cannot be claimed as a dependent by another person.
- You are not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value.
- You are not eligible for coverage through a government program like Medicaid, Medicare, CHIP, or TRICARE.
The actual premium tax credit for the year may differ from the advance credit amount estimated by the Marketplace if your family size or household income, as estimated at the time of enrollment, differs from what you report on your return. Other changes in circumstances, such as marriage or divorce, may also affect your credit amount.
To calculate the premium tax credit, the ACA marketplace will identify the second-lowest-cost silver plan available to each member of the household, called the "benchmark plan". The amount of the credit is equal to the total cost of the benchmark plan (or plans) that would cover the family minus the individual or family's expected contribution for coverage. The individual or family is expected to contribute a share of their income toward the cost of coverage, based on a sliding scale.
If you plan to claim the premium tax credit, you must file a federal income tax return and attach Form 8962, Premium Tax Credit (PTC), to your return. You must also file Form 8962 with your Form 1040, Form 1040-SR, or Form 1040-NR.
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Health coverage exemptions
While the fee for not having health insurance ended in 2018, meaning you no longer pay a tax penalty for not having health coverage, you may still be charged a fee when filing your state taxes if you live in a state that requires you to have health coverage and you don't have it. Some states have their own exemption processes, so be sure to check with your state or a tax preparer.
You may qualify for a health coverage exemption if the lowest-priced coverage available to you, through either a Marketplace or job-based plan, would cost more than 7.97% of your household income. Affordability exemptions can be applied for the entire calendar year or for specific months. If you need an exemption for the entire calendar year, you must request it before January 1 of that year. If you need it for specific months, you can apply for it when filing your tax return.
You can also qualify for an exemption if you experienced a hardship in obtaining health insurance. Hardship exemptions typically cover the month before the hardship, the months of the hardship, and the month after the hardship. However, in some cases, the Marketplace may grant the exemption for additional months, up to a full calendar year. For those eligible for Indian Health Services, the hardship exemption lasts as long as you remain eligible.
Some examples of hardships include:
- Financial hardship or other circumstances that prevented you from getting health insurance
- Homelessness
- Eviction or the threat of eviction or foreclosure
- Receiving a shut-off notice from a utility company
- Experiencing domestic violence
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Tax forms and filing
If you live in a state that requires you to have health coverage and you don’t have coverage or an exemption, you will be charged a fee when you file your state taxes.
If you had no health coverage for all or most of the year, you can find help preparing and filing your taxes. If you are self-employed and your business was profitable during the year, you can get a tax deduction for yourself, your spouse, and your dependents. A self-employed health insurance deduction is available for the costs of medical insurance, dental insurance, and long-term care policies. You can deduct these costs up to the total of your self-employment gross income.
If you purchased a health plan from a private or government-sponsored marketplace and used premium tax credits, you will need to “reconcile” your premium tax credit. You may owe taxes if you used more of the premium tax credit than you qualified for. You'll have to report the excess amount on your tax return by filing Form 8962, Premium Tax Credit. You can also get a refund or lower the amount of taxes you owe if you used less of the premium tax credit you qualified for or received an increase when you reconciled. You will need to include Form 8962 with your tax return.
You'll need to complete Form 8962 or an explanation for why you're missing the form, and attach it when you refile. You can use Form 1095-A to complete IRS tax Form 8962 and reconcile your premium tax credit when you file your taxes. You will receive Form 1095-A, Health Insurance Marketplace Statement, which provides you with information about your healthcare coverage. You should wait to file your income tax return until you receive that form. Form 1095-B, Health Coverage, will show that you and your family had health coverage throughout all or part of the year. The form is not typically included in your tax return but does contain vital information to help you fill out your taxes properly. Form 1095-C, Employer-Provided Health Insurance, contains information that will help you file your taxes properly, but it will not be included in your actual tax return.
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Frequently asked questions
Not having medical insurance does not affect your federal taxes. The fee for not having health insurance, sometimes called the "Shared Responsibility Payment" or "mandate", ended in 2018. However, if you live in a state that requires you to have health coverage, you may be charged a fee when you file your state taxes.
The premium tax credit is a tax credit that can be used to lower your monthly insurance payment (your "premium"). You may owe taxes if you used more of the premium tax credit than you qualified for. You can also get a refund or lower the amount of taxes you owe if you used less of the premium tax credit than you qualified for.
Form 1095-A, Health Insurance Marketplace Statement, is a form that provides information about your health care coverage. You will not get Form 1095-A unless you or someone in your household had Marketplace coverage for all or part of the year.
