Insurance Tax Penalty Gaps

Since 2020, California residents have been required to have qualifying health insurance coverage, obtain an exemption from the requirement to have coverage, or pay a penalty when they file their state tax return. The penalty for not having coverage for the entire year is at least $900 per adult and $450 per dependent child under 18. However, there is an exemption for short coverage gaps of three consecutive months or less.

California residents must have health insurance or pay a penalty

Since 2020, California residents must have qualifying health insurance coverage, obtain an exemption from this requirement, or pay a penalty when filing their state tax return. This is known as the Individual Shared Responsibility Penalty.

The penalty for not having coverage for the entire year is at least $900 per adult and $450 per dependent child under 18 in the household. For example, a family of four that goes uninsured for the whole year would face a penalty of at least $2,700. The penalty is applied by the California Franchise Tax Board and is based on the number of people in the household and income level.

There are several exemptions to the requirement to have health insurance. These include:

• Short coverage gap of three consecutive months or less
• Income below the tax filing threshold
• Health coverage is considered unaffordable (exceeded 8.17% of household income for the taxable year)
• Incarceration (other than incarceration pending the disposition of charges)
• Membership in an exempt group, such as federally recognized Indian tribes or undocumented immigrants

California is one of four states, plus the District of Columbia, that penalizes residents for not having health insurance. This has been regarded as unpopular but effective in encouraging people to get insured. In 2022, California reached a historic low uninsured rate of 6.2% for people under 65.

The penalty is $900 per adult and $450 per child

Since 2020, California residents have been required by law to have health insurance. This is known as the individual mandate. If you don't have health insurance, you can either pay a penalty when filing your state tax return or get an exemption from the requirement to have coverage.

The penalty for not having coverage for the entire year will be at least $900 per adult and $450 per dependent child under 18 in the household. This penalty will be applied by the California Franchise Tax Board when you file your 2023 state income tax return in 2024. A family of four that goes uninsured for the whole year would face a penalty of at least $2,700.

The penalty is based on the number of people in your household and your California state income. You can use the Franchise Tax Board’s Penalty Estimator Tool to find out how much your family could owe for not having coverage.

The penalty amount is calculated as either a flat amount or a percentage of your household income, whichever is higher. For example, a family of three with a gross household income of $150,000 would pay a flat amount of $2,250 ($900 per adult x 2) + $450 per child. However, 2.5% of their gross income that exceeds the filing threshold is $2,300.15, which is higher, so that would be their penalty amount.

It's important to note that this penalty only applies if you did not have health coverage and were not eligible for an exemption from coverage for any month of the year. There are several situations in which you may qualify for an exemption, including short coverage gaps of three consecutive months or less, unaffordable care, and membership in an exempt group such as Native American tribes or prisoners.

The penalty is calculated as a percentage of household income

The penalty for not having health insurance varies depending on the state in which you live. While federal tax penalties for the Affordable Care Act (ACA) have been largely cancelled, some states still require residents to pay a fee if they don't have health insurance.

In California, for example, the penalty for not having health insurance is either a flat amount per family member or a percentage of the household income over the state tax filing threshold. The penalty will be at least $900 per adult and $450 per dependent child under 18 in the household. A family of four that goes uninsured for the whole year would face a penalty of at least $2,700.

In New Jersey, the penalty amount mirrors the former federal requirement and is calculated based on household income and family size, with the maximum penalty being equal to the state average yearly premium for a bronze plan.

The District of Columbia maintains a health insurance requirement similar to the original ACA mandate. The penalty is calculated based on a percentage of household income or a per-person fee, whichever is higher.

Rhode Island's health insurance mandate imposes a penalty calculated as either a percentage of an individual's income or a flat fee per person in the household.

Massachusetts' penalty for not having insurance depends on income level, age, and access to affordable coverage. The state's penalties are structured with multiple income-related thresholds and exemptions, making it a more complex system but also more tailored to residents' financial capabilities.

Vermont has an individual mandate but does not impose financial penalties for non-compliance. Instead, the state focuses on using the mandate as a platform to educate residents about the importance of having health insurance and guiding them toward available programs and subsidies.

It's important to note that the penalty for not having health insurance is calculated based on the number of months an individual is uninsured. Short coverage gaps of less than three consecutive months are generally exempt from penalties.

There are exemptions based on income and circumstances

Beginning January 1, 2020, California residents must either have qualifying health insurance coverage, obtain an exemption from the requirement to have coverage, or pay a penalty when they file their state tax return. The penalty for not having coverage for the entire year is at least $900 per adult and $450 per dependent child under 18 in the household when filing your 2023 state income tax return in 2024.

There are several exemptions based on income and circumstances that can be claimed when filing state taxes. These include:

• Income below the state tax filing threshold: Even if you don't have to file taxes, you may still choose to do so if you received financial help.
• Short coverage gap: If your coverage lapses for three consecutive months or less.
• Unaffordable health coverage: If the cost of the lowest-cost employer-sponsored family plan that covers all dependents exceeds 8.17% of your household income for the 2023 taxable year and 7.97% for the 2024 taxable year.
• Non-citizens who are not lawfully present: Certain non-citizens who do not have lawful status in the country may be exempt from the requirement to have health insurance.
• Citizens living abroad or residents of another state: If you are a citizen living outside of California or are a resident of another state, you may be exempt.
• Members of a health care sharing ministry: Members of certain health care sharing ministries may be exempt from the requirement to have insurance.
• Members of federally recognized tribes: This includes Alaskan Natives and other individuals eligible for services through an Indian health care provider or the Indian Health Service.
• Incarceration: Individuals who are incarcerated (other than those awaiting the disposition of charges) may be exempt from the requirement to have health insurance.
• Enrolled in limited or restricted-scope Medi-Cal: If you are enrolled in Medi-Cal or a similar program through the California Department of Health Care Services, you may be exempt.

In addition to the exemptions that can be claimed on state tax returns, there are also exemptions that must be applied for through Covered California. These include:

• Affordability Hardship: This exemption may be granted if the cost of health coverage is considered unaffordable based on your income.
• Religious Conscience: This exemption may be granted to individuals whose religious beliefs prevent them from having insurance.

The penalty is paid when filing a state tax return

As of 2024, tax penalties for the Affordable Care Act (also known as Obamacare) have been largely cancelled. However, some states, including California, still require residents to pay a fee if they don't have health insurance.

Since 2020, California residents must either have qualifying health insurance coverage, pay a penalty when filing a state tax return, or get an exemption from the requirement to have coverage. The penalty for not having coverage for the entire year will be at least $900 per adult and $450 per dependent child under 18 in the household when filing the state income tax return. The penalty is applied by the California Franchise Tax Board and is based on the number of people in the household and California state income.

The penalty is calculated as either a flat amount per family member or a percentage of the household income over the state tax filing threshold, whichever is higher. For example, a family of four that goes uninsured for the whole year would face a penalty of at least $2,700. The penalty is prorated by the number of months a person is uninsured, with a short coverage gap of up to three consecutive months being exempt from penalty.

To avoid the penalty, California residents need to have minimum essential coverage for themselves, their spouse or domestic partner, and dependents for each month of the year. They can also apply for an exemption if they meet certain criteria, such as financial hardship, short coverage gap, or membership in an exempt group.

Frequently asked questions