Paul Sanchez
As of 2019, the IRS is no longer penalizing people 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, assessed via state tax returns. These states include California, Massachusetts, New Jersey, and Rhode Island, with the District of Columbia also implementing an individual mandate and penalty. While the IRS does not enforce these penalties, they do provide resources to help individuals find health insurance options and understand their responsibilities under the Affordable Care Act.
| Characteristics | Values |
|---|---|
| Federal penalty for not having health insurance | Eliminated after 2018 |
| State penalty for not having health insurance | Implemented by Massachusetts, the District of Columbia, New Jersey, Rhode Island, and California |
| Penalty amount | Based on income and cost of health plans; $695 per adult, half for a child, or 2.5% of income, whichever is higher |
| Exemptions | Incarceration, not a US citizen, religious conscience, member of a healthcare sharing ministry, member of a federally recognized Indian tribe, income below the minimum threshold |
| Penalty relief | May be available for those who acted in good faith and with reasonable cause |
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What You'll Learn
The ACA's federal tax penalty was eliminated after 2018
The Affordable Care Act (ACA) was amended by the Tax Cuts and Jobs Act (TCJA) in 2017, which came into effect in 2019. This eliminated the ACA's federal tax penalty for not meeting the minimum essential coverage requirements.
Prior to this, the ACA's individual mandate required almost all Americans to maintain health insurance coverage unless eligible for an exemption. Those without coverage were required to pay a penalty of 2.5% of their household income, or $695 per adult and $347.50 per child, up to a maximum of $2,085. This was known as the individual mandate penalty, or the shared responsibility payment.
The TCJA set the ACA's individual mandate penalty to zero, effectively removing the federal tax penalty for non-compliance. This change was permanent and did not include a sunset provision. As a result, individuals without health insurance will not face a federal penalty, although they may still be subject to state-level penalties.
Some states have implemented their own health coverage requirements with associated penalties, assessed via state tax returns. These include Massachusetts, the District of Columbia, New Jersey, Rhode Island, and Vermont. These states use the revenue generated from these penalties to fund health-related programs and increase coverage options or affordability.
While the federal penalty has been eliminated, the individual mandate itself still exists at the federal level. However, qualifying for an exemption from the mandate allows a person to purchase a catastrophic health plan, even if they are 30 or older.
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Some states have their own health coverage requirements
Since the federal mandate was repealed in 2019, some states have implemented their own health coverage requirements. These state-level mandates are designed to encourage individuals to maintain health coverage. While the Affordable Care Act (ACA) previously required individuals to have health insurance or face a financial penalty, this is no longer the case at the federal level. However, some states have introduced their own individual mandates with associated penalties.
For example, California, Massachusetts, Rhode Island, New Jersey, and the District of Columbia have implemented individual mandates, requiring residents to have health insurance coverage or face penalties. The penalty amount varies by state and can be based on income, family size, and duration without coverage. In California, residents may face penalties of at least $900 per adult and $450 per dependent for a year without coverage. Massachusetts' penalty is also based on income and the cost of health plans available, while New Jersey's penalty mirrors the previous federal penalty, with a maximum penalty based on the average cost of a bronze plan in the state.
Vermont is an interesting case, as it recommends that residents have health insurance coverage but does not impose a penalty for non-compliance. Instead, residents are required to report whether they had health coverage in the previous year when filing their annual tax returns. This approach still encourages health insurance coverage without enforcing financial penalties.
It is important to note that the specific regulations and penalties can vary from state to state, and individuals should be aware of the requirements in their specific state to avoid unexpected costs. These state-level mandates aim to improve health outcomes and raise funds for reinsurance programs and state-based medical care subsidies. By understanding the healthcare laws in their state, individuals can ensure they are compliant and avoid potential penalties.
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California has a penalty for not having year-long coverage
As of January 1, 2020, California requires residents to maintain minimum essential coverage or pay a penalty. This is known as the uninsured health care penalty or uninsured tax penalty. This means that California residents should carry insurance throughout the year with no gaps in coverage of 90 days or more. The penalty for not having coverage for a year will be at least $900 per adult and $450 per dependent child under 18, with a family of four facing a penalty of at least $2,700.
The penalty is pro-rated, so if you are uninsured for only one month, you will pay one-twelfth of the tax that would be due for the full year. For example, the minimum tax per person for failing to get coverage would be $57.92 per adult and $28.96 per child for each month of 2020.
The state will assess the fee in one of two ways, depending on whichever is higher: a flat amount based on the number of people in the household, or a percentage of the household income. The flat amount is $900 per adult and $450 per dependent child. The percentage of the household income is 2.5% of all gross household income over the tax filing threshold. Both options are pro-rated according to how long you were uninsured.
California is not the only state to have reinstated the penalty for not having health insurance. Massachusetts, the District of Columbia, New Jersey, and Rhode Island have also implemented individual mandates and penalties. However, it is important to note that the penalty in California is not imposed on the poor, and there are allowances for being temporarily out of work.
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The District of Columbia has an individual mandate and penalty
The District of Columbia's individual mandate requires most individuals residing in D.C. to maintain minimum essential coverage (MEC) for each month of the year. The penalty for non-compliance is calculated in the same manner as the ACA's individual mandate. The penalty is the greater of two amounts—a flat dollar amount ($695) or the percentage of income amount (2.5% of income). Families will pay half the penalty amount for children, with a family cap of three times the annual flat dollar amount. The penalty is capped at the average premiums for bronze-level health plans available on DC Health Link.
The individual mandate penalty will generally be assessed and collected in the same manner as D.C. taxes. Revenue from DC's individual mandate penalty is deposited into the District's Individual Insurance Market Affordability and Stability Fund, which is used to fund outreach and education about available health coverage, or to increase the availability of coverage options or the affordability of individual market premiums.
The District of Columbia determines your penalty amount using your income, family size, and how long you've gone without coverage. Exemptions exist for various circumstances, such as low income or religious beliefs. An individual is treated as having coverage for a month if they have coverage for any one day of that month.
Since the repeal of the federal mandate, five states and the District of Columbia have created their own individual mandates. All but one of these locations have penalties that individuals must pay during tax season if they can afford but don't enroll in health coverage.
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Massachusetts has a penalty for adults based on income
The IRS is not currently penalizing uninsured individuals, as the 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, and Massachusetts is one of them.
Massachusetts has a penalty for adults who do not purchase health insurance if they are deemed able to afford it. This penalty is based on the person's income and the cost of health plans available via the Massachusetts health insurance exchange. The penalty amount is calculated as a percentage of the person's income or a flat fee, whichever is higher. The penalty is assessed via the state tax return and is in addition to any federal penalties that may apply.
The penalty for non-compliance in Massachusetts is imposed through the individual's personal income tax return and shall not exceed 50% of the minimum monthly insurance premium for which the individual would have qualified. The penalty is prorated for partial years of non-compliance, and there is no penalty if the lapse in coverage is 63 consecutive days or less.
The Health Connector in Massachusetts establishes standards to determine whether individuals, married couples, and families can afford health insurance based on their incomes and affordable health insurance premiums. Individuals with incomes less than or equal to 150% of the Federal Poverty Level are not subject to any penalty for non-compliance, as they are not required to pay an enrollee premium for ConnectorCare health insurance. For those with incomes between 150.1% and 300% of the Federal Poverty Level, the penalty is half of the lowest-priced ConnectorCare enrollee premium that could be charged at that income level. For individuals with incomes above 300% of the Federal Poverty Level, the penalty is half of the lowest-priced individual Bronze premium.
Massachusetts also has other tax penalties, such as penalties for late filing of returns, late payment of taxes, and inconsistent filing positions. These penalties may be waived or abated in specific circumstances, such as reasonable cause or hardship, but interest is charged on unpaid penalties and cannot be waived.
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Frequently asked questions
There is no longer a federal penalty for not having health insurance. However, some states have implemented their own health coverage requirements with penalties for non-compliance. These states include Massachusetts, the District of Columbia, New Jersey, Rhode Island, and California.
The penalty amounts vary depending on the state. For example, in Massachusetts, the penalty amount is based on the person's income and the cost of health plans available via the Massachusetts health insurance exchange. In California, the penalty for not having coverage for the entire year is at least $900 per adult and $450 per dependent child under 18.
If you can't afford to pay the penalty, you may qualify for penalty relief if you can demonstrate reasonable cause and good faith. Reasonable cause is determined on a case-by-case basis, and you may need to provide supporting documentation. You can call the IRS or submit a Form 843 to request penalty relief.
