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California Tax Penalty for No Health Insurance: You’re Not Off the Hook

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The Individual Mandate

The Individual Shared Responsibility Payment, often called the Individual Mandate, was part of the ACA. It was a tax penalty for individuals who did not maintain minimum essential coverage throughout the year. When individuals filed their federal income taxes, they would be asked questions about their health insurance coverage for the year. If they did not meet the ACA requirements, they would be charged the penalty.

For 2017, the fee was $695 per adult and $347.50 per child under the age of 18, or 2.5 percent of the yearly household income. If people had coverage for part of the year, the penalty would be reduced to show this. People who had a gap in coverage that only lasted for a month or two did not have to pay a fee. Additionally, some people qualified for exemptions based on financial status or life events.

People who had no health insurance and did not qualify for an exemption would have to pay the fee. Additionally, people who had coverage that did not meet the requirements for minimum essential coverage would have to pay. This could include coverage that only provided vision or dental benefits, coverage that was only for a specific condition or plans that only offered discounts on medical services.

Many other plans are required to provide minimum essential coverage. If you have coverage from one of these for the year, you didn’t have to worry about a penalty. These plans include:

·         Plans purchased on the Health Insurance Marketplace

·         Plans purchased outside the Health Insurance Marketplace that meet the standards of qualified health plans

·         Job-based plans, which includes COBRA coverage and retiree plans

·         “Grandfathered” health plans obtained before March 23, 2010

·         Medicare Part A or Part C (but not Medicare Part B on its own)

·         Many health plans available through government programs, such as Medicaid, CHIP and TRICARE

The Repeal of the Individual Mandate

Some people who decide not to purchase health insurance do so because they cannot afford coverage. Critics of the individual mandate have argued that it is unfair to fine people who are already struggling financially.

Although some people support the intention behind the individual mandate, people generally do not enjoy being forced to pay penalties. A 2017 poll from the Associate Press and NORC Center for Public Affairs Research found that the individual mandate was most unpopular part of the ACA.  

The ACA, including the individual mandate, was passed under the Obama administration. The political situation changed when Trump took office. Although the rest of the ACA remains law in the United States, the Individual Shared Responsibility Payment was repealed as part of the Tax Cuts and Jobs Act in late 2017.

However, the repeal did not go into effect immediately. People who did not maintain minimum essential coverage during 2018 could still face a fee in 2019, when they filed their 2018 taxes.

Starting for the year 2019, however, there is no fee. Not on the federal level, anyway. States can create their own laws and charge their own individual mandate penalties. These fees would be part of the state income tax filings, not the federal income tax filings.

California’s New Individual Mandate

California has recently passed new legislature establishing a Minimum Essential Coverage Individual Mandate for the state.

A University of California study estimates that between 150,000 and 450,000 additional Californians would lack health insurance in 2020 due to the repeal of the federal individual mandate penalty. Reduced enrollment could result in higher premiums for those who remain covered. The Congressional Budget Office estimates that the lack of a penalty could cause premiums in the individual market to be 10 percent higher. To stop this from happening, some states, including California, have been looking at a state-level replacement for the federal penalty.

Senate Bill 78 was approved by Governor Gavin Newsom on June 27, 2019. It makes many changes to health care laws in the state. Among other things, it requires California residents to maintain minimum essential coverage for each month beginning on January 1, 2020. Applicable spouses and dependents must also maintain coverage.

Exemptions will be made for individuals based on certain hardships or religious conscience. A fee, called the Individual Shared Responsibility Penalty, will be imposed on individuals who do not maintain the required coverage and who do not qualify for an exemption.

California taxpayers will be required to verify coverage for the year. Any penalties will be calculated and paid as part of the California individual tax return.

The Timeline for Federal and State Penalties

Some people owed a federal Individual Shared Responsibility Penalty in 2019 when they filed their federal taxes for 2018. However, no federal penalty will be due when people file their taxes in 2020 for 2019.

The new California law does not go into effect until the year 2020. Starting in January 2020, California residents must maintain minimum essential coverage for each month.

Obtaining Coverage

To avoid the Individual Shared Responsibility Penalty, and to ensure that you are protected in case you experience an illness or injury, it’s important to enroll in a health plan that provides minimum essential coverage. If you cannot find a suitable policy through an employer, a government-run program or an employer, you can purchase coverage on your own. A licensed insurance agent can guide you through the process.

Click here for a California health insurance quote










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