Do You Have to Pay a Penalty for Not Having Health Insurance?
While there is no longer a federal penalty for being uninsured, your tax liability may be affected by health coverage requirements in your state.
While a penalty for not having health insurance under federal law no longer exists, several states have enacted their own requirements. These states have established rules requiring residents to maintain health coverage, and failure to comply can result in a financial penalty paid through the state’s income tax system.
The Federal Individual Mandate Penalty
The requirement to have health insurance or pay a penalty was a component of the Affordable Care Act (ACA). This rule, officially named the “Shared Responsibility Payment,” stipulated that most individuals needed to maintain minimum essential coverage. Those who did not qualify for an exemption were required to pay a penalty with their federal tax return.
The penalty amount was designed to increase over time. For example, in 2018, it was calculated as the higher of two figures: 2.5% of the household’s income above the tax filing threshold or a flat rate of $695 per adult and $347.50 per child, with a family maximum.
A legislative change occurred with the passage of the Tax Cuts and Jobs Act of 2017. This law reduced the associated penalty amount to zero dollars, effective January 1, 2019. For all federal tax filing purposes since the 2019 tax year, individuals have not faced a penalty for being uninsured.
State-Level Health Insurance Mandates
While the federal penalty disappeared, several states and the District of Columbia have instituted their own mandates. These states require residents to have qualifying health coverage or pay a penalty on their state tax returns.
Massachusetts has the longest-standing state mandate. Its penalty is calculated at 50% of the cost of the lowest-cost plan available to the individual through the state’s Health Connector. The specific penalty amount varies based on income, age, and family size.
New Jersey implemented its mandate in 2019. The penalty is set at the greater of 2.5% of household income or a per-person flat amount. For recent tax years, this flat amount was $695 per adult and $347.50 per child, capped at a family maximum of $2,085. The penalty is capped at the statewide average premium for a bronze-level health plan.
California introduced its mandate in 2020. The penalty is the higher of 2.5% of gross income exceeding the state’s filing threshold or a flat fee. For the 2024 tax year, that fee is $950 per adult and $475 per dependent child, with these amounts adjusted annually for inflation.
Rhode Island’s mandate, effective in 2020, also follows the former federal model. The penalty is the greater of 2.5% of household income or $695 per adult and $347.50 per child. The District of Columbia has a similar mandate and penalty calculation.
Vermont requires its residents to have health coverage but does not impose a financial penalty for non-compliance.
Common Exemptions from State Penalties
Even in states with an individual mandate, exemptions are available that can relieve individuals of this financial consequence.
A primary category of exemptions is based on income. If a person’s household income is so low that they are not required to file a state income tax return, they are typically exempt from the penalty. Another common financial exemption applies if the lowest-cost health plan available would cost more than a specific percentage of the household income.
Another set of exemptions relates to short gaps in coverage. If an individual is uninsured for a period of less than three consecutive months during the year, they will not be subject to a penalty for that short gap.
States also offer a range of hardship exemptions for those facing difficult life events. These can include situations like homelessness, eviction, foreclosure, bankruptcy, or domestic violence. Other specific exemptions may be available for members of federally recognized Native American tribes, incarcerated individuals, or members of certain religious sects or health care sharing ministries.
How to Report Coverage or Claim an Exemption
Annually, insurers and employers send out forms that document health coverage for the prior year. These forms are part of the 1095 series: Form 1095-A for marketplace coverage, Form 1095-B from insurers, and Form 1095-C from large employers. These forms serve as proof of coverage and should be kept with your tax records.
When filing a state tax return in a state with a mandate, you will need to report your coverage status directly on the return or an accompanying schedule. For instance, California uses Form FTB 3853, Health Coverage Exemptions and Individual Shared Responsibility Penalty, to claim exemptions or calculate the penalty. Similarly, Massachusetts residents use Schedule HC, Health Care Information.
To claim an exemption, you must obtain the correct form from your state’s department of revenue or health insurance marketplace website. The form will guide you through the various exemption types and require you to provide information to certify your eligibility. The completed form must be attached to your state income tax return by the filing deadline.