Is There a Tax Penalty for Not Having Insurance?

The question of whether a tax penalty exists for not having health insurance depends on where you live. While there is no longer a federal penalty, a handful of states have implemented their own rules. This means that for many Americans, the lack of health coverage will not impact their federal tax return, but for residents of certain states, it could result in a financial penalty on their state tax return.

The Federal Individual Mandate

The Affordable Care Act (ACA), enacted in 2010, introduced a provision known as the “individual shared responsibility payment.” This rule required most Americans to maintain a minimum level of health insurance, referred to as minimum essential coverage (MEC), or pay a penalty on their federal tax returns. The penalty was calculated as a percentage of household income or a flat per-person amount, whichever was greater.

This federal requirement changed with the passage of the Tax Cuts and Jobs Act of 2017. While the law did not eliminate the legal requirement to have health insurance, it reduced the associated penalty amount to zero dollars, effective January 1, 2019. Consequently, when you file your federal income tax return, there is no longer a financial consequence from the IRS for not having health coverage for any period during the year.

State-Specific Insurance Mandates

In response to the federal penalty being reduced to zero, several states established their own individual health insurance mandates. These states require their residents to have qualifying health coverage or pay a penalty on their state income tax returns. As of the 2025 tax year, the jurisdictions with these mandates include California, Massachusetts, New Jersey, Rhode Island, and the District of Columbia.

Vermont also has a law requiring residents to have health insurance, but it currently does not impose a financial penalty for non-compliance. For residents in the other specified states, failing to secure adequate health insurance can lead to a state-level tax liability. These mandates are enforced through each jurisdiction’s tax system to maintain higher rates of insurance coverage.

Calculating State-Level Penalties

The methods for calculating state-level penalties for lacking health insurance vary by jurisdiction, but they generally follow one of two models, with the taxpayer owing whichever amount is higher. The first is a flat-dollar penalty based on the number of uninsured individuals in a household. The second is a penalty calculated as a percentage of household income over the state’s tax filing threshold. These calculations are made for each month a person is without coverage.

In California, the penalty is 2.5% of household income above the filing threshold or a flat $900 per adult and $450 per dependent child for the 2025 tax year. New Jersey and the District of Columbia also use a 2.5% of income calculation or a flat penalty, which for 2025 is $695 per adult in New Jersey and a similar amount in D.C. The maximum penalty is capped at the average annual premium for a bronze-level health plan in that state.

Massachusetts, which had a mandate before the ACA, uses a different model. Its penalty is calculated based on a sliding scale considering income, age, and family size. The penalty for a given month is capped at 50% of the cost of the lowest-priced health plan available to the individual through the state’s health insurance marketplace. Rhode Island’s penalty structure is similar to California’s, using either 2.5% of income or a flat $695 per adult and $347.50 per child.

Common Exemptions from State Mandates

Even in states with an individual mandate, you may be exempt from the penalty under certain circumstances. One of the most common exemptions is based on income, where individuals with household income below their state’s tax filing threshold are not subject to the penalty.

Other common exemptions from the penalty include:

• A short gap in coverage, lasting less than three consecutive months.
• The lowest-cost health plan available is determined to be unaffordable based on a percentage of household income.
• Experiencing a specific financial hardship.
• Membership in a recognized healthcare sharing ministry.
• Being a member of a federally recognized Native American tribe.

Reporting on Your State Tax Return

If you live in a state with an insurance mandate and owe a penalty, you must report this on your state income tax return using a specific form. For instance, California residents use Form 3853, Health Coverage Exemptions and Individual Shared Responsibility Penalty, to calculate the penalty and transfer it to their main state tax form, Form 540.

Similarly, Massachusetts uses Schedule HC, Health Care Information, to report coverage status and calculate any penalty. In New Jersey, the penalty is calculated and entered directly on the NJ-1040 tax return. These forms guide taxpayers through reporting coverage, claiming exemptions, and determining the final penalty amount.