UPDATED: AUGUST 25, 2023 | 2 MIN READ
The Affordable Care Act (ACA) mandated Americans have health insurance. The mandate included an IRS tax penalty or shared responsibility payment, for non-compliance. Numerous states declared the mandate unconstitutional. Let’s look at tax penalties for health coverage, what they are, and the states where they apply.
Is there a tax penalty for no health insurance?
The Trump Administration passed The Tax Cuts & Job Act in 2017, repealing the tax penalty. As of 2019, there isn’t a nationwide tax penalty if you don’t have health coverage. A handful of states impose penalties on your tax return if you don’t have the minimum essential coverage.
Which states have tax penalties for not having health insurance?
The following four states and the District of Columbia (D.C.) feature tax penalties for no health insurance:
Penalties vary by state. Maryland and Vermont have health insurance mandates without a tax penalty.
California individual mandate
California’s health insurance mandate began in 2020 with a tax penalty. Californians without qualifying health insurance coverage pay a fee when they file a state tax return. The state health insurance marketplace, Covered California, considers requests for exemption.
If you qualify for an exemption, you aren’t fined. If not, you’ll face a state income tax penalty of $800 per adult if you don’t have healthcare for 2021. A $400 penalty per child in the household applies as well.
Massachusetts individual mandate
Massachusetts is a leader in healthcare for its citizens. In 2006, the state implemented its healthcare reform law, MassHealth. The program is often called “Romneycare,” named after then-Governor Mitt Romney and was a big inspiration for Obamacare (ACA). After the repeal of the ACA’s tax penalty, Massachusetts began charging a fee if you could afford health insurance but didn’t purchase a health plan. You may have up to a 3-month coverage lapse without a penalty.
Massachusetts’ penalty applies only to adults and is calculated by individual income. Penalty rates begin at $23 a month or $267 a year. You may apply for an exemption based on hardship.
New Jersey individual mandate
In 2019, New Jersey enacted their healthcare mandate. The state adopted a tax penalty similar to the federal mandate. The cost is whichever is higher, 2.5 percent of the household income or a per-person charge beginning at $695 per adult, with a maximum of $2,085 for an individual. The state offers exemptions based on hardships, membership of a federally-recognized tribe, and if you participate in a health care sharing ministry.
Washington D.C. individual mandate
Washington D.C. followed New Jersey and enacted its mandate in 2019 as well. The tax penalty is $695 per adult and $347.50 per child. The maximum penalty is whichever is greater: $2,085 for a family or 2.5% of the family income over the federal tax filing threshold. Washington D.C.’s exemption process is similar to the other states.
Rhode Island individual mandate
Rhode Island began a mandate and tax penalty for its uninsured residents in January 2020. The state requires Rhode Islanders to have a qualifying health plan from an employer through the health insurance exchange, Medicare, or Medicaid.
The penalty for Rhode Island’s insurance is whatever is higher: 2.5% of the household income or a rate of $695 per adult and $347.50 for each child under 18. Rhode Island may grant you an exemption for various reasons, including affordability, hardship, and religious affiliation.
Vermont individual mandate
Vermont imposed a state mandate for health insurance in 2020. Unlike the other states with a mandate, Vermont doesn’t levy penalties. When filing yearly taxes, you must report if you had healthcare coverage, Medicaid, or Medicare.
How do you avoid paying tax penalties for not having health insurance?
If you are filing for the tax year 2021 and live in a state without a mandate, you don’t have to worry about the tax penalty. If you live in a state with a penalty, research if you qualify for an exemption. You may be eligible for an exemption if you just moved to the state or can’t afford the healthcare premium. You might also be eligible for your state’s Medicare program, which counts as health insurance under the mandate.
What is an exemption from the tax penalty?
The states requiring health insurance offer exemptions from the fee. This means you don’t have to pay the penalty if you meet certain requirements. Each state has a specific process. The categories for exemption often fall under the following:
- General hardship: These are life-altering circumstances such as the death of a close family member, utility shutoff, homelessness, domestic violence, natural disaster, and similar events.
- Affordability hardship: Individuals may qualify for this exemption if they’re offered coverage through the state or their job and can’t afford it.
- Religious conscience: Members of a religious sect who oppose public or private insurance benefits can apply for this exemption. It’s also applicable if you believe in only religious methods of healing.
- Member of a recognized tribe: If you’re a member of a recognized Indian, Alaska Native tribe or community, you can apply for an exemption from the tax penalty.
There may be other exemption categories available in your location. Browse the official Healthcare.gov website to find a full list of exemption forms.
How does an exemption work?
An exemption is a form you file with your state. The forms can vary by state. Information requested includes your Social Security Number, employment history, income, hardships, etc. Each state has its own exemption criteria you must meet.
Are you eligible for a tax penalty exemption?
What are the tax penalties for not having health insurance in the U.S.?
The health insurance mandate ended in 2018. Unless your state requires it, you won’t have a tax penalty when filing your tax return.
Is there a penalty for not having health insurance?
Unless you live in Massachusetts, New Jersey, California, Rhode Island, Vermont, or the District of Columbia, you don’t have a tax penalty for not having health insurance.
How much is the penalty for not having health insurance?
You’ll pay a penalty if you live in a state that penalizes residents for not having health insurance. Each state varies with penalty amounts.
Who is required to pay the penalty for not having health insurance?
Every state has requirements under its mandate. Children are exempt from the tax penalty, though their parents may need to pay a penalty. If the state finds you could afford individual health coverage, you will pay a penalty when filing your return.
What are the benefits of having health insurance?
Having health insurance helps keep you and your family healthier. Health insurance offers you preventative care and screenings. It’s easier to become aware of any serious health issues. Health insurance protects you from high medical bills, especially if you have an accident or critical illness.
Finding Health Insurance to Avoid Paying Tax Penalties
While the federal tax penalty in the ACA isn’t around anymore, you may still have a penalty if you live in D.C. or certain states. Learn what your state requires and what it considers minimum essential coverage so you avoid the penalty. If you want or need health insurance, use our website for free health insurance quotes.