ACA Tax Penalty
This is just general information.
Please consult with a licensed tax professional
for full details.
Tell me in plain English, what is this tax penalty?
The Affordable Care Act (ACA) put in place a federal tax penalty for every US Citizen or US Permanent Resident (green card) that didn’t have an ACA compliant health insurance plan or valid excuse to skip coverage.
The penalty was $695/adult or $347.50/child or 2.5% of gross household income (that’s income before tax), whichever was GREATER.
But I thought President Trump took away the tax penalty?
Yes, kind of.
At the federal level, effective 2019 the tax penalty was reduced to $0. One day, it could possibly be raised again. That means that if someone didn’t have health insurance from 2019, there was no federal penalty.
Here is the catch: California introduced an IDENTICAL state level tax penalty effective 2020. Other states also introduced their own tax penalty.
Essentially, 2019 was really the only year where put could get away without having health insurance and not paying a federal or state tax penalty.
So if I live in California, I still have to have health insurance or pay the CA ACA tax penalty?
That’s right.
Aren’t there exemptions?
Yes, there are religious, hardship and other misc. exemptions. Click here to read about them: CA ACA Tax Penalty Exemptions
California does allow people to go without health insurance for 3 consecutive months and not be subject to the tax penalty. Beyond that, you might get hit with a pro-rated tax penalty.
So what happens if I don’t buy health insurance and need it mid-year?
in California the open enrollment or window to buy an individual plan is between November 1st through January 31st. You will need a Qualifying Life Event to buy a policy mid-year (see next question).
Group or employer-based plans typically have a one month renewal / open enrollment period.
So I can’t get health insurance outside of this “open enrollment” period?
You can if you experience a qualifying life event and applying within 60 calendar days. Click here for the list: Qualifying Life Events
The most common qualifying life events are losing your work health insurance benefits, getting married/divorced/birth of a child, moving to California, turning 26 and getting kicked out of your parents plan, or becoming a US citizen or US permanent resident; other excuses exist, but they are more rare.
Proof is often required! Often times, it’s a major hassle to get all the proofs, so applying during the open enrollment is the best time… no proof required, easy! Trust me. The list can be ridiculous. Don’t tell me I didn’t warn you.
I have a student/investor/skilled worker Visa, am I required to have health insurance too?
Students usually aren’t required, but most schools will enroll students in some type of compliant health insurance plan.
Investors and skilled workers sometimes need to be enrolled, check with your immigration attorney.
If I buy a plan via Covered CA or with a subsidy, do I need to give my tax preparer any additional documents?
Yes, Covered CA will mail you at the beginning of the following year an IRS 1095-A and FTB 3895 form which your tax person will need. DO NOT DISREGARD, YOU ARE REQUIRED TO INCLUDE THIS FORM WITH YOUR TAX RETURN!
If you are enrolled in a direct or off-exchange/non-subsidized plan or group/employer plan, you will get a 1095-B form. Your tax person doesn’t need this and the IRS doesn’t require you to include this form. You will also get a copy at the beginning of the following year and we recommend that you scan or save the form.
If you receive a 1095-C, treat it just like a 1095-B (see above, save it).
This is a lot of non-sense, what’s the logic behind the tax penalty? I thought this was a free country!
Kind of free. The basic logic is this… if you force people (specially healthy people that won’t be using their insurance) to buy health insurance, the idea is that the risk in a plan or pool of people would be diluted/minimized. In turn, this should help offset those few select people that will heavily be using the plan and thus the rates should be more or less “stable”. In reality, the mathematics are far more complicated and in my experience, it seems that hospitalizations and medication costs seem to be on the leading edge of continuous double digit rate increases, year after year, without an end.
This has been super helpful, why aren’t you giving seminars to tell people this info?
Lack of time, we cannot devote quality time to deal with all of you while trying to cater to the masses. Personalized, accurate service takes time, which we’ve chosen to spend with you other than a crowd of unknown people.
Ok, I read enough. I want to see some numbers, can you tell me? Is it going to cost me a fortune?
Send us a message with your income situation, birthday, and home zip code. Financial help or rate subsidies may be available.
Are you going to charge me to talk to you?
Never. All our advice and services are FREE of charge. $0. Insurance companies pay us directly, your rate is the same whether you do it on your own or use an expert.