Were you covered by health insurance in 2020?  If not, you might be charged a penalty when you file your 2020 income tax in the state of California this year. Here’s how to know what you might be charged and how to prevent it in the future.

The National Mandate

When the federal Patient Protection and Affordable Care Act (ACA) was enacted in 2010, it was meant to give more people access to affordable health insurance, and it required all U.S. citizens and permanent residents to have such insurance. Those who didn’t have health insurance through an employer or the government were charged a federal penalty unless they purchased insurance on their own. At the beginning of 2019, however, the penalty was removed at the federal level. In disagreement with this change, five states kept and currently have health insurance mandates and penalties intact: Massachusetts, New Jersey, Rhode Island, Vermont, and California.

The California Requirement and Penalty

In California, the health insurance requirement for individuals – the “California Individual Mandate” – went into effect on January 1, 2020. It requires individuals and their dependents to have ACA-compliant health insurance, and it imposes a tax on people who don’t carry health insurance. For lower income residents, it helps people afford the insurance by providing state subsidies.

If you’re a Californian who wasn’t covered by employer or government health insurance in 2020 and didn’t purchase it (but could have), your penalty will be at least $750 per adult and $375 for each dependent child in your household under 18 years old. This penalty will be assessed by the California Tax Board when you file your 2020 state income tax return.  

To learn more about the penalty and discover what your family might owe for not having coverage, see this Penalty Estimator Tool on the California Franchise Tax Board’s website.

Discovering Gaps in Coverage

As a California resident, you should carry insurance throughout the year with no gaps of 90 days or more in the coverage. If you were employed in 2020, check your W2 form(s), which you should have received in the U.S. Mail. On the W2, you may discover a penalty based on the number of months you were without qualified coverage. Other documents that demonstrate you had appropriate health insurance coverage include Forms 1095-A, 1095-B, and 1095-C. Check your mail for these as well, or contact your human resources department or health insurance provider for copies.

Qualifying for an Exemption

If you were not able to afford insurance in 2020, you can get an exemption and you will not have to pay the state penalty. Some exemptions require that you apply for them through Covered California, including general hardship, affordability hardship, and religious conscience exemptions. The full list can be found at Covered California, here. Note that you can only apply for a Covered California exemption for tax years 2020 and later. Other exemptions can simply be claimed when you file your state income tax return.

Avoid Future Penalties by Enrolling

The good news is that you can enroll in health insurance to avoid paying the California insurance penalty next year. To do so, obtain a qualified health insurance plan – one that's certified by the Health Insurance Marketplace®, provides essential health benefits, follows established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts), and meets other requirements under the Affordable Care Act.

You can explore qualified plan options through KeenanDirect.com or by calling KeenanDirect at 1-855-653-3626. One of our licensed agents would be happy to help you with a personalized plan based on your needs, family size, and budget. Our free quote will make it easy to compare several top plans within your price range so you can feel confident about your choice. We look forward to helping make tax time less stressful and the entire year healthier for you and your family.