How Does Medical Insurance Impact California Taxes?

By August 3, 2020Uncategorized

While once a federal mandate, requiring health coverage is no longer mandatory on a federal level as of January 1, 2019. However, many states still require you to have health insurance coverage to avoid a tax penalty. In 2019, California opted to remove the tax penalty for the uninsured, but the newly effective (as of January 1st, 2020) California’s Health Care Affordability Programs require California residents to obtain minimum healthcare coverage insurance, or will otherwise be subject to a state tax penalty. There are certain exemptions that California residents can apply for to avoid the penalty. 

Minimum Essential Coverage

Under the Individual Mandate Penalty for California, which was passed in 2019, California residents are required to enroll in minimum essential healthcare coverage for 2020 to avoid tax penalties. This mandate mirrors the federal ACA rules in that residents are required to prove they had the minimum essential coverage during the year, have a valid exemption, or must pay a state tax penalty. California defines minimum essential coverage the same as is defined by the Affordable Care Act. Minimum essential coverage that meets the qualifications for avoiding the tax penalty include: Medicare, individual and family plans, Medi-Cal, small group plans, large group employer plans, and some government sponsored health plans that all provide certain coverage benefits. Although health care sharing ministries do not necessarily meet the minimum essential coverage requirements, California has elected to recognize this type of enrollment as sufficient. 

What’s the penalty for not having insurance? 

The federal ACA penalty for lack of healthcare insurance coverage in 2019 is zero dollars. Meaning, there is no financial tax penalty for residents of California that did not have health insurance in 2019. However, legislation has since passed that will implement a tax penalty to California residents that do not have minimum essential healthcare coverage in 2020 and subsequent years. 

The California tax penalty for not having minimum essential medical insurance coverage in 2020 will be the greater amount of either $695 per adult and $374 per child or 2.5% of annual household income. The penalty is based on the number of months during the year an individual did not have healthcare coverage, and would only apply to those months. Every individual that meets the minimum essential coverage will be issued one or more of the following forms: 1095-A (Health Insurance Marketplace Statement), 1095-B (Health Coverage), and 1095-C (Employer-Provided Health Insurance Offer and Coverage) from the insuring entity. The verification of one’s health insurance coverage will be reconciled with the Franchise Tax Board when residents file their state income tax returns. 

Obamacare and Taxes

The healthcare reform legislation implemented the individual mandate as a component of Obamacare, also known as the Affordable Care Act (ACA). This required all American citizens and permanent residents to enroll in basic level health insurance coverage in order to avoid a tax penalty. While this was initially implemented in 2010, the ACA tax implications have changed significantly and the individual mandate is no longer applicable to your 2019 taxes. There are no tax penalties for 2019 in relation to health insurance coverage in California. Please bear in mind that this will change for future years, so it is always best to remain informed to avoid incurring unnecessary tax penalties. 

For Further Information

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