Tax Penalty Details and Exemptions
Most people are now required to have “minimum essential coverage” through an employer, a government health program or a health plan they purchase themselves. Those who do not have health insurance will pay a tax penalty. Some people qualify for an exemption from this requirement, and they do not have to obtain health insurance or pay a tax penalty.
When consumers file their tax return, they will have to enter information about their coverage (or their exemption) on their tax return. If consumers do not maintain minimum essential coverage during the year and do not qualify for an exemption, they will pay a tax penalty to the Internal Revenue Service on their tax return for that year.
The annual penalty is the greater of:
- $695 for each adult and $347.50 for each child, up to $2,085 per family.
- 2.5 percent of the tax filer’s annual household income minus the federal tax filing threshold.
Exemptions from the Tax Penalty
The following groups qualify for an exemption to the tax penalty:
No tax filing requirement. People whose income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on a consumer’s filing status, age and types and amounts of income. Consumers can use the Internal Revenue Service’s Interactive Tax Assistant (ITA) to find out if they are required to file a federal tax return.
Short coverage gap. Consumers who go without coverage for less than three consecutive months during the year.
Hardship. Consumers who have experienced difficult, financial or domestic circumstances that prevent them from obtaining coverage — such as homelessness, the death of a close family member, bankruptcy, substantial recent medical debt or disasters that substantially damage a person’s property.
Unaffordable coverage options. Consumers who can’t afford coverage because the lowest-priced coverage available to them would cost more than 8.16 percent of their annual household income. For Covered California, the lowest-cost plan would be the lowest-cost Bronze plan available to the individual.
Incarceration. Consumers who are in a jail, a prison or a similar penal institution or correctional facility after the disposition of charges (or judgment) against them.
Not lawfully present. Consumers who are not U.S. citizens, U.S. nationals or lawfully present in the United States.
Religious conscience. Members of a religious sect or division thereof that has been in existence at all times since Dec. 31, 1950, and is already recognized by the Social Security commissioner as conscientiously opposed to accepting any insurance benefits, including Social Security and Medicare. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
Health care sharing ministry. Members of a recognized health care sharing ministry.
American Indian tribes. Members of a federally recognized American Indian tribe, or those who are eligible for services through an Indian Health Services provider.
Covered California does not determine exemptions. Exemption applications are now available from the federal government. For more information and links to the application, visit www.healthcare.gov/exemptions or call the federal marketplace at (800) 318-2596.
Minimum Essential Coverage
Consumers must be enrolled in a plan that qualifies as minimum essential coverage to avoid the penalty for not having insurance. All Covered California health plans (including minimum coverage or “catastrophic plans”) meet minimum essential coverage requirements.
Most people with health coverage today have a plan that counts as minimum essential coverage. The following types of health coverage meet minimum essential coverage requirements:
- Employer-sponsored coverage (including coverage through the Consolidated Omnibus Budget Reconciliation Act of 1985 [COBRA] and retiree coverage).
- Coverage purchased in the individual market, including a qualified health plan offered by Covered California.
- Medicare Part A coverage and Medicare Advantage plans.
- Full-scope Medi-Cal coverage.
- Children’s Health Insurance Program (CHIP) coverage.
- Certain types of veterans health coverage administered by the U.S. Department of Veterans Affairs.
- Certain types of TRICARE coverage administered by the U.S. Department of Defense.
- Coverage provided to Peace Corps volunteers.
- Coverage under the Nonappropriated Fund Health Benefit Program.
- Coverage through the Refugee Medical Assistance program supported by the Administration for Children and Families.
- Coverage through a student health plan.
- Coverage through most state high-risk pools.
- Certain other coverages designated as minimum essential coverage by the U.S. Department of Health and Human Services.
Minimum essential coverage does not include coverage providing only limited benefits, such as coverage for vision care or dental care only, and limited-scope Medi-Cal, such as emergency-only Medi-Cal.