United States

Tax penalties on individuals without health insurance

No federal penalty after 2018 but state penalties may apply

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The Affordable Care Act (ACA) imposed a tax penalty on individuals without health insurance starting in 2014. However, the Tax Cuts and Jobs Act passed in 2017 reduces this penalty to zero for 2019 and later years. Consequently, individuals without health insurance will no longer pay a federal tax penalty after 2018. However, some states have created their own penalty on individuals without health insurance. Massachusetts, New Jersey, and the District of Columbia have penalties that apply in 2019. California, Rhode Island, and Vermont added an individual mandate requirement effective for 2020.

Federal penalty

Since 2014, individuals have been required to report on their Form 1040, U.S. Individual Income Tax Return, whether they have health insurance or qualify for an exemption from the shared responsibility payment imposed by the ACA. Individuals without health insurance paid a tax penalty with their Form 1040 if they did not meet an exemption and attach Form 8965, Health Coverage Exemptions, to their tax return. This requirement to have health insurance is called the individual mandate.

Due to the Tax Cuts and Jobs Act, the shared responsibility payment for individuals was reduced to zero for years after 2018. Therefore, individuals without health insurance will not pay a federal penalty for 2019 or later years.

Furthermore, individuals will no longer be required to report on their Form 1040 whether they have health insurance.

State penalty

Because of the reduction of the federal individual mandate penalty to zero, some states have passed laws to impose their own individual mandate penalty. Here is a brief summary of the states with penalties effective in 2019.

  • Massachusetts. Massachusetts implemented a health care shared responsibility payment on individuals beginning in 2007. This was several years before enactment of the ACA in 2010, which instituted the federal individual mandate starting in 2014. To prevent individuals from paying both a federal and a state penalty for not having health insurance, Massachusetts allows the amount of the federal individual shared responsibility payment as a reduction against its state health care penalty. However, individuals in Massachusetts will once again pay the full state penalty starting in 2019 since the federal penalty has been reduced to zero. Massachusetts residents report the penalty on Schedule HC, Health Care Information, attached to their state tax return. More information is available at Health Care Reform | Mass.gov.
  • New Jersey. Starting in 2019, New Jersey imposes a shared responsibility payment on residents without health insurance unless they qualify for an exemption. Residents attach Schedule NJ-HCC, Health Care Coverage, to their state tax returns to indicate whether they have health coverage or qualify for an exemption. More information is available at NJ Heath Insurance Mandate.
  • District of Columbia. The District of Columbia adopted an individual mandate requirement in September of 2018, effective January 1, 2019. The law requires all residents to have qualifying health coverage or meet an exemption in order to avoid paying a shared responsibility payment.  Residents include Schedule HSR, DC Health Care Shared Responsibility, with their state income tax return to claim an exemption or calculate the penalty. More information is available at Get Covered. Stay Covered. | DC Health Link.

California, Rhode Island, and Vermont have adopted an individual mandate requirement effective in 2020. Other states are considering adopting similar requirements for future years.

Information reporting requirements

In order to enforce their shared responsibility rules, states are requiring insurers, employers, and other providers of health coverage to file annual information returns with the state. Although Massachusetts has its own reporting form (Form MA 1099-HC), New Jersey and the District of Columbia are requiring certain federal forms to be filed electronically with the state. These forms include Form 1094-B (Transmittal of Health Coverage Information Returns), Form 1095-B (Health Coverage), Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), and Form 1095-C (Employer-Provided Health Insurance Offer and Coverage).

  • New Jersey. For 2019, New Jersey requires Forms 1095-B and 1095-C to be filed with the state by March 31, 2020. It is important to note that out-of-state companies that employ New Jersey residents have the same filing requirements as in-state businesses. Consequently, any company that withholds New Jersey payroll taxes or employs a New Jersey resident needs to become familiar with these new filing requirements. New Jersey provides guidance on the filing requirements at NJ Health Insurance Mandate - Employers and Coverage Providers. 
  • District of Columbia. The District of Columbia requires employers and other entities that provide health coverage to individuals to submit the federal Forms 1094-B, 1095-B, 1094-C and 1095-C, as applicable, electronically to its website MyTax DC. Forms must be filed for all individuals for whom wages were withheld and paid to the District, or who had a home or mailing address in the District at any time during 2019. The due date for filing the 2019 forms is June 30, 2020. For future years, the deadline is 30 days after the IRS filing deadline. Additional information about the filing requirements is available in OTR Notice 2019-04.

These state filing requirements are in addition to the federal information reporting requirements and add more complexity to the filing process. Employers should stay alert to future developments as more states adopt individual mandate penalties and information reporting requirements.

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