The California Health Insurance Penalty: 2023 Update
During his presidency, President Donald Trump, with assistance from the U.S. Congress, rescinded the penalty of the Affordable Care Act (ACA). The effect went into place on January 1, 2019, meaning that those who were uninsured in 2019 no longer had to pay tax penalties, but those who were uninsured in 2018 still had to pay the fine.
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Before 2019, the Affordable Care Act required U.S. taxpayers to sign up for health insurance coverage or face penalization come tax time. Many who wanted to avoid the tax penalty chose to apply for a valid exemption or enroll in a qualified health plan in time for tax season.
For those who remained uninsured for part of the calendar year, some remained exempt due to their uninsured status being less than three consecutive months. Others were exempt from penalties due to their part in a federally recognized Native American tribe, a grandfathered plan or a Health Care Sharing Ministry (HCSM).
In 2023, you are no longer required to pay a federal tax penalty for remaining uninsured. However, that may not apply to you if you live in a specific state. For those in California, you are still required to have health insurance and could be subject to a fee should you remain uninsured.
What Is the Health Insurance Penalty in California?
The penalty for not having health insurance increases every year. You may want to decide whether it is worth paying the penalty or enrolling in an ACA-compliant California health insurance plan. Here are the ways tax penalties have increased each year:
- 2015: The penalty was around $325 per adult and $162.50 per child or 2% of your taxable household income minus the federal tax-filing threshold. This was the minimum income required by the IRS for someone to file an income tax return.
- 2016: The penalty rose to $695 per adult and $347.50 per child or 2.5% of your taxable household income minus the federal tax-filing threshold.
- 2017 to 2018: The penalty increased to $695 per adult and $347.50 per child, plus COLA (“Cost of Living Adjustment”) or 2.5% of your taxable household income minus the federal tax-filing threshold.
- 2019: In 2019, the tax fees were rescinded, meaning those uninsured wouldn’t have to pay fines during the year.
- 2020 to 2022: In 2020, California again required that taxpayers enroll in health insurance or face penalties during tax season. Depending on your income, fees could be around $800 per adult and $400 per dependent child or anyone under 18 in the household who relies on you for income. Or, you’ll be required to pay 2.5% of your gross income that’s above the filing threshold, which is based on how many dependents you have and your tax filing status. You’ll pay whichever is higher.
- 2023: A flat amount based on the number of people in the household, $850 per adult 18 years or older and $425 per dependent child, up to an annual max of $2,550.
What Are My Options for Complying With Obamacare?
You have options when it comes to complying with Obamacare:
- Get no insurance: You’ll still have to pay the penalty at tax time in California. Consider carefully before choosing this option.
- Get cheap insurance: Remember that a cheap insurance plan often won’t meet minimum essential benefits requirements, and you might still have to pay the penalty at tax time.
- Enroll in a qualified health plan: This option does not have to be through Covered California to avoid the penalty, but it must be a Covered California plan to qualify for a government subsidy.
- Enroll in a Health Care Sharing Plan (HCSP): An HCSP exempts you from the tax penalty and may offer lower premiums than traditional health insurance plans.
Health Insurance Penalty Options
Because penalties may be comparatively low, some California residents opt to pay the fine and go without health insurance coverage. Another option some choose is to get cheap coverage, or one that won’t meet the minimum essential benefits requirements and still pay the penalty. In many cases, it may be beneficial to compare your penalty for remaining uninsured versus paying health insurance plans monthly.
For example, if in the tax year 2015, you were single, aged under 65, had a taxable income of $50,000 and were uninsured the whole year, your penalty would have been calculated as follows — The greater of $395 or $50,000 income minus $10,150 Federal Minimum Threshold, equals $39,850 x 2% and equals a $797 penalty. In this scenario, your tax penalty would be $797.
If you remained uninsured in 2017, your penalty would go up to approximately $996 depending on the Cost of Living Adjustment and the Federal Minimum Threshold. At $996 per year, that is only about $83 per month.
If you compare that penalty with paying a theoretical $375 a month for a Covered California plan, it may make sense to pay the tax penalty for no health insurance. However, in 2023, the cost of paying monthly health insurance versus paying a fee at tax time is something that should be weighed and calculated carefully.
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Not sure how Obamacare affects your health care plans in California? Learn how the ACA works in California, including benefits, costs and enrollment.
Covered California is the Golden State’s official health exchange marketplace where individuals, families and small businesses can find high-quality, low-cost California government health insurance.
Learn about Obamacare income guidelines in California using our income limits chart, and see if you’re eligible for government assistance.
Learn about the Covered California website. Find easy online enrollment. Set up your account, log in, buy insurance and more on the California health marketplace website.