Since the federal individual mandate was eliminated from the Affordable Care Act many states have put in place an individual mandate at the state level. The latest state to join the “individual mandate” club is California.
Effective on January 1, 2020, California now has its own individual state mandate. All California residents must enroll themselves in health insurance coverage through either their employer or the open marketplace to avoid paying a penalty when they file their state income taxes next year.
Why Create An Individual Mandate?
After the federal individual mandate was rolled back, California experienced a noticeable decline in the number of residents that were enrolled in a health insurance plan. This decline in enrollment leads to higher premiums for all enrollees. The individual mandate was created to combat this problem. The increase in enrollment should drive premiums down for all California residents.
What Are The Penalties?
The penalty amounts for tax year 2020 are $695.00 for adults and $347.50 for each uninsured child or alternately 2.5% of gross income. The rule of thumb here is that residents who fail to acquire healthcare with the required minimum essential coverage will be charged.
What Are The Exceptions?
There are exceptions to this new state mandate. Some individuals will be exempt from paying these penalties. The main exception will be for individuals and families whose gross income falls below the tax-filing threshold.
There will also be exceptions for individuals that are members of healthcare sharing ministries and those who are incarcerated. If your current health insurance is deemed unaffordable then you are also exempt.
Circumstances change and your health insurance may change in a given tax year. The new law accounts for this, if an individual has a gap in health insurance that lasts three months or less they will not be charged a penalty.
What Is The New Employee Responsibility?
Another new aspect of the California individual mandate is the new reporting responsibility for self-funded employers. Self-funded employers use their company’s own funds to pay out claims for employees and their dependents rather than contracting the full services of an insurance company. These employers will now be required to report their employee health insurance coverage information to the IRS as well as their employees by furnishing recipient copies.
What About Subsidies?
The good news is that the state of California will be expanding their subsidy program significantly. This means that more individuals will receive premium tax credits to help them pay for their health insurance premiums.
The bad news is that applicable large employers will have to be even more vigilant when supplying their employees with minimum essential coverage. If any of their employees receive a premium tax credit on the open market then they will be penalized and fined for providing unaffordable health insurance.
The Affordable Care Act is always changing and ACAwise has a team of experts to help you keep up and stay complaint! You may not be an employer in California but you can rest assured that ACAwise is ready to streamline your ACA reporting to fit your specific needs, no matter where you are located!