What You Must Know About Health Coverage Requirements

For several years, many taxpayers feared the so-called “Obamacare penalty,” formally known as the Shared Responsibility Payment under the Affordable Care Act (ACA). The penalty applied to people who did not maintain qualifying health insurance coverage throughout the year. While the federal penalty was reduced to zero beginning in 2019, certain states still enforce their own health coverage requirements and penalties.

Here is what taxpayers should understand today about avoiding any remaining penalties tied to health insurance laws.

The Federal ACA Penalty Was Reduced to Zero

Under the ACA, most individuals originally had to maintain “minimum essential coverage” or pay a penalty on their federal tax return. Beginning in 2019, Congress eliminated the federal tax penalty, meaning:

• no federal penalty for not having coverage
• no Shared Responsibility Payment on federal returns
• no federal enforcement of the individual mandate

However, the individual mandate still technically exists, but without a federal financial penalty attached.

Some States Still Have Their Own Penalties

Even though the federal penalty is gone, several states and the District of Columbia implemented state-level coverage requirements. Taxpayers in those states must either have health coverage or qualify for a state exemption.

States with active penalties currently include:

• California
• Massachusetts
• New Jersey
• Rhode Island
• District of Columbia

Other states may add similar requirements in the future, so always check your local rules each year.

How State Penalties Work

State penalties generally apply if you:

• go without health insurance
• do not qualify for an exemption
• and fail to prove minimum essential coverage

Penalties vary by state and may be based on:

• household income
• length of time uninsured
• number of household members without coverage

In some states, the penalty can be significant when compared to the cost of basic coverage.

Common Exemptions That May Apply

Many taxpayers qualify for exemptions from state penalties if they experienced:

• short gaps in coverage
• financial hardship
• certain life situations
• unaffordable premiums
• religious exemptions (in some states)
• recent unemployment
• temporary loss of employer coverage

Most states allow exemptions through their health exchange or through tax filing.

Options to Avoid a Penalty Going Forward

The easiest ways to avoid a state-level penalty include:

• obtaining qualifying marketplace coverage
• securing employer-provided coverage
• enrolling in Medicaid or CHIP (if eligible)
• verifying COBRA eligibility after job loss
• reviewing marketplace subsidies and tax credits

Many taxpayers qualify for premium tax credits that significantly reduce monthly insurance costs through Healthcare.gov or state health exchanges.

Marketplace Plans May Be More Affordable Than You Think

Because of ACA premium tax credits and updated subsidy rules, many households can access low-cost coverage. Credits are based on:

• income
• family size
• zip code
• eligible coverage levels

Some families pay little or no monthly premium after subsidies are applied.

The federal “Obamacare penalty” no longer applies, but several states still enforce health insurance requirements and penalties. Taxpayers living in those states should understand their specific rules, available exemptions, and coverage options. Checking your state guidelines each year ensures you stay compliant and avoid unnecessary penalties.