California Individual Mandate came into effect in January 2020 and requires citizens and dependents to obtain health coverage or be subject to penalty. California residents who did not obtain health coverage in 2020 can receive a penalty notice from the state as a part of the California Individual Mandate. When California residents file this year, they must include their health coverage information on their 2020 tax return.
What Are The Penalties Of California Individual Mandate?
The penalties of California Individual Mandate who failed to obtain health coverage during the 2020 tax year are:
- This year, residents will face a penalty of $750 per adult and $375 per child - multiplied by the cost-of-living adjustment.
- A married couple can be fined up to $1,500 and a family of four can face a penalty above $2,250.
The California Individual Shared Responsibility Penalty is either 2.5% of gross household income exceeding California's filing threshold or a flat penalty per family member.
Who Will Be Exempted From Penalty Assessments?
Some California residents will be exempted from penalty assessments, which includes:
- Residents who are incarcerated
- Resident whose income is below the tax filing threshold
- Those who are a member of healthcare sharing ministry
Compliance With California Individual Mandate
The state can identify individuals who have not complied with California Individual Mandate by issuing Form 3895C. Form 3895C is issued by the Franchise Tax Board and prepared by California's Health Insurance Marketplace. It requires additional reporting obligations for employers offering self-insured health plans, especially about who enrolled in health coverage.
The information needs to be furnished to employees by January 31, 2021 and filed to California's Franchise Tax Board (FTB) by March 31, 2021. California Individual Mandate is still in effect in the 2021 tax year. Residents who fail to obtain adequate health coverage in 2021 will face penalty assessments in 2022.
Understanding California Individual Mandate
With the Biden administration now in office, there is speculation that the penalty of California Individual Mandate will be reinstated. This move would force everyone in the United States to obtain health coverage that meets the affordability standards, otherwise face a penalty. Reinstating the California Individual Mandate Penalty would cause more Americans to enroll in health coverage, and it can have two effects on employers:
- It could lead more employees to opt for enrolling in employer-sponsored healthcare coverage plans.
- It may force employees to go to a state or federal healthcare exchange and apply for Premium Tax Credit (PTC) to obtain healthcare coverage.
When a resident applies for a PTC through a federal or state healthcare exchange, the employer will be flagged to the IRS. It results in the issuance of Letter 226J penalty notices to employers who failed to comply with the ACA's Employer Mandate for a specific tax year. The IRS is currently issuing letter 227J penalty assessments for the 2018 tax year.
Takeaway
There is doubt about what the Biden administration will do with the California Individual mandate, so California residents must ensure that they obtain health coverage if they don't want to face a penalty.
