California Differences - Shared Responsibility Payment
Individual Mandate
While the TCJA essentially repealed, effective 2019, the federal requirement for individuals to have health insurance coverage or be penalized, California’s legislature enacted SB 78 (signed by the governor 6/27/2019) that created new Title 24 in the Government Code (sections 100700 – 100725) imposing an individual mandate on Californians. For each month beginning on or after January 1, 2020, a California resident must be enrolled in and maintain minimum essential coverage for that month for him- or herself, spouse, and dependents.
Less Than Minimum Essential Coverage
According to the Covered California website, minimum coverage plans are available to individuals under 30 years of age. Those age 30 or older can buy minimum coverage plans if they apply for, and are approved for, an affordability or general hardship exemption through Covered California. Individuals who are approved will be issued an Exemption Certificate Number (ECN) and may buy a catastrophic plan directly from an insurance company. Those who have minimum coverage plans do not qualify to receive premium assistance. These socalled catastrophic plans allow a limited amount of medical care with no out-of-pocket costs, but for additional care, the insured will pay full price at the negotiated in-network price, with a cap in 2024 of $9,450 ($18,900 for coverage of two or more people), after which all in-network services are covered at 100%.
Who Isn’t Subject to the Individual Mandate?
The state’s requirement to have health insurance coverage doesn’t apply to an individual who for that month:
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Has a certificate of exemption for hardship or religious conscience issued by the Exchange (Covered California).
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Is a member of a health care sharing ministry defined the same as in IRC Sec 5000A(d)(2)(B) on January 1, 2017.
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Is incarcerated, other than incarceration pending the disposition of charges.
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Is not a citizen or national of the United States and is not lawfully present in the United States.
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Is a member of an Indian tribe, as defined in IRC Sec 45A(c)(6).
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Has their tax home in a foreign country (Meets Sec 911 bona fide resident or substantial presence test).
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Is a bona fide resident of a possession of the United States, as determined under IRC Sec 937(a).
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Is a bona fide resident of another state.
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Is enrolled in limited or restricted scope coverage under the Medi-Cal program or another health care coverage program administered by State Department of Health Care Services.
Form 540 Checkbox
Beginning with tax year 2020 there is a checkbox on Form 540, 540NR or 540 2EZ to indicate that the taxpayer, spouse/registered domestic partner (if filing jointly) and anyone the taxpayer can or does claim as a dependent had qualifying health care coverage for all the tax year. Checking the box indicates that the taxpayer does not owe the Individual Shared Responsibility Penalty and does not need to file form FTB 3853. The provider of the health care coverage should have issued form FTB 3895 (California Health Insurance Marketplace Statement), federal Form 1095-B or federal Form 1095-C that indicates the taxpayer’s household members who were enrolled in minimum essential coverage and their months of coverage.
On the 2024 Form 540, side 5, the FTB asks: “Do you want information on no-cost or low-cost health care coverage? By checking the "Yes" box, you authorize the FTB to share limited information from your tax return with Covered California.” The Form 540 instructions say that the purpose of the question is to help Covered California for their outreach and enrollment efforts. Limited information that will be shared includes the following:
• Taxpayer name, or in the case of taxpayers filing a joint tax return, the names of both spouses or RDPs.
• Full mailing address listed on the tax return.
• Number and age of household dependents.
• Gross income.
The instructions fail to mention that Medicare is not part of Covered California, and those enrolled in Medicare cannot purchase a Covered California health plan. Therefore, taxpayers with Medicare coverage should answer the question No.
The Penalty Calculation
Individuals, other than those listed above who fail to have minimum essential coverage, or who qualify for one of the exceptions noted below, will be subject to an individual shared responsibility penalty (R&TC Sec 61015), calculated in much the same way as the federal penalty was. The penalty is the lesser of :
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The sum of the monthly penalty amounts (defined below) for months in the taxable year during which one or more of the failures occurred, or
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An amount equal to one-twelfth of the state average premium for qualified health plans that have a bronze level of coverage for the applicable household size involved, and are offered through the Covered California marketplace for plan years beginning in the calendar year with or within which the taxable year ends, multiplied by the number of months in which a failure occurred. See table below for amount (source: applicable year’s Form 3853).
The monthly penalty amount is one-twelfth of the greater of (1) or (2) below:
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An amount equal to the lesser of either (a) or (b):
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The sum of the applicable dollar amounts for all applicable household members who failed to enroll in and maintain minimum essential coverage. The applicable dollar amount, also referred to as the flat dollar amount, is $900 ($450 for individuals under age 18 as of the beginning of the month) and is subject to inflation adjustment.,
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300% of the applicable (flat) dollar amount determined for the calendar year during which the taxable year ends.
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An amount equal to 2.5% of the excess of the responsible individual’s applicable household income for the taxable year over the amount of gross income that would trigger the responsible individual’s requirement to file a state income tax return (the applicable filing threshold), for the taxable year.
Example - Barry and Mary, ages 33 and 30, are married, have a 9-year old child, and are California residents all of 2024. They have no health insurance coverage in 2024. Their gross household income for 2024 is $150,000. The flat amount portion of the penalty calculation is $2,250 (($900 x 2) + $450), which is less than 300% of the applicable dollar amount $8,100 ($2,750 x 300%). The percentage part of the calculation is $2,252.08 ($150,000 - $59,917* = $90,083 x .025). The bronze level coverage average cost for a household such as theirs is $12,528 ($348 x 3 x 12). Since the percentage calculation is greater than the flat dollar amount, and less than the bronze level coverage average cost, their California individual mandate penalty will be $2,252.
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* $59,917 is the filing threshold for MFJ taxpayers with one dependent for 2024.
FTB Penalty Estimator
The Franchise Tax Board provides an online source for estimating the penalty: https://www.ftb.ca.gov/file/personal/filing-situations/healthcare/estimator/
Consequences if Penalty Isn’t Paid
If an individual who is subject to the state’s shared responsibility penalty fails to timely pay it, the individual is not subject to a criminal prosecution or penalty with respect to that failure and the FTB may not place a lien on or levy any real property of the individual. (R&TC 61025(b)(1) and (2)) Otherwise, the individual would be subject to the usual FTB notice and collection actions. AB 85, signed by the governor June 29, 2020, changes the order of priority for debts if a debtor has more than one debt being collected by the Franchise Tax Board so that the FTB is required to apply funds collected from a debtor toward payment of the Individual Shared Responsibility Penalty and overpaid advanced premium subsidies as a first (instead of last) priority.
Exceptions to the Penalty
No penalty applies if:
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The responsible individual’s required contribution, determined on an annual basis, for coverage for the month exceeds an inflation-adjusted percentage of that responsible individual’s applicable household income for the taxable year.The percentages for recent years are:
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2025: 7.28%
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2024: 7.97%
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2023: 8.17%
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2022: 8.09%
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2021: 8.27%
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The responsible individual’s applicable household income for the taxable year containing the month is less than the amount of adjusted gross income or gross income specified for that taxable year for the return filing requirement.
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The last day of the month occurred during a period in which the applicable household member did not maintain minimum essential coverage for a continuous period of three months or less. (Note that the federal short-gap coverage exemption for not having coverage was for less thanthree consecutive months, (that is, the maximum period of continuous non-coverage was 2 months.)
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Other exemptions: see the table in FTB Form 3853, found on the FTB’s website at: 2024 Instructions for California Form 3853 Health Coverage Exemptions and Individual Shared Responsibility Penalty for additional exemptions.
Interaction with Federal Penalty (if any)
In the event the federal shared responsibility penalty is resurrected, the California Individual Shared Responsibility Penalty is to be reduced, but not below zero, by the amount of the federal penalty imposed for each month of the year during which the state’s Individual Shared Responsibility Penalty is imposed. (R&TC 61015(e))