Savanna Hoffman
As of 2024, tax penalties for the Affordable Care Act (ACA), also known as Obamacare, have been largely cancelled. The ACA was signed into law in 2010 by President Barack Obama and mandated that all Americans have health insurance coverage. While the mandate technically remains in place, the federal tax penalty for not having minimum essential coverage was removed at the end of 2018. However, some states, including New Jersey, California, Massachusetts, and Rhode Island, have implemented their own health insurance requirements with penalties for non-compliance. These penalties are assessed via state tax returns and are designed to increase the number of people with access to healthcare and insurance.
| Characteristics | Values |
|---|---|
| ACA federal tax penalty for not having minimum essential coverage | Eliminated after 2018 |
| States with penalties for non-compliance | New Jersey, DC, Massachusetts, California, Rhode Island |
| California penalty | Higher of a flat amount based on household size or 2.5% of gross income above the filing threshold |
| Rhode Island penalty | Individual mandate with penalty for non-compliance |
| Massachusetts penalty | Based on income level, age, and access to affordable coverage |
| Vermont penalty | No financial penalties, focuses on educating residents about health insurance |
| Federal penalty in 2018 | $295 per adult or 2.5% of household income, whichever is higher |
| California penalty in 2023 | Minimum of $900 per adult and $450 per dependent child under 18 |
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What You'll Learn
ACA federal tax penalty removal in 2018
The Affordable Care Act (ACA), also known as Obamacare, was signed into law in 2010. It required every individual and family to have health coverage. The ACA included penalties for those without qualified coverage, known as the individual mandate. This mandate was an unpopular aspect of Obamacare and was repealed at the end of 2018, with the removal taking full effect in 2019.
The individual mandate was removed by the Tax Cuts and Jobs Act of 2017. This act made several changes to the tax law, including the removal of the ACA's federal tax penalty. The federal penalty for not having minimum essential coverage was eliminated, meaning there was no longer a penalty for non-compliance. The mandate for coverage technically remains in place, but without any federal penalty.
The ACA's individual mandate was a pivotal provision that reshaped healthcare coverage in the United States. It required most Americans to obtain and maintain health insurance coverage. The aim was to increase the number of insured individuals and create a more balanced risk pool to help control healthcare costs and ensure universal access to care. The ACA also provided financial assistance to make plans more affordable for lower-income Americans.
The removal of the individual mandate penalty in 2018 meant that people were no longer fined for lacking health insurance. Before the repeal, the penalty for going uninsured was $295 per adult or 2.5% of the household income, whichever was higher. This penalty was pro-rated by the number of months a person was uninsured. For 2018, the penalty was set to be the greater of $695 or 2.5% of household income.
While the federal mandate penalty was removed, some states have implemented their own health coverage requirements with penalties. These include New Jersey, California, Massachusetts, Rhode Island, and DC. These states assess penalties for residents without coverage via their state tax returns. The revenue generated from these penalties is used to fund state reinsurance programs.
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State-level health insurance requirements
In the United States, health insurance requirements for students vary depending on the state and the student's circumstances. While the Affordable Care Act (ACA) mandates that all US citizens and resident aliens have ACA-compliant health insurance or pay a fine, this federal tax penalty for not having minimum essential coverage was eliminated after 2018. However, some states have implemented their own health coverage requirements and penalties for residents who do not maintain insurance.
State-Specific Mandates
Although the federal penalty for not having health insurance has been eliminated, certain states have introduced their own mandates and penalties. As of 2025, these states include New Jersey, California, Massachusetts, Rhode Island, and DC. For example, in California, legislation enacted in 2019 created an individual mandate with a penalty for non-compliance starting in 2020. The penalty is based on either a flat amount per household or a percentage of gross income above the filing threshold.
International Students
International students attending US schools may have different health insurance requirements depending on their visa status, tax status, and state regulations. The US Department of State requires international students (and their dependents) in the J visa category to purchase insurance that meets specific requirements, such as medical benefits of at least $100,000 per accident or illness. Additionally, before obtaining their visa, these students must provide proof of insurance. While the majority of international students in the US are not legally required to have health insurance, individual schools may determine the level of coverage they must have.
Student Health Plans
Many universities and colleges in the US offer student health plans, which can be an affordable way for students to obtain basic insurance coverage. Students can still apply for coverage through the Marketplace, where they may qualify for lower costs based on income, family size, and location. Additionally, graduate students at universities like Villanova University can enrol their spouse and children in the university-sponsored plan.
Medicaid and CHIP
Medicaid programs, which provide free or low-cost health coverage, have been expanded by many states to cover individuals below certain income levels. Additionally, the Children's Health Insurance Program (CHIP) offers low-cost health coverage to children in families who earn too much to qualify for Medicaid but cannot afford private insurance. In some states, CHIP also covers pregnant women.
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ACA penalty payment collection by IRS
The Affordable Care Act (ACA) provisions have changed over the years, with the federal tax penalty for not having minimum essential coverage being eliminated after 2018. The ACA's federal individual mandate penalty was effectively removed at the end of 2018, due to the Tax Cuts and Jobs Act (TCJA) reducing the shared responsibility payment to zero from 2019 onwards.
Despite the federal changes, some states have implemented their own health coverage requirements with penalties, assessed via state tax returns, for residents who do not maintain coverage. These states include New Jersey, California, Massachusetts, Rhode Island, and DC.
The IRS collects the ACA penalty as an additional tax on tax returns. While the IRS has broad powers to collect unpaid taxes, provisions in the ACA limit this. The IRS cannot use liens or levies to collect unpaid ACA penalties. Instead, the IRS can offset the liability with any tax refund that may be due. Interest will grow on the unpaid amount, similar to an underpayment of tax.
The ACA penalties are calculated monthly and apply to Applicable Large Employers (ALEs). The "A" penalty is $3,340 per full-time employee, minus the first 30 employees, if an employer fails to offer minimum essential coverage to 95% of its full-time employees and their dependents. The "B" penalty, which is $5,010, is levied for each full-time employee that receives the tax credit and purchases Marketplace coverage. These penalties are subject to change, with the IRS increasing the affordability baseline from 9.02% in 2025 to 9.96% in 2026.
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Exemptions from the ACA fee
Under the Affordable Care Act (ACA), individuals are required to have health coverage or qualify for an exemption from the coverage requirement. If you don't have health coverage, you don't need an exemption to avoid paying a tax penalty. However, if you're 30 or older and want to enrol in a "Catastrophic" health plan, you will need to apply for an exemption.
- Financial hardship: If you experienced financial hardship that prevented you from obtaining coverage, such as medical expenses resulting in substantial debt, you may be eligible for an exemption.
- Housing instability: Experiencing homelessness, eviction, or facing foreclosure can qualify you for an exemption.
- Domestic violence: If you experienced domestic violence, you may be eligible for an exemption.
- Death of a family member: The death of a close family member can also qualify as a hardship exemption.
- Natural disasters: If you experienced a fire, flood, or other natural or human-caused disasters that caused substantial damage to your property, you may be exempt from the ACA fee.
- Bankruptcy: Filing for bankruptcy can be a reason for exemption.
- Inability to afford coverage: If you couldn't afford health coverage, you may be exempt from the requirement to have insurance.
- State's Medicaid status: If your state didn't expand Medicaid, you may qualify for an exemption.
- Indian Health Services eligibility: If you're eligible for Indian Health Services, you are exempt from the requirement to have health coverage.
- Religious conscience: If you participate in a recognised religious sect that is against insurance, Medicare, and Social Security, you may be exempt.
- Incarceration: If you are currently in jail or prison, you are exempt from the requirement to have health insurance.
It's important to note that the availability of these exemptions may vary based on your state and individual circumstances. Additionally, you may need to provide explanations and documentation to support your exemption claim.
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Calculation of ACA penalty fee
The Affordable Care Act (ACA) previously imposed a federal tax penalty for individuals without minimum essential health insurance coverage. However, this mandate ended after 2018 due to the Tax Cuts and Jobs Act of 2017. While the federal penalty no longer applies, some states, including New Jersey, California, Massachusetts, Rhode Island, and DC, have implemented their own health insurance requirements with associated penalties. These state-level penalties are typically assessed via state tax returns.
For employers, the ACA imposes potential tax penalties, known as the "A" and "B" penalties, which are calculated monthly. The "A" penalty is triggered when an employer fails to offer minimum essential coverage to at least 95% of their benefit-eligible employees, and one such employee receives a premium subsidy for coverage from the Marketplace. This penalty applies to each full-time employee, even if they did not receive a premium tax credit, and is $3,340 per full-time employee, minus the first 30 employees.
The "B" penalty, on the other hand, is levied when an employer offers minimum essential coverage to at least 95% of eligible employees, but some of those offers are either unaffordable or do not meet minimum value requirements. This penalty only applies to full-time employees who receive the tax credit and purchase Marketplace coverage. Coverage is considered affordable if the employee's required contribution for self-only coverage does not exceed a certain percentage of their household income for the taxable year. For 2025, this affordability baseline was set at 9.02%, increasing to 9.96% in 2026.
It's important to note that these penalties are subject to change and may be updated by the IRS. Additionally, employers should carefully consider the definitions of "employee" and "affordable coverage" when calculating potential penalties. Online penalty calculators can provide estimates, but they may not guarantee the exact amount of ACA penalties incurred.
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Frequently asked questions
The federal tax penalty for not having minimum essential coverage under the ACA was removed at the end of 2018. So, students don't have to pay the ACA penalty.
The ACA, or Affordable Care Act, mandated that most Americans obtain and maintain health insurance coverage. The IRS would assess and collect a penalty fee, known as the "Individual Shared Responsibility Payment", at tax time if an individual was uninsured during that tax year and did not qualify for an exemption.
Yes, some states have implemented their own health coverage requirements with penalties for non-compliance. These states include New Jersey, California, Massachusetts, Rhode Island, and Vermont.
The penalty is calculated based on a percentage of income or a flat amount, depending on the state. For example, in California, the penalty is the higher amount between a flat amount based on the household size or 2.5% of gross income above the filing threshold requirements.
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