New State Law Requires Californians Have Health Insurance or Face Penalties In 2020

Starting Jan.1, 2020, a new California law could make residents liable for a tax penalty if they don’t have health insurance – some exemptions may apply. The new spending bill will replace the Affordable Care Act’s individual mandate. The law will have an indirect impact on state employers, and it will impose an individual mandate on approximately 40 million Californians who may see lower prices for prescription drugs and insurance if the new law works as planned.

But the Golden State is not the only one passing these laws. There is also New Jersey, Massachusetts, Vermont, Washington, D.D., and Rhode Island requiring their residents have health insurance. Penalties are supposed to raise $317 million during the first year of its collection, and the money is intended to pay for new subsidies that will make health insurance more affordable for low and middle-income Californians.

The new law exempts some people such as incarcerated individuals, members of a healthcare sharing ministry, those who qualify because of religious objection or financial hardship, those uninsured for three months or less, the Native American, and undocumented resident aliens. You can also claim an exemption if you spend 8.24% of your income on health insurance.

Consequences for Employers

Under the new state mandate, California employers will experience two major consequences:

  • In 2020, employees in California will have the same tax avoidance incentive they had under the ACA.
  • Insurance companies and employers are required to report who had medical coverage and who didn’t. Employers can always arrange with a state vendor to provide that information on their behalf.

Self-funded employers must comply to provide the required information, which will help employees avoid the tax penalty. Thus, if the information is not provided to the state, the employee may suffer the imposed tax penalty. Failure to do so can trigger a penalty of $50 per employee on the self-funded employer whose coverage is not reported.

Fines for The Uninsured

The penalty will be $695 for an adult and half of that for dependent kids. Individuals with higher incomes will pay 2.5% of their income, which makes the penalty a bit pricey.

How to Avoid the Tax Penalty?

If you want to avoid the tax penalty, you need to have at least minimum coverage. If you go without coverage in 2020 – even for a few months – you may have to pay the penalty. The best thing you can do for yourself is to purchase health coverage during open enrollment, which ends January 31 in California, so you still got some time.

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