Check details on California’s Healthcare Mandate Penalties

The decision to not have health insurance for a few months is a financial choice that can cost you more in California. California has its own separate health care mandate, and the penalty is collected by the Franchise Tax Board (FTB) on the state tax return, as opposed to the federal government.

How Much is the Penalty?

The penalty will typically be the higher of a flat amount or 2.5% of total family income over the filing threshold for the 2025 tax year. The flat penalty is:

• $950 per uninsured adult
• $475 per dependent child

The fine could thus be as high as $1,900 for an uninsured married couple or $2,850 for a family of two adults and two children.

The actual amount is based upon family size, income, and months of not having a qualifying plan. Look for a professional (like a crypto tax attorney) who can understand your situation and get a better outcome.

Freelancers and Gig Workers are Especially Vulnerable for Several Reasons

Health insurance is commonly provided by employers to employees. Freelancers, independent contractors, rideshare and delivery drivers, and other workers doing gig jobs are usually responsible for arranging coverage on their own.

This can pose several issues:

1. The loss of employer coverage due to a job loss.
2. When there’s a lapse of enrollment due to being self-employed.
3. Short term/limited coverage is assumed automatically
4. Not renewing the marketplace coverage if premiums are missed.
5. Having income fluctuations that impact coverage or assistance

California mandates insurance coverage for people and their dependents, except in certain cases.

The Penalty Can Be Avoided with Exemptions

Not all uninsured months result in a tax penalty. California provides a variety of exemptions such as:

• Short coverage gap: A gap of three consecutive months or less may be acceptable.
• Unaffordable coverage: There is an exemption for when the coverage is greater than the applicable percentage of household income.
• Income that is below the filing threshold
• Some situations where a person has been incarcerated, lives outside of California, or has special immigration situations.
• Some events in the home that occur during the year

Many of the hardship exemptions are processed through a Covered California program instead of on the state return. Consult with experts to learn about sales tax audit procedures and more.

Notably, the “short gap rule” has requirements in California. For instance, the exemption is not valid for the entire period of coverage when the period of coverage is interrupted for three or more months of coverage.

Best Tips for Avoiding A Tax-Time Surprise:

If you are self-employed or an employee on the ‘gig economy’:

1. Track coverage monthly. Maintain insurance statements and enrollment documents.
2. Ensure that the coverage qualifies. May include employer plans, Covered California, Medicare Part A or C, and most Medi-Cal plans.
3. Report changes promptly. The eligibility and financial aid in the marketplace may be impacted by income changes. Changes in income may impact marketplace eligibility and financial assistance.
4. Watch renewal dates. Do not presume that your policy will continue.
5. Review Form 3853 requirements. This form is to report health coverage exemptions and to calculate the Individual Shared Responsibility Penalty.

A seemingly innocuous lack of coverage can become a large tax liability in California. As with any other type of worker, freelance and gig employees will want to avoid penalties with their state returns, and planning ahead, keeping paperwork, and understanding exemptions that are available to them can help them do that.

If you were without coverage for any time, check your circumstances first, and don’t just assume that you have to pay the penalty.