When the Affordable Care Act (ACA) became law, it expanded health insurance coverage options for low-income people starting in 2014. It included a provision called the “Individual Mandate” requiring everyone to have health insurance or face a tax penalty, sometimes called the “shared responsibility payment.” As part of the Tax Cuts and Jobs Act passed in December 2017, the federal tax penalty was repealed. Beginning with the 2019 tax year, New Jersey residents will no longer face this federal tax penalty.
However, New Jersey passed its own individual mandate bill in 2018. This means New Jersey residents will have to pay a similar state tax penalty in 2019 if they do not have health insurance.
The 2018 Federal Tax Penalty
For your 2018 tax return, the federal tax penalty for not having health insurance still applies. For most lower-income single adults, the penalty will be $695 per year. The penalty applies for every month you do not have “minimum essential coverage” (MEC). If you have Medicaid or Medicare, or have health insurance through your job, or purchase health insurance through the Health Insurance Marketplace created by the ACA, or purchase comprehensive insurance directly from an insurance company, you meet the MEC requirement and will not have to pay the penalty.
The penalty for 2018 is calculated by comparing two numbers and using the larger of the two calculations. (See example)
Example: A single person with $19,000 in income, uninsured for six months in 2018.
Step 1 - Compare and Calculate
a. Flat amount ($695 per uninsured adult, $347.50 per uninsured child, with a household cap of $2,085). In this example, $695 is the amount because the person is single.
b. Income greater than the “income filing threshold” ($10,400 for single person, $20,800 for a married couple) is multiplied by 2.5%. In this example:
$19,000 - $10,400 = $8,600
$8,600 x 2.5% = $215
Step 2 - Determine whole-year tax penalty
Select the larger of the two numbers from step one. In the above example, $695 is the tax penalty for the whole year since it is greater than $215. Since this person had coverage for part of the year, step three would be required.
Step 3 - Calculate your 2018 tax penalty
Multiply the whole-year penalty by the number of months without coverage during the year. In the above example, the person was without coverage for six months.
6/12 (or ½) of $695 = $347.50
Exemptions from the 2018 Penalty
Even if you do not have qualifying health coverage, there are exemptions from the tax penalty. For example:
- An exemption for households with income below the federal income tax filing threshold (in 2018, $10,400 for single; $20,800 for married).
- An “affordability exemption” if the premium for the lowest-cost plan available to you costs more than 8.16% of your income.
- An exemption if you were without insurance for less than three months during the year.
- Exemptions based on hardships that prevented you from getting insurance, such as facing eviction or foreclosure, experiencing domestic violence, or filing for bankruptcy.
Exemptions must be claimed by filing federal tax form 8865 when you file your 2018 federal tax return. Most exemptions are granted by the Internal Revenue Service, but in some cases, you must apply for an exemption through the federal Health Insurance Marketplace. Learn more about all the exemptions at the Marketplace website, HealthCare.gov.
The 2019 New Jersey Tax Penalty
The New Jersey law imposing a state tax penalty for not having health insurance in 2019 is patterned on the individual mandate tax penalty in the federal Affordable Care Act. The New Jersey law allows the state treasurer to enforce the law according to New Jersey tax law and conditions, especially in determining exemptions from the tax penalty. Those regulations have not yet been issued, so we do not yet know how the New Jersey penalty may differ from the federal penalty.
Even though some New Jersey penalty specifics are not yet known, residents can take steps now to avoid paying the penalty when they file their 2019 tax returns in 2020. The most important step is to find and apply for an affordable coverage option. As noted, one exemption from the current federal penalty is for people who were without coverage for less than three months during the year. If New Jersey keeps this exemption, you would not face a penalty if you obtain qualified coverage before the end of March 2019 and keep it for the remainder of the year. Also, even if you get qualified health insurance after March 31, it will cut down on your tax penalty because the penalty is a monthly calculation.
NJ FamilyCare and Federal Marketplace Options
If your income is low, you may be eligible for NJ FamilyCare (Medicaid or CHIP). For adults ages 19 to 64, the income limit is 138% of the Federal Poverty Level (FPL) or $17,236 in 2019 for a single individual. For a pregnant woman, the income limit is 205% FPL or $34,665 in 2019 for her family of two. For these categories, there are no premiums or co-pays. For children, the income limit is 355% FPL or $75,721 for a family of three. Depending on income, there may be no premium or low premiums and co-pays for these children. There are also Medicaid programs for the elderly and disabled. For more information and to apply, visit the NJ FamilyCare website.
Even if your income is too high to be eligible for NJ FamilyCare, you may be eligible to purchase a subsidized insurance policy through the Health Insurance Marketplace. Open enrollment for 2019 Marketplace plans closed on December 15, 2018, but you may be eligible for a special enrollment period (SEP) that will enable you to enroll now. If you qualify for a SEP, you have 60 days from the event triggering the SEP to purchase coverage on the marketplace. The most common event triggering a SEP is the loss of other health insurance coverage, such as losing employment coverage because you left your job, or losing Medicaid because your income went up. For a full list of SEP-qualifying events, go to HealthCare.gov and click “See if I can enroll” or “See if I can change.”
If you qualify for a SEP, you can enter your income and age on the website and see if you qualify for a premium subsidy and then review the premiums and cost-sharing for all plans that you could purchase. If your primary goal is to purchase a plan so you will not have to pay a New Jersey tax penalty in 2019, then you may have some affordable options. For example, if you are a single person, age 63, living in Camden County and your annual income is $19,000, there appear to be two bronze plans for which the premium is only $1 per month. These plans have a $3,000 deductible before you can access coverage and then substantial co-insurance or co-pays even if you are able to meet this deductible. It is highly unlikely you could afford to use your coverage, but this is one way you could avoid the New Jersey tax penalty for all or part of 2019.