Individual Shared Responsibility Penalty – How it is Calculated October 2020 Tax News

The State of California is working hard to reduce the number of uninsured individuals and families. While the vast majority of Californians already have qualifying health insurance coverage, for those who currently do not but want to obtain it, Covered California provides information about affordable and quality health insurance, Medi-Cal eligibility and available financial assistance.

Beginning January 1, 2020, all California residents must either have qualifying health insurance coverage, obtain an exemption from the requirement to have coverage, or pay a penalty when they file their state tax return. The Individual Shared Responsibility Penalty is imposed on any applicable individual for any month in which they fail to enroll and maintain minimum essential healthcare coverage.

FTB’s website has an Individual Shared Responsibility Penalty Estimator where you can determine the potential penalty based on one’s individual circumstances. But, did you know how the amount of the penalty is determined? The penalty will be calculated based on an applicable dollar amount as follows:  

For the 2019 taxable year, the applicable dollar amount for adults was $695. If an applicable individual isn’t 18 years old as of the beginning of the month, that person’s penalty that month shall be equal to one-half of the applicable dollar amount ($347.50 for 2019). For each subsequent year, the applicable dollar amount will be multiplied by the cost-of-living adjustment described below.

The 2020 applicable dollar amount for adults is $750, calculated as follows:

  1. Applicable dollar amount in 2019 = $695
  2. California CPI in June 2016 = 255.576
  3. California CPI in June 2019 = 280.956
  4. Cost-of-living adjustment = 280.956 ÷ 255.576 = 1.0993
  5. Applicable dollar amount in 2020 = 1.0993 × $695 = $764.02
  6. Applicable dollar amount in 2020 rounded down to multiple of $50 = $750

It’s important to note that the penalty imposed on an uninsured individual for a month could be different from the applicable dollar amount. The penalty amount would take into account such factors as the size of the family, the excess of household income over the filing threshold, state average premium for qualified health plans that have a bronze level of coverage for the applicable household size involved, and the age of the individual.

Finally, the penalty will not be imposed if the applicable individual did not have coverage for a continuous period of three months or less. If there is more than one such continuous period in a calendar year, the exception provided will only apply to months in the first of those periods.