Dear [CLIENT NAME],

California imposes penalties (for 2024, generally equal to $900 per adult) against California residents who do not have minimum essential health care coverage for the entire year. The penalty for a dependent child is half of what it would be for an adult.

A typical family of four or more persons that goes uninsured for the whole year would face a penalty of at least $2,700. However, for higher income adults/households, the penalty can be as much as 2.5% of household income above certain thresholds, so a household with $500,000 of household income can face a penalty of close to $10,000.

If you do not have adequate health insurance coverage during the 2024 tax year, the penalty will be imposed, although it does not have to be paid until you file your 2024 tax return.

If you do not have health insurance through your employer, you can sign up for health care coverage online at Covered California (www.coveredca.com).

Subsidies available

The federal government is providing subsidies to assist taxpayers who purchase health care coverage through the Covered California website. Subsidies are available to people whose household income is at or below 600% of the federal poverty line (600% of the federal poverty line is equal to $90,360 for a single person, and up to $187,200 for a family of four).

Exemptions

      Many taxpayers can avoid the penalty if they qualify for an exemption from the requirement to obtain health care insurance coverage. Common exemption examples include, but are not limited to:

• Coverage is unaffordable (you must meet specific requirements, and there a separate affordability tests for the employee and the employee’s spouse and dependents;
• You’ve experienced a severe hardship (e.g., homelessness, eviction, bankruptcy, domestic violence, illness or death in the family, etc.); or
• You have a short-term coverage gap (three months or less) due to switching jobs.

Most of the exemptions are the same ones that applied under the federal Affordable Care Act.

Call our office if you have any questions as to whether you might qualify for an exemption.

Make sure to get coverage as soon as possible to avoid the penalty when we file your 2024 return.

Open enrollment for 2025 through Covered California ends January 31, 2025. We look forward to sharing more information with you on this issue as well as other new issues that will impact your taxes for the 2024 tax return when we see you for your annual appointment.

Sincerely,

Your tax professional