The Federal Individual Mandate — Where Things Stand

The federal penalty for not having health insurance dropped to $0 starting in 2019. That means the IRS will not charge you a penalty on your federal return for being uninsured. But that is only half the story.

Several states still enforce their own individual mandates with real financial penalties. California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Columbia all require residents to maintain minimum essential coverage or pay a state-level penalty when they file. If you live in one of those states, going without insurance still costs you at tax time.

Form 1095-A and the Premium Tax Credit

If you bought insurance through HealthCare.gov or a state marketplace, you should receive Form 1095-A by late January. This form matters more than most people think. It reports the premiums paid, the benchmark plan amount, and any advance premium tax credit (APTC) you received during the year.

Here is where it gets tricky. The advance credit is based on your estimated income when you enrolled. If your actual income for the year was higher than that estimate, you owe some of that credit back. If your income was lower, you get a bigger credit. Either way, you reconcile the difference on Form 8962 when you file.

Common situations that trigger a repayment

• You got a raise or bonus that pushed your income above the estimate you gave the Marketplace
• Your spouse started working and household income increased
• You sold stock or had a capital gain you did not anticipate
• You withdrew from a traditional IRA and that distribution counted as income

We see this every filing season. Someone enrolled at an estimated income of $55,000, had a good year, ended at $78,000, and now owes $2,400 back to the IRS. It is not a penalty — it’s a repayment of a credit that was too large for their actual income.

Self-Employed Health Insurance Deduction

If you are self-employed — sole proprietor, single-member LLC, partner, or more-than-2% S-corp shareholder — you can deduct health insurance premiums for yourself, your spouse, and your dependents directly on Schedule 1 of your 1040. This is an above-the-line deduction, which means it reduces your adjusted gross income regardless of whether you itemize.

The deduction covers medical, dental, and qualified long-term care insurance. Two conditions: you cannot be eligible for an employer-subsidized plan (including a spouse’s employer plan), and the deduction cannot exceed your net self-employment income from the business.

One thing that trips people up: if you also claim the premium tax credit, you cannot double-dip. The self-employed health insurance deduction and the premium tax credit interact with each other, and the calculation is iterative. Your AGI affects the credit, and the deduction affects your AGI. Most tax software handles this loop automatically, but if you are preparing your return manually, it requires a worksheet.

Forms 1095-B and 1095-C

If you have insurance through an employer or through Medicaid, you will receive Form 1095-B or 1095-C. These forms confirm that you had coverage during the year. At the federal level, you do not need to attach them to your return or even have them in hand to file. But keep them in your records — they are proof of coverage if a state mandate applies to you.

Employers with 50 or more full-time employees are required to issue 1095-C forms. If you have not received yours by mid-February, ask your HR department. The information on the form matters for state filings in mandate states.

Health Savings Accounts and Your Return

If you have a high-deductible health plan (HDHP) and an HSA, contributions are deductible on your federal return, and qualified withdrawals are tax-free. For 2024, the contribution limit is $4,150 for self-only coverage and $8,300 for family coverage, plus an additional $1,000 if you are 55 or older.

HSA contributions show up on Form 8889, which gets filed with your return. Employer contributions through payroll are excluded from your W-2 income, so they do not need a separate deduction — but you still report them on Form 8889 for the IRS to track total contributions against the annual limit.

What Happens If You Had No Insurance

At the federal level, nothing — no penalty, no form required, no box to check. At the state level, it depends entirely on where you live. California’s penalty, for example, is the greater of $900 per adult (half for children under 18) or 2.5% of household income above the filing threshold. That adds up fast for a family.

If you had a gap in coverage but qualify for an exemption — affordability, short coverage gap (under three months), hardship, religious conscience, or certain income thresholds — you may avoid the state penalty. Each state has its own exemption process.