Independence Tax: State Penalties, Exemptions, and Form 1095-A

The federal health insurance mandate penalty has been $0 since the 2019 tax year, so most Americans owe nothing for going uninsured. Five jurisdictions still charge their own penalties, and anyone who took advance premium tax credits on a Marketplace plan faces a separate reconciliation on their federal return that can produce a much larger bill starting with 2026 taxes.

The Federal Penalty Is Zero

The individual mandate still sits in 26 U.S.C. § 5000A and technically requires most people to carry minimum essential coverage. The Tax Cuts and Jobs Act of 2017 zeroed out both the flat-dollar amount and the income-percentage figure for tax years beginning after December 31, 2018.¹ The statute now carries an applicable dollar amount of $0 and a percentage of zero.² The rule was not repealed. The teeth were.

You no longer report coverage status on Form 1040, and Form 8965 has not been used since the 2018 tax year.¹ Anyone telling you to file Form 8965 with a current federal return is working from outdated instructions.

States That Still Charge a Penalty

Five jurisdictions run their own mandates with real financial consequences: California, the District of Columbia, Massachusetts, New Jersey, and Rhode Island. If you live in one of these places and go without qualifying coverage, you will owe a penalty on your state return. Vermont asks you to report your insurance status but does not charge for being uninsured.

The formulas generally mirror the original federal design: the greater of a flat dollar amount per uninsured person or a percentage of household income. Specific numbers vary. In most of these places, a single uninsured adult can expect a minimum annual penalty in the range of roughly $695 to $950, with higher amounts at higher incomes. Families pay for each uninsured member. Every state caps the penalty at the cost of a bronze-level Marketplace plan, so you will never owe more than basic coverage would have cost.

California, New Jersey, Rhode Island, and the District of Columbia accept the same federal Forms 1095-B and 1095-C that insurers and employers already file with the IRS. Massachusetts uses its own MA Form 1099-HC, which insurers must furnish to residents by January 31, along with a completed Schedule HC on the state return. If you moved between states during the year, check each state’s rules on how many months of residency trigger its mandate.

What Counts as Coverage

Not every health-related plan satisfies a mandate. Federal law recognizes three broad categories as minimum essential coverage:²

Government programs, including Medicare, Medicaid, CHIP, TRICARE, VA health care, and Peace Corps volunteer coverage.
Employer-sponsored group health plans, whether fully insured or self-funded, including grandfathered plans.
Individual market plans, whether purchased through a Marketplace or directly from an insurer.

Several products people often assume count do not: standalone dental or vision policies, short-term limited-duration plans, fixed indemnity or accident-only policies, health care sharing ministries, and medical discount programs. If one of these is your only coverage, you are uninsured for mandate purposes. That distinction matters in the five states with active penalties, and it also affects your ability to claim a premium tax credit on a Marketplace plan.

Exemptions in Mandate States

Even where a penalty applies, several categories of people avoid it. At the federal level these exemptions are now mostly relevant for qualifying to buy a catastrophic health plan, since the federal penalty is $0. In mandate states, they directly reduce or eliminate what you owe.

Members of federally recognized tribes and individuals eligible for services through an Indian health care provider.³
Members of a recognized religious sect with longstanding objections to insurance benefits.
Members of qualifying health care sharing ministries at the federal level, though state rules may differ.⁴
People facing hardship such as homelessness, recent eviction, bankruptcy, or domestic violence. Hardship exemptions typically cover the month before the event, the months it lasted, and the month after, and the Marketplace can sometimes extend the exemption to a full calendar year.⁵
Anyone with a short coverage gap of fewer than three consecutive months. Coverage for even one day of a month counts the whole month as covered.⁶
People for whom the cheapest available plan would cost more than a set percentage of household income. Each state sets its own affordability threshold.⁵

Available exemptions and documentation requirements vary by jurisdiction, so check your state’s tax instructions for the applicable form or schedule.

The 2026 Reconciliation Bill Marketplace Enrollees Should Watch

If you bought a Marketplace plan and received advance premium tax credits, you must file Form 8962 with your federal return to reconcile those advance payments against the credit your actual income supports.⁷ This is not a mandate penalty. It is a separate calculation, and skipping it can delay your refund or trigger an IRS notice.

The reconciliation compares what the government paid your insurer each month against the credit your year-end income actually justifies. Income higher than you estimated means you received too much and owe the difference back. Income lower means you get an additional credit. You need Form 1095-A from the Marketplace to complete it.⁷

Two changes make this much sharper for 2026 returns. The enhanced premium tax credits created by the Inflation Reduction Act expired on January 1, 2026. Those enhancements had eliminated the 400% federal poverty level income cap and boosted subsidy amounts across the board. With the expiration, people earning above 400% of the poverty level are no longer eligible for any premium tax credit, and subsidies for everyone else shrink back to pre-enhancement levels.⁸

The repayment caps that used to limit how much excess credit you had to pay back were also repealed for tax years beginning after December 31, 2025. In prior years, if your household income was below 400% of the poverty level, the maximum repayment ranged from a few hundred dollars to around $3,000, depending on income and filing status. Starting with your 2026 return, there is no cap. If you received $4,000 more in advance credits than you qualified for, you owe the full $4,000 back.⁹

Lower subsidies plus unlimited repayment obligations make getting your income estimate right at enrollment far more consequential than in past years. If your income changes during the year, whether from a raise, a new job, or a spouse starting work, update your Marketplace account promptly. Waiting until you file to discover a mismatch is how people end up owing thousands they did not budget for.

The Coverage Forms You Will Receive

Three IRS forms document your insurance status. You do not attach them to your federal return, but they carry the data you need for Form 8962 and for state mandate compliance.

Form 1095-A, issued by the Health Insurance Marketplace if you enrolled in a Marketplace plan. It shows the months you were covered, the premiums charged, and the advance premium tax credits paid on your behalf.¹⁰
Form 1095-B, issued by your insurer or a small employer to confirm coverage met minimum essential coverage standards.¹¹
Form 1095-C, issued by employers with 50 or more full-time workers, documenting the coverage the employer offered and whether you enrolled.¹²

Expect these forms by early spring. Keep them with your tax records even if you do not file Form 8962. They are your proof of coverage if a state tax authority questions mandate compliance.

Fixing an Incorrect Form 1095-A

Errors on Form 1095-A feed directly into your premium tax credit calculation, so catch them early. If you spot a mistake in months of coverage, premium amounts, or family members listed, contact your Marketplace. For the federal Marketplace, call 800-318-2596. State-based Marketplaces have their own contact lines.¹³

If a corrected form arrives before you file, use the corrected version. If you already filed, compare the corrected form to the original. You generally do not need to amend if the correction would only increase your tax, though you are allowed to. You should amend if the corrected information decreases what you owe or increases your refund. The deadline for filing an amended return on Form 1040-X is three years from the date you filed the original, or two years from the date you paid the tax, whichever is later.¹³

1
Internal Revenue Service. Affordable Care Act Tax Provisions for Individuals and Families
2
Office of the Law Revision Counsel. 26 USC 5000A – Requirement to Maintain Minimum Essential Coverage
3
Centers for Medicare & Medicaid Services. Exemption Information if You’re Eligible to Get Services From an Indian Health Care Provider
4
Covered California. Exemptions
5
HealthCare.gov. Health Coverage Exemptions, Forms, and How to Apply
6
Centers for Medicare & Medicaid Services. Exemption Information if You Had a Gap in Health Coverage
7
Internal Revenue Service. Instructions for Form 8962
8
Congress.gov. Enhanced Premium Tax Credit and 2026 Exchange Premiums
9
Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan
10
Internal Revenue Service. About Form 1095-A, Health Insurance Marketplace Statement
11
Internal Revenue Service. About Form 1095-B, Health Coverage
12
Internal Revenue Service. Questions and Answers About Information Reporting by Employers on Form 1094-C and Form 1095-C
13
Internal Revenue Service. Corrected, Incorrect or Voided Form 1095-A