Although the federal individual mandate penalty has been reduced to $0 since plan year 2019 (effective January 1, 2019), the mandate itself remains part of the Affordable Care Act (ACA). This means individuals are still legally required to maintain Minimum Essential Coverage (MEC), even though the IRS no longer assesses a federal penalty for noncompliance.
Federal Individual Mandate (Penalty $0)
- The ACA’s individual shared responsibility provision requires individuals to have MEC or qualify for an exemption.
- While Congress reduced the federal penalty to $0 beginning in 2019, the provision itself remains in the law.
- As a result, employers and insurance carriers must continue to report coverage to the IRS using Forms 1095-B and/or 1095-C so that the federal government has a record of who maintained coverage during the year.
State Individual Mandates
In response to the federal penalty being set to $0, several states implemented their own individual mandates, complete with state-level penalties for residents who fail to maintain MEC. These states require separate reporting to state agencies to support enforcement.
| State | Effective Year | State Agency | Notes |
|---|---|---|---|
| California | 2020 | Franchise Tax Board (FTB) | Requires employer plan sponsors (self-funded and level-funded plans only), and carriers to file MEC coverage data annually with the FTB. Penalties apply for non-filing or late filing. |
| Massachusetts | Pre-ACA (2006), still active | Department of Revenue | Longstanding state mandate. Residents report coverage on their state tax return; carriers send coverage data to the state. |
| New Jersey | 2019 | Division of Taxation | Mirrors federal 1095 reporting structure; state-level penalty applies for uncovered months. |
| Rhode Island | 2020 | Division of Taxation | State mandate and penalty modeled after ACA. |
| Washington, D.C. | 2019 | Office of Tax and Revenue | Requires MEC reporting for DC residents; penalties similar to ACA’s original structure |
Focus on California’s Individual Mandate for State Residents
California enacted its own Minimum Essential Coverage (MEC) Individual Mandate, effective January 1, 2020, to ensure residents maintain qualifying health coverage throughout the year. The mandate is enforced by the Franchise Tax Board (FTB) and applies to California residents regardless of whether the federal individual mandate penalty is $0.
Short Coverage Gap Exemption
California allows a one-time gap in coverage of less than three consecutive months during the year without triggering the state shared responsibility penalty — mirroring the former federal exemption.
- A gap of three full months or longer is not exempt and may result in a penalty.
- This exemption can only be applied once per tax year.
To estimate potential penalties, individuals and employers can use the California Franchise Tax Board’s Individual Shared Responsibility Penalty Estimator.
Employer and Plan Sponsor Reporting Responsibilities
To support enforcement of the mandate, employers and other entities providing MEC to California residents must file coverage information with the California FTB in addition to their federal ACA filings.
- Accepted Forms: California accepts the same IRS Forms 1094-B/1095-B and 1094-C/1095-C that are used for federal ACA reporting — no separate state form is required.
- Who Reports
- Fully insured plans: The carrier reports coverage to the FTB.
- Self-funded or level-funded plans (ALE and non-ALE): The employer (plan sponsor) is responsible for filing.
- Furnishing to Employees: Employers with self-funded or level-funded plans must also furnish employee copies of the coverage statement (typically Form 1095-B or 1095-C) by the state furnishing deadline.
- Filing Method & Deadlines: Filings must be submitted electronically through the FTB File Exchange System, typically by March 31, which aligns with the federal electronic filing deadline.
- Penalties: Failure to file or furnish can result in state-level penalties, which are separate from IRS penalties.
In short: California uses the same 1095 forms as the IRS, but requires that they also be filed with the FTB to verify resident coverage and enforce the state mandate. Employers with self-funded or level-funded plans should coordinate with their vendors or tax counsel to ensure state reporting is completed correctly.
Employer/Plan Role in Supporting Mandate Enforcement
While the federal penalty is no longer enforced, ACA reporting still plays a crucial role in supporting both federal recordkeeping and state enforcement of individual mandates.
- ALEs and carriers must continue to file ACA forms federally.
- For states with their own mandates (like California), employers must understand and comply with additional state filing and furnishing requirements, often through separate state portals.
- This is particularly important for self-funded and level-funded employers, who may not have their carriers filing on their behalf.