Navigating the complexity of taxation can be daunting. In contrast, your taxes must be filed correctly and on time. Understanding penalties associated with infractions is equally crucial. Comprehending tax penalties is crucial to successful financial planning, and California has no shortage of them that can have major ramifications on both individuals and businesses.
In this article, we’ll take a deeper dive into Californian tax penalties, particularly those associated with not having health insurance. It will give Californian residents tips to prevent these charges from becoming costly charges.
Tax Penalty: Quick Review
Tax penalties are fees levied by government authorities – typically the IRS in the US – against individuals or businesses that violate taxation laws by not complying with taxation requirements. Tax penalties can be assessed for various offenses, including late filing of tax returns, underpayment of taxes, or underreporting income.
Moreover, tax penalties exist to incentivize compliance with tax laws and as compensation for lost time and resources that the government expends in collecting overdue payments. Penalties may vary widely depending on the nature and amount of infraction committed, the total tax owed, and other factors. Being aware of potential penalties and avoiding tax-related missteps are integral components of effective financial planning and legal compliance.
Understanding California Tax Penalties
California follows state guidelines in imposing penalties and interest charges for certain offenses related to tax filing, payment, and insufficient estimated payments throughout the year. Taxpayers could face further charges if they fail to make sufficient estimated monthly tax payments.
Late Filing Penalty
This penalty applies if your tax return is filed after its due date without a valid extension, without an acceptable justification. Usually, this entails an administrative charge equaling 5% of unpaid tax amounts per month that your return is late, up to a maximum penalty of 25%.
Late Payment Penalty
If you cannot make payments by the due date, an unpaid tax amount and late payment penalty of 0.5% per month could apply. It can go up to 25% maximum.
Insufficient Estimated Tax Penalty
This penalty is assessed to those who fail to make enough tax payments throughout the year through withholding or estimated payments. A few examples include withholding tax or estimated payments.
Let’s move to one specific penalty that has garnered widespread attention: the penalty for not carrying health insurance in California.
Penalty For Not A Having Health Insurance In California
California makes maintaining health insurance an individual decision and a legal mandate. Besides, California reinstituted the individual mandate from the Affordable Care Act, meaning Californians must have health coverage or face penalties.
Understand Individual Mandate Requirements
The individual mandate was introduced under the Affordable Care Act (ACA, commonly known as Obamacare). While federal authorities repealed it in 2019, California reinstated it on a state level in 2020. It aims to encourage everyone to acquire health insurance coverage in order to broaden the insurance pool and keep premiums down for all.
California law sets penalties for not having health insurance as either a flat amount or percentage of household income, whichever is greater. The flat amount for adults is $695, while $347.50 will be assessed per child up to a maximum $2,085 family maximum penalty amount. 2.5% of household income over the state tax filing threshold will also incur fines.
Assuming a family of three (two adults and one child) fails to have health insurance for an entire year, their flat amount would be $1,737.50. If their household income were $100k with a filing threshold of $30k, then 2.5% of $70,000 = 1.750. It would result in greater penalties so that this family would pay $1.750 instead.
Exemptions From Penalty Payment
California offers certain exemptions from its penalty for failing to maintain health insurance, and individuals could qualify for one if:
- Their income falls below California’s income tax filing threshold.
- To buy the lowest-cost bronze plan available through their state’s health insurance marketplace would require paying over 8.244% of household income.
- They reside outside of America legally or unlawfully present.
- Claim the hardship exemption due to certain life events such as homelessness, bankruptcy, or eviction.
The easiest and simplest solution is securing health coverage through different sources to avoid California’s penalty for lack of health insurance. The sources include your employer, government programs such as Medi-Cal or Medicare, Covered California marketplace, or private market sources.
Protect Yourself from California’s Health Insurance Penalty
Understanding California’s tax penalties, particularly those for failing to maintain health insurance coverage, is integral for financial planning and complying with state laws. Although penalties can be significant, Californians can reduce them by filing their taxes timely, setting aside enough estimated payments, and maintaining health coverage.
Knowing your exemptions can also help you avoid unnecessary charges. If you need more clarification on your tax obligations or potential penalties, speak with a tax professional for guidance tailored to your unique situation. If you need any help with your insurance programs, you can contact Good And Associates Insurance Services.