Beginning with tax year 2020, the state of California requires residents and their dependents to obtain qualifying health care coverage, also referred to as Minimum Essential Coverage (MEC). Individuals who fail to maintain MEC for any month will incur an Individual Shared Responsibility Penalty unless they claim an exemption. The penalty for not having full-year MEC is calculated using the worksheets in the instructions for Form 3853, Health Coverage Exemptions and Individual Shared Responsibility Penalty, along with the exemption information provided in the form itself.
Individuals who purchase a qualified health care plan through Covered California, the California health insurance marketplace, may be eligible to receive financial assistance to help pay the insurance premiums, known as the Premium Assistance Subsidy (PAS). The amount of PAS available to a household is calculated when the taxpayer enrolled in a qualified plan based on the projected household income for the year. Advance Premium Assistance Subsidy (APAS) paid throughout the year will need to be reconciled at the end of the year with the actual PAS allowed based on the actual household income for the year, less federal Premium Tax Credit (PTC) amounts. PAS and APAS are reconciled on Form 3849, Premium Assistance Subsidy.
Aside from terminology, the California procedures and forms in many ways closely resemble the forms that taxpayers and tax preparers have had to complete for the corresponding federal health insurance requirement since tax year 2014:
|Federal Form||California Form|
|8965 (before 2019)||3853|
Part-year residents filing Form 540NR will need to indicate their health coverage status for the time period they were residents of California, reconcile any APAS received during their resident period, and indicate the nonresident exemption to the penalty for the nonresident months.
Full-year nonresidents filing Form 540NR, while not subject to the California MEC Individual Mandate, nonetheless are subject to the same reporting requirement as residents. Thus, a nonresident will need to complete Form 3853 and indicate the nonresident exemption to the penalty for the year.
Important points to keep in mind:
- Due to differences in the legislation as well as separate tax documents giving evidence of health care coverage, the information in federal Form 8962 does not flow to California Form 3849. The two California Forms 3849 and 3853 need to be completed in addition to federal Form 8962.
- While there are several different tax documents that give evidence of MEC, including federal Forms 1095-A, 1095-B, and 1095-C, only the information on Form 3895 is required to be entered in the tax return on Form 3849 for the purpose of reconciling APAS received versus PAS allowed. Additionally, federal Form 1095-A should not be used to complete Form 3849, since the PAS is in addition to the federal APTC.
- The California Marketplace is required to provide Form 3895 to the individual identified as the "tax filer" in the Marketplace enrollment application by January 31 of the year following coverage. The tax filer is the person who is expected to file a tax return, claim dependents, and take the PAS for the year of coverage. If the taxpayer is expecting to receive Form 3895 and doesn't have it by early February, they should log in to their account at Covered California to see if it's available there or contact Covered California by phone at 800.300.1506.
- If the amounts on Form 3895 include cents, round up or down to the nearest dollar as appropriate.
- A tax return will include both Forms 3849 and 3853 if the taxpayer was covered by MEC for only part of the year.
- A taxpayer being claimed as a dependent on another tax return doesn't file either Form 3849 or 3853, and a return for such an individual won't show those forms in the California return menus in TaxSlayer Pro.
- An individual who otherwise wouldn't be filing either Form 540 or 540NR must file a return if any of these scenarios applies:
- they are taking PAS.
- APAS was paid to them or another individual in their household.
- they told the Marketplace that an individual was in their household, and no other tax return includes or will include that individual in their household.
- There are fifteen exemptions to the penalty, and three of them can only be granted by the Marketplace. If the taxpayer is indicating one or more coverage exemptions on Form 3853, do not choose one of these three unless the taxpayer has a corresponding Exemption Certificate Number (ECN) from the Marketplace or has a pending application for an ECN:
- General hardship (exemption code K)
- Members of certain religious sects (exemption code L)
- Coverage considered unaffordable based on projected income (exemption code M).
Note: Exemption code M is not the same as "Coverage considered unaffordable" (exemption code A) which is a determination based on actual household income calculated at the end of the tax year. Nor is it the same as "Aggregate self-only coverage considered unaffordable" (exemption code B) which is a determination that coverage is unaffordable due to either the aggregate cost of self-only employer-sponsored coverage for two or more household members, or the cost of any available employer-sponsored coverage for the entire applicable household, is more than 8.24% of household income.
In TaxSlayer Pro after 2019, when starting either California Form 540 or 540NR, unless the taxpayer is indicated as a dependent on someone else's return you will be asked "Did the Taxpayer have Full year minimum essential health care coverage for all members of the household?" This question corresponds to a check box on Form 540 line 92 or Form 540NR line 91 and if answered Yes the Individual Shared Responsibility Penalty doesn't need to be calculated.
Otherwise, to complete Form 3853 to indicate coverage exemptions and/or calculate the penalty, from the California Tax Return Menu (Form 540 or 540NR) select:
- Refund or Amount Due
- Health Care Shared Responsibility Tax
If anyone in the taxpayer's household was covered by health insurance from the California health insurance marketplace, you'll need to use the information on their Form 3895 to complete Form 3849, accessible from the California Tax Return Menu (Form 540, or 540NR for part-year residents) by selecting:
- Other Taxes
- Premium Assistance Subsidy Repayment (Form 3849)
If you need to change the answer to the question of whether or not the taxpayer had full-year MEC, from the California Tax Return Menu (Form 540 or 540NR) select:
- Personal Information
- Other Categories
- Taxpayer has Full year minimum essential health care coverage for 20xx? - Answer Yes or No.
See here for more information about completing CA Form 3849.
See here for more information about completing CA Form 3853.