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 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 the qualified health care 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. (Covered California refers to APAS as "California premium subsidy".)
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 into their account at Covered California to see if it's available there or contact Covered California by phone at 800.300.1506.
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.
Overview of the Form 3849 menu
Annual and Monthly Contribution Amounts - This menu shows the calculation for the required monthly contribution. The Household Income submenu is used to adjust the applicable household size in unusual situations as well as include certain dependent income in the calculation of household income.
Allocating Policy Amounts with Another Taxpayer - There are two check boxes under this menu that may need to be selected in certain scenarios:
- Allocation of Policy Amounts - Check the "Allocation of Policy Amounts" check box to allocate enrollment premiums, SLCSP premiums, and/or APAS on Form 3895 between this taxpayer's applicable household and another applicable household if both of these conditions are true:
- The policy covered at least one individual in the taxpayer's applicable household and at least one individual in another applicable household, and
- The taxpayer received Form 3895 that doesn't accurately represent the members of their applicable household who were enrolled in the policy, i.e., it either lists someone who is not in their applicable household or does not list a member of their applicable household who was enrolled in the policy, or
- The other applicable household received Form 3895 for the policy that includes a member of the taxpayer's applicable household.
- The taxpayer and spouse were unmarried on January 1.
- The taxpayer and spouse were married on December 31.
- The taxpayer and spouse are filing a joint return.
- One or more individuals in the applicable household was enrolled in a qualified health plan before they married.
- APAS was paid for someone in the applicable household during the year.
Allocation of Policy Amounts (Form 3849 - Part 4) - This menu is hidden unless Allocation of Policy Amounts is chosen. See the Form 3895 instructions for how to complete this menu. (The process parallels the Allocation of Policy Amounts on federal Form 8962.)
Alternative Calculation for Year of Marriage (Form 3849 Part 5) - This menu is hidden unless Alternative Calculation for Year of Marriage is chosen. See the Form 3895 instructions for how to complete this menu. (The process parallels the Alternative Calculation on federal Form 8962.)
Use Annual PAS Totals? - Rather than enter the amounts for every month in each of the three columns on Form 3895 in the next menu line, you can choose to enter the column totals but only if the amount in each column for every month of the year is equal. This will save some entry time. If any month has a different amount from the other eleven months, answer No to using the Annual PAS Totals.
Enter Form 3895 Amounts (Form 3849 Part 2) - If you're not entering the annual totals, enter the Form 3895 Part II amounts for each month and column. Otherwise, if you are entering annual totals enter only the three amounts on Form 3895 Part II Line 18.
Net Premium Assistance Subsidy - The amount shown on this line equals the amount of PAS the taxpayer is allowed based on the calculation in Form 3849. It will flow to Form 540 line 77 or Form 540NR line 87. (This line is not editable.)
Excess Advance Premium Assistance Subsidy Repayment - The amount shown on this line equals the amount of APAS the taxpayer needs to repay based on the calculation in Form 3849. It will flow to Form 540 line 64 or Form 540NR line 74. (This line is not editable.)
Required to Repay All of the Excess APAS Received - There are several uncommon situations in which excess APAS may not all need to be paid back, and TaxSlayer Pro will calculate the limitation in these situations. Thus, it is generally best to leave this question at the default answer NO, but there are several unusual situations where the answer should be changed to YES because the individual was not eligible for marketplace insurance and, therefore, not eligible to claim PAS or APAS:
- The primary taxpayer is not lawfully present in the U.S.
- The primary taxpayer is incarcerated.
- The taxpayer files as married filing separately and is not a victim of domestic abuse or spousal abandonment.
Note that there is an exception to the above where the APAS was received for household members who were in the country legally. Consult the Form 3849 instructions for further information on this exception.
Is Form FTB 3895 'Repayment cap may not apply' checked? - This box on Form 3895 will be checked for a taxpayer who indicates their household income is above 400% of the federal poverty line for the entire year. Answer YES if this box is checked.
To complete Form 3849, from the California Tax Return Menu (Form 540, or 540NR for part-year residents) select:
- Other Taxes
- Premium Assistance Subsidy Repayment (Form 3849)