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.
Note: If Form 3853 is required due to anyone in the household not having MEC for the entire year, the return will not be e-fileable without it.
The form has three parts:
- Part I lists the applicable household members along with their modified AGI and Exemption Certificate Number (ECN) from Covered California, the California healthcare Marketplace, if any.
- Part II consists of a single check box to be checked if the taxpayer is claiming a coverage exemption because their applicable household income or gross income is below the filing threshold.
- Part III lists for each member of the household and for each month of the year whether or not they were either covered by MEC or had an exemption.
Preparing Form 3853 may entail the use of one or both of two affordability worksheets in the Form 3853 instructions. The two worksheets have similar sounding names but have different purposes:
- Affordability Worksheet - This worksheet is used to determine whether coverage for each individual in the taxpayer's applicable household is considered unaffordable for the purpose of claiming exemption code A or B.
- Marketplace Coverage Affordability Worksheet - This worksheet is used to calculate an individual’s required contribution for any month in which the individual is not eligible for employer-sponsored coverage and who does not otherwise have a coverage exemption. If used, this worksheet produces the annualized required contribution to be plugged into each month in the affordability worksheet.
Depending on the household, a return might need to utilize one, both, or neither of the affordability worksheets.
The Form 3853 menu in TaxSlayer ProWeb has three sections:
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Part III - Coverage Exemptions - In this menu you will indicate for each individual in the return whether they had health coverage, or are claiming an exemption, or neither. See the Form 3853 instructions for a description of the available exemptions.
Of the fifteen exemptions to the penalty, three of them can only be granted by Covered California. If the taxpayer is indicating one or more coverage exemptions on Form 3853, these three can only be chosen if the taxpayer has a corresponding ECN from Covered California 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 that three of the fifteen exemptions relate to coverage unaffordability. If you are selecting an exemption that relates to unaffordability be sure to select the correct one:
- "Coverage considered unaffordable based on projected income" (exemption code M) - this exemption is based on a determination at the beginning of the year, and the taxpayer must request it from Covered California. When this exemption is granted, Covered California provides the individual an ECN.
- "Coverage considered unaffordable" (exemption code A) - this exemption is based on actual household income calculated at the end of the tax year. Use the Affordability Worksheet to determine if this exemption can be taken.
- "Aggregate self-only coverage considered unaffordable" (exemption code B) - this exemption can be claimed if 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. Use the Affordability Worksheet to determine if this exemption can be taken.
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Shared Responsibility Payment - All individuals in the return are entered under this menu and each needs to include an indication for each month of the year if they either had coverage or are claiming an exemption or neither. If the Affordability Worksheet is being used for exemption code A or B, the required annualized contribution amounts for each month are entered here.
- Coverage Affordability Worksheet - The two affordability worksheets are used to determine if the return qualifies to use exemption codes A and B, as explained above.
Navigation steps
To complete Form 3853 in the California tax return in TaxSlayer ProWeb, from the California Return menu select:
- Health Care Coverage Forms
- Health Care Shared Responsibility Tax (Form 3853) - Completing this form assumes the answer to the first question is No, that not all members of the household had MEC for the entire year.
- Coverage Affordability Worksheet - Complete this menu first if the taxpayer is claiming either exemption code A or B (as explained above), otherwise skip this menu. The two affordability worksheets are in the Form 3853 instructions.
- Would you like to use the Coverage Affordability Worksheet? - If you want to use the Affordability Worksheet for exemption code A or B, answer Yes.
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The monthly premium for the lowest cost bronze plan
The monthly premium for the second lowest cost silver plan - For the Marketplace Coverage Affordability Worksheet Lines 1 and 10, enter these two amounts. These amounts can be gotten from Covered California here. -
Shared Responsibility Payment - Complete this menu before completing the Part III menu.
- + Add Shared Responsibility Payment - You will need to click this for each individual in the return and indicate their coverage or exemption status for each month of the year.
- If they were granted an ECN from Covered California, enter it in the space provided. Up to three ECNs may be entered. (If an ECN has been applied for but the application is still pending, enter PENDING in the Exemption Certificate Number field.)
- The form requires you to indicate the individual's coverage status for each month of the year. For each month you will indicate whether or not the individual either had coverage or is claiming an exemption. Select Yes for a month in which they had coverage or are claiming an exemption. Select No for a month in which they had no health coverage and are not claiming an exemption. Note: You will indicate in Part III later on why you selected Yes for a given month.
- If you used the Affordability Worksheet for exemption code A or B, enter the Required Annualized Contribution amounts for each month in the spaces provided.
- Did you elect not to claim a dependent you could have claimed? - Answer Yes or No as appropriate.
- Shared responsibility payment individuals claimed on Federal return
- Shared responsibility payment individuals NOT Claimed on Federal Return - Select this menu if there are any individuals the taxpayer did not claim on the federal tax return that are being claimed on the California tax return. (This is uncommon.) Their healthcare coverage status will need to be indicated the same as the individuals on the return.
- Household income - The household income is determined using the information provided in the federal return. If any adjustments need to be made, enter them here.
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Part III - Coverage Exemptions
- + Add Part III - California Coverage Exemptions - You will need to click this for each individual in the return and indicate their coverage or exemption status for either the full year or for each month, as applicable. Even if an individual had no health care coverage and is claiming no exemption, you must at a minimum select their name here so they are included in Part III.
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Select the individual - Select the individual whose coverage status you are indicating.
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Full Year - If they had full year coverage, click the drop down menu and select "Health Coverage", or select the exemption they are claiming for the entire year. Skip this drop down menu if they had no health care coverage during the year nor are claiming an exemption for the entire year, or their coverage or exemption status changed at some point during the year.
Note: Indicating either full-year health coverage or full-year exemption here assumes you indicated Yes to every month in the Shared Responsibility Payment section.
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January - December - For a given month, if the individual had health coverage or are claiming an exemption, click that month's drop down menu and select "Health Coverage" or the exemption. Skip a month if for that month they were neither covered by health care nor are claiming an exemption. Note: The months you indicated Yes to in the Shared Responsibility Payment section, if any, must correspond to the months you select here.
- Enter California Coverage Exemptions for Household members that were claimed on Federal return
- Enter California Coverage Exemptions for Household members not claimed on the Federal return - Same as above but for household members not claimed on the federal return.
Reminder: If anyone in a household did not have MEC for one month or more during the year, Form 3853 will need to be completed, indicating the coverage or exemption status for everyone in the household.
Note: This article is intended to assist in the preparation of California Form 3853 in TaxSlayer ProWeb. It is not intended as tax advice.
Additional Information: