How to Avoid the California Health Insurance Penalty

To avoid the California health insurance penalty, you need to do one of two things for every month of the tax year: keep qualifying health coverage in place, or qualify for an exemption. Most exemptions are claimed directly on your state tax return using Form FTB 3853. A few require you to apply through Covered California first and receive an Exemption Certificate Number before you file.¹

The stakes are real. For the 2025 tax year, the penalty starts at $950 per uninsured adult and $450 per uninsured child, or 2.5% of household income above the state filing threshold, whichever is higher.² A family of four with no coverage all year would owe at least $2,800. Every month you can either cover or exempt is a month that drops out of the calculation.

Keep Qualifying Coverage in Place

The cleanest way to owe nothing is to have minimum essential coverage every month. That includes employer-sponsored insurance, a Covered California plan, Medicare, Medi-Cal, TRICARE, VA health care, and CHIP, among others.³ If you had coverage for even one day of a given month, the whole month counts as covered.⁴

If you need to buy a plan, Covered California is where individuals and families shop the marketplace. Open enrollment for 2026 coverage ran from November 1, 2025, through January 31, 2026.⁵ Outside those dates, you can still sign up if a qualifying life event opens a special enrollment period. Losing job-based coverage, getting married, having a baby, moving within California, and being released from incarceration all count.⁶ Depending on your income, you may qualify for premium subsidies or free coverage through Medi-Cal.

Claim an Exemption on Your Tax Return

If you went without coverage but your situation fits one of the exemptions below, you can zero out the penalty on Form FTB 3853 without applying to any agency first. You enter the exemption code that matches your circumstances and attach the form to your return.⁸

Your Income Is Below the Filing Threshold

If your gross income is low enough that you don’t have to file a California return, the penalty doesn’t apply. For 2025, a single filer under 65 with no dependents has a filing threshold of $22,941; a married couple filing jointly, both under 65 with no dependents, has a threshold of $45,887.7Franchise Tax Board. Residents – Filing Requirements If you file anyway to claim a refund, the exemption still applies. No code is needed; the Franchise Tax Board applies it automatically based on the income you report.

Coverage Would Have Cost Too Much

You qualify for an affordability exemption if the cheapest plan available to you would have cost more than a set share of your household income. For the 2025 tax year, that threshold was 7.28%; for 2026, it’s 8.05%. The comparison uses the lowest-cost bronze plan on Covered California or the cheapest employee-only plan your employer offers, and any premium subsidies you would have received are factored in.⁹ Use Code A for individual affordability, or Code B when combined employer plan costs for multiple household members exceeded the threshold.¹⁰ Confirm you’re using the percentage for the year you’re filing.

Your Coverage Gap Was Shorter Than Three Months

A gap of fewer than three consecutive months is automatically exempt under Code C.¹⁰ If coverage ended March 2 and new coverage began June 15, only April and May count as uninsured, and both months are exempt. Watch the three-month line carefully. Once a gap reaches three consecutive months, none of the months in that stretch qualifies, and the penalty applies to each one.⁴

Status-Based Exemptions

Several exemptions turn on who you are or where you were during the year. Each has its own code on Form 3853:¹⁰

Members of federally recognized Indian tribes, ANCSA shareholders, and anyone eligible for services from an Indian health care provider or the Indian Health Service (Code G).²
Months spent incarcerated in a jail, prison, or similar facility after disposition of charges. Time awaiting trial does not count (Code H).¹
Individuals not lawfully present in the United States (Code D).²
U.S. citizens physically present in a foreign country at least 330 days during any 12-month period, or bona fide residents of a foreign country for the whole tax year (Code D).
Months you were a bona fide resident of another state (Code E).
Members of a health care sharing ministry that has been in continuous operation since December 31, 1999, and qualifies as a 501(c)(3) (Code F).
A child born or adopted mid-year is exempt for the months before and including the month they joined your household (Code I). A household member who died is exempt for the months after their death (Code J).

Apply Through Covered California for Certain Exemptions

Two exemptions require an application to Covered California before you file. Once approved, you receive an Exemption Certificate Number (ECN) that you enter on Form 3853.¹

Religious Conscience

This exemption is for members of a religious group with an established history of opposing all forms of insurance, including Social Security and Medicare, and a tradition of providing for its members through communal support instead.¹¹ It’s narrow by design and applies to specific religious communities with longstanding objections.

General Hardship

If a serious life event kept you from getting coverage, you can apply for a hardship exemption. Covered California lists qualifying hardships that include:¹²

Eviction, foreclosure, or homelessness
Bankruptcy
Medical expenses that produced substantial debt
Death of a close family member
Domestic violence
Natural disasters such as fire or flood
Utility shutoff notices
Unexpected drops in income due to divorce, sudden disability, or caring for an ill family member

Circumstances outside that list can also qualify; Covered California reviews hardship requests case by case.¹² Apply as early as you can, because you need the ECN in hand when you file.

Filing the Exemption on Form FTB 3853

Every exemption — the ones you claim directly and the ones you obtain from Covered California — ends up on the same document: California Form FTB 3853, Health Coverage Exemptions and Individual Shared Responsibility Penalty. It attaches to your state income tax return (Form 540, 540NR, or 540 2EZ).¹³

Before you start, pull together the following for each household member on the return:

Social Security number or Individual Taxpayer Identification Number
Dates of any health coverage during the year
The exemption code that fits each uninsured month, from the form instructions
Your Exemption Certificate Number from Covered California, if you have one
Income documentation for an affordability claim or a below-filing-threshold claim

The form has a month-by-month grid for each household member. Mark every month as covered, exempt (with the code), or uninsured. If Covered California issued you an ECN, enter it in the space provided. Make sure the names on Form 3853 match the names on your main return exactly, since mismatches can trigger processing delays or a penalty notice.

E-filing is the most reliable route because tax software walks you through the questions and attaches the form for you. If you file on paper, put Form 3853 directly behind your main return. Use the form for the tax year you’re filing; older versions carry outdated thresholds and codes.¹⁴

If the Franchise Tax Board questions your exemption — for example, because a code is missing or the income you reported doesn’t support an affordability claim — you may receive a penalty notice and need to respond with corrected information or documentation. Sorting that out before the return’s due date keeps interest and late-payment charges from stacking onto anything you end up owing.

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Covered California. Penalty Details and Exemptions
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Franchise Tax Board. Health Care Mandate Personal
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Franchise Tax Board. CA Minimum Essential Coverage Individual Mandate
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CMS. Gap in Coverage Exemption
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Covered California. Covered Californias Open Enrollment 2026
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Covered California. Major Life Changes
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Franchise Tax Board. 2024 Instructions for Form FTB 3853

Your Income Is Below the Filing Threshold
If your gross income is low enough that you don’t have to file a California return, the penalty doesn’t apply. For 2025, a single filer under 65 with no dependents has a filing threshold of $22,941; a married couple filing jointly, both under 65 with no dependents, has a threshold of $45,887.7Franchise Tax Board. Residents – Filing Requirements
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Covered California. Affordability Hardship Exemption
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Franchise Tax Board. 2024 Instructions for Form FTB 3853
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Franchise Tax Board. FTB Pub 1024 Penalty Reference Chart
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Covered California. General Hardship Exemption
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Franchise Tax Board. 2024 California Form 3853 Health Coverage Exemptions and Individual Shared Responsibility Penalty
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Covered California. FTB Form 3853 Health Coverage Exemptions and Individual Shared Responsibility Penalty