California Shared Responsibility Penalty

[Username is two words]

I did a return for a couple, no kids, California AGI was $32,000.  One spouse had insurance for just one month in 2020. The other spouse had none. The return showed a $1,250 penalty - $750 for the spouse with no insurance and $500 for the other spouse (8 months). They just got a refund of the entire $1,250. Does anyone know why?  They are supposed to get a letter with an explanation but I'd like to  understand this.

[Just-Lisa-Now-]

Was their income low enough that the penalty shouldn't apply? (Im not sure what the limit is right offhand)

[Just-Lisa-Now-]

I know the program did have an issue with penalty computation early in the season when partial year coverage was marked. Open the clients return again now and see if the penalty computes.

[Username is two words]

I opened up the program.  The CA return has not changed. Using only their CA AGI of $32,000 I tried this: https://www.ftb.ca.gov/file/personal/filing-situations/healthcare/estimator/

and got the same result, a penalty of $1,250. Their California AGI is $32,000 but that is only because UI is excluded.  Their combined UI was about $47,000 so their household income approaches $80,000, and it is my understanding that counts in determining if they get hit with the penalty.

I don't see a reason for them to not owe it.  Yet, they got it back.

[Just-Lisa-Now-]

I was under the impression that it looks at CA MAGI, which would be Line 17 of the 540.

[Just-Lisa-Now-]

Im struggling to find the instructions for the 3853 now, I know I read them a few days ago, another preparer in a FB group, had a client get a penalty from CA for no insurance, but all his income was unemployment, so we walked through the instructions which tells no penalty if Line 17 is below the income limit...which obviously since all he had was unemployment, his Line 17 was zero....she was able to speak with the FTB and they removed the penalty.

[Username is two words]

Line 17 is the $32,000.  

I remember looking into this when I did this return (it is the only one I did with this penalty) and finding out that UI benefits count in determining if taxpayers can afford health insurance.  It wasn't easy to find.  ProSeries calculates the penalty as does that calculator.

[Username is two words]

FWIW I do not see the UI benefits used in any calculation of the penalty.  I think they would have had to use them if they tried to get the affordability exemption - but they did not apply for any exemption.  The $32,000 is used to see if they are over the filing threshold, which they are.

[Just-Lisa-Now-]

weird, when I plug in a MFJ scenario with 47k in UI and 35k in a W2, and I mark no coverage for anyone, no penalty computes on my screen.

Maybe the explanation letter will help decipher the situation.

[Username is two words]

Yup, those were the results.  No penalty but ProSeries did calculate it with me and it is still there.  I looked carefully to see if I overrode anything and used the review tool to look for overrides, but no.

Thanks for trying!  I hope the explanation letter sheds some light.  I hope they send it to me!  They are elated about the refunds and not terribly interested in my looking into it.

The 3853 instructions are very difficult; this whole rule is difficult to decipher when you don't need it very much.  Yet, I really could not find a reason for no penalty.  And that estimator tool, which is from the FTB, calculates the penalty.