California Health Coverage Exemption

[CP01]

Hi all,

I had health coverage in 2025 until Oct. didn’t have Nov and Dec. as I was laid off. Got individual coverage from Jan 2026. I understand CA has an exemption for 3 months yet I’m being charged a penalty.

How can I fix this as TT doesn’t have a question for short term gap under Exemption or prompt questions or suggestion. After checking Google I went to form 3858 Part III to look for short term gap if I put code C (short term gap) it’s in red and shows Request Exemption Nov SW-1 is Overridden in green what does this mean? If I do this manually will TT calculate it correctly? I’m using window desktop version.

Please help it’s my first time with this.

Thanks

[MonikaK1]

Go back through the California interview again from the beginning.

When you get to the questions about health care coverage, choose that you will enter who had it and for which months.

If you check the boxes to enter 10 months of coverage for everyone on your return, and continue through the follow up screens, you should see a message "Based on your situation, the penalty has been waived!"

@CP01 

[CP01]

Thanks for responding. I don't remember TT saying "Based on your situation, the penalty has been waived" that's why I had to enter the C code in the form. To confirm since it's showing Override on the form is okay?

[DaveF1006]

Remove the override, then follow these precise set of steps to see if this works.

1. Re‑run the California interview from the beginning

TurboTax Desktop occasionally skips the exemption questions if you jump around. Restarting the CA interview usually brings them back. Look for these screens in the California section:

1. “Did you have health coverage all year?”
2. “Tell us the months you did not have coverage.”
3. “You may qualify for a short coverage gap exemption.”
4. If TurboTax recognizes the 2‑month gap, it will automatically apply the exemption and remove the penalty.
5. This is the cleanest method because it avoids overrides entirely.

2. If the form was created before you entered your coverage months, it may be stuck in a penalty state.

Steps:

1. Open Forms Mode 
2. Find Form 3853
3. Delete it
4. Return to the step‑by‑step interview and re‑enter your coverage months
5. TurboTax will rebuild the form and often apply the short‑gap exemption correctly.

Typing C directly on Form 3853 is allowed and valid, but TurboTax marks it as an override. That’s why the field turns red and shows the “overridden” message. It’s not an error—just a warning that you changed a calculated field. The problem with overriding is that you may not be able to efile if that entry is red.

[CP01]

Thank you so much for the explanation and steps.

On a side note- if I claim my dad as a dependent I'm getting credit in Federal but getting a penalty in CA and says I don't get a credit. Why is that? 

[MonikaK1]

See this California webpage for more information about claiming a parent as a dependent on the California state return. There is a Dependent Parent Credit on that return and the maximum credit is $610. It is not the same as the Federal Child Tax Credit or Other Dependent Credit and has narrow criteria to qualify.

You must meet all of the following:

• You were married/registered domestic partner (RDP) but filed separately
• Your spouse/RDP did not live with you the last 6 months of the year
• You paid over 1/2 of the household expenses for your parent

You cannot file:

• Single
• Head of household
• Qualifying surviving spouse/RDP
• Married/RDP filing jointly

If you have an Underpayment Penalty on your California return, you can go back through the California section in TurboTax and answer the questions in the California Underpayment Penalty interview to see if the penalty can be reduced or eliminated. It appears under Additional Tax Payments in the Other Tax Situations category in the California return.

You can also review the Underpayment Statement in the California Forms list. It provides a chronological listing by quarter of events or transactions that impact the penalty calculation, including rate changes during the year. If the dollar amounts and dates on the form are correct, the calculations on the statement appear correct.

@CP01