What Is the Short Coverage Gap Exemption?

The short coverage gap exemption is a specific provision in tax law that allows individuals to avoid a penalty for not having health insurance for a brief period. It is designed for temporary lapses in coverage, such as the time between jobs or waiting for new employer-sponsored insurance to begin.

The Individual Mandate Requirement

The Affordable Care Act (ACA) introduced a rule known as the individual shared responsibility provision, or individual mandate. This federal law required most Americans to maintain a certain level of health insurance or pay a penalty on their federal tax returns.

Beginning with the 2019 tax year, the Tax Cuts and Jobs Act of 2017 reduced the federal penalty for not having health insurance to zero dollars. The short coverage gap exemption is still relevant because several states and the District of Columbia have implemented their own individual mandates with financial penalties, requiring residents to have qualifying health coverage.

Qualification Rules for the Exemption

To qualify for the short coverage gap exemption, the period you were uninsured must be less than three consecutive months. If your coverage gap is three months or longer, you cannot claim the exemption for any of those months. For tax purposes, if you have coverage for even one day of a month, you are considered to have been covered for that entire month. For example, if you lost coverage on January 15 and started a new plan on March 1, your only month without coverage would be February, making you eligible for the exemption.

The exemption can only be applied to the first coverage gap within a calendar year. If you have a second, separate gap in coverage later in the same year, you cannot use the short coverage gap exemption. The type of insurance required is called minimum essential coverage (MEC), which includes most employer-sponsored plans, government-sponsored programs like Medicare and Medicaid, and plans purchased through the Health Insurance Marketplace.

How to Claim the Exemption on Your Tax Return

Since there is no longer a federal penalty, you only need to claim the short coverage gap exemption on your state tax return if you live in a state with an individual mandate. The process for claiming the exemption varies by state. For example, California residents file the Schedule for Health Care Coverage (Form 3853). Massachusetts residents use Schedule HC, Health Care Information, while New Jersey requires filing Schedule NJ-HCC, New Jersey Health Care Coverage. In Rhode Island, the exemption is claimed using Form IND-HEALTH, Individual Health Insurance Mandate.