Let’s best honest: navigating the complexities of health insurance can be challenging, but the Health Coverage Tax Credit (HCTC) offers valuable financial relief for eligible individuals and families. 

Designed to help cover a significant portion of health insurance premiums, the HCTC is a crucial resource for trade-affected workers and retirees. 

In this guide, we’ll break down who qualifies for HCTC, how to claim it, and the steps you need to take to ensure you receive the maximum benefit. Let’s get started. 

Key Takeaways:

• What is the Health Coverage Tax Credit?: The HCTC is a federal tax credit covering 72.5% of qualified health insurance premiums for eligible individuals and families.
• Who qualifies for the HCTC?: The credit is available to trade-affected workers and retirees receiving benefits from the Pension Benefit Guaranty Corporation (PBGC).
• Exclusions: Those with employer-sponsored insurance, Medicare, Medicaid, or ACA coverage are not eligible for the HCTC.
• Steps to Claiming: The three simple steps to claiming the HCTC. 
• What Happens After You File?: Depending on your choice, you can receive the credit as a lump sum or advance payments applied to your premiums throughout the year.

What is the Health Coverage Tax Credit? 

If you didn’t already know, the Health Coverage Tax Credit is a federal tax credit designed to help eligible individuals and families afford health insurance by covering a percentage of their premium costs. 

Specifically, the HCTC covers 72.5% of qualified health insurance premiums, leaving the taxpayer responsible for the remaining portion. 

This credit is primarily available to workers displaced by trade or retirees receiving pension benefits from the Pension Benefit Guaranty Corporation (PBGC), making it a vital resource for those facing economic challenges due to job loss or retirement. 

By reducing the financial burden of health insurance, the HCTC ensures continued access to essential healthcare.

Who Qualifies for the Health Coverage Tax Credit? 

It’s important to note that the HCTC is only available to specific groups of individuals who meet the eligibility criteria. Those who qualify include:

• Trade-affected workers: Individuals who have lost their jobs due to the impact of foreign trade and are receiving Trade Adjustment Assistance (TAA) benefits.
• Retirees receiving pension benefits: Retirees aged 55 or older who are receiving pension benefits from the Pension Benefit Guaranty Corporation (PBGC).

Unfortunately, uncertain individuals are not eligible for the HCTC, including those who:

• Are covered by employer-sponsored health insurance
• Are eligible for Medicare, Medicaid, or other government healthcare programs
• Receive coverage through the Affordable Care Act (ACA) marketplace with premium tax credits
• Are dependents claimed on someone else’s tax return

These exclusions are designed to ensure the credit supports those without access to other affordable health insurance options.

How to Claim the Health Coverage Tax Credit

In three steps, let’s break down how you can claim the health coverage tax credit if you qualify. 

Step 1: Gather Your Documents 

Before you can claim the Health Coverage Tax Credit (HCTC), it’s important to have all necessary documents ready. You’ll need:

• Proof of eligibility: Documentation that shows you qualify for the HCTC, such as proof of Trade Adjustment Assistance (TAA) or Pension Benefit Guaranty Corporation (PBGC) pension benefits.
• Health insurance invoices: Copies of your health insurance premium statements that show the amounts billed and paid.
• Proof of premium payments: Receipts or bank statements that show you have paid your portion of the health insurance premiums.

These documents are essential for accurately completing your claim and ensuring that the IRS processes your request without delays.

Step 2: Complete IRS Form 8885 

Once you have your documents, the next step is to fill out IRS Form 8885, titled Health Coverage Tax Credit. This form requires you to:

• Input personal details, including your name and Social Security number.
• Provide information about your qualified health insurance, including the total premiums paid and the portion you are responsible for after the credit is applied.
• Report any advance payments received (if applicable) and calculate the amount of credit you can claim.

Take your time completing this form to ensure accuracy, as mistakes can delay your refund or credit application.

Step 3: File With Your Federal Tax Return

Finally, after completing IRS Form 8885, you’ll need to submit it along with your federal tax return. Be sure to:

• Attach Form 8885 to your tax return, either electronically or by mail, depending on how you are filing.
• Include any required supporting documentation, such as health insurance invoices and proof of payments.

By properly filing these forms with your tax return, you can receive the HCTC either as a credit toward taxes owed or as a refundable credit if no taxes are due. And that’s all it takes! 

What Happens After You File? 

After you’ve successfully filed IRS Form 8885 with your federal tax return, the next steps depend on how you claim the HCTC itself. 

If you opt to receive the credit as a lump sum, the IRS will apply the HCTC to reduce the amount of taxes you owe or issue a refund if your tax liability is lower than the credit. This process typically follows the standard timeline for processing tax returns.

For those who applied for advance monthly payments, the HCTC will cover a portion of your health insurance premiums throughout the year. 

You’ll need to keep track of any premium changes, as adjustments may be necessary. It’s important to regularly update your payment information with the IRS to ensure the correct amount is being credited to your health insurance premiums. 

Also, if any discrepancies arise, such as changes in eligibility or incorrect amounts applied, the IRS may contact you for further clarification or documentation. Staying organized and maintaining clear records will help you navigate this process smoothly and avoid potential issues.

Get Tax Support When You Need It

Truly, claiming the Health Coverage Tax Credit can provide significant financial relief for those who qualify, helping to cover a large portion of health insurance premiums. 

Whether you’re looking for expert assistance with tax credits like the HCTC or you want to make sure you’re using the R&D tax credit effectively, contact our tax specialists today to learn how we can help you navigate the complexities of tax planning and maximize your savings.