The Health Coverage Tax Credit (HCTC) is a refundable credit of a percentage of qualified health insurance coverage payments available to qualified taxpayers.
A taxpayer can elect to take the HCTC only if all of the following are true:
- they were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) payee during the tax year, or they were the qualifying family member of an eligible TAA, ATAA, or RTAA recipient or PBGC payee who passed away or finalized a divorce with them;
- they were covered by HCTC-qualified health insurance coverage for which they paid the entire premiums, or their portion of the premiums, directly to their health plan or to “US Treasury-HCTC”;
- they were not enrolled in Medicare Part A, B, or C, or they were enrolled in Medicare but their family member(s) qualified for the HCTC;
- they were not enrolled in Medicaid, the Children’s Health Insurance Program (CHIP), Federal Employees Health Benefits Program (FEHBP), or eligible to receive benefits under the U.S. military health system (TRICARE);
- they weren't imprisoned under federal, state, or local authority;
- they or their spouse’s employer (or former employer) did not pay 50% or more of the cost of coverage.
- they can’t be claimed as a dependent on someone else’s tax return for the year; and
Eligibility for the health coverage tax credit is determined on a per-month basis. Form 8885 provides eligibility information and computes the credit based on premiums paid for health insurance coverage.
Taxpayers can either sign up with the Treasury department and pay 20% of the health insurance premium monthly while the IRS pays the remaining 80% directly to the insurance company, or the taxpayer can pay 100% of the health insurance premiums and use Form 8885 to claim the credit on their annual income tax return.
From the Main Menu of the Tax Return (Form 1040) select:
- Payments, Estimates & EIC
- Health Coverage Tax Credit
- In MFJ returns, Indicate if the credit is for the taxpayer or the spouse
- Answer YES or NO to the coverage question and complete the remaining information as needed