Who Can Claim the Health Coverage Tax Credit?
The U.S. Department of the Treasury, through the Internal Revenue Service (IRS), works in conjunction with other federal and state agencies, such as the State Workforce Agencies, and the private health industry, in administering the Health Coverage Tax Credit program.
If you are eligible, this credit can be claimed as a refund when you file your annual U.S. federal income tax return, or you can also receive advance payments of the credit monthly, in order to pay your health insurance premiums throughout the year as they become due.
Who Is Eligible?
The Health Coverage Tax Credit (HCTC) is intended to help certain groups of individuals. There are three groups of people who are potentially eligible for this tax credit:
�· Workers who are receiving a Trade Readjustment Allowance under the Trade Adjustment Assistance (TAA) program. These are generally workers who have been dislocated from their jobs due to foreign trade competition. The TAA program is run by state organizations called State Workforce Agencies (SWAs). These organizations may also be called State Employment Offices.
�· Workers who are at least 50 years of age and are receiving benefits under the Alternative Trade Adjustment Assistance (ATAA) program.
�· Retirees who are at least 55 years of age and are receiving pension benefits from the Pension Benefit Guaranty Corporation. Survivors, beneficiaries, and alternate payees who are at least 55 years old and who are receiving these benefits also qualify for the Health Coverage Tax Credit.
Also, the tax credit is only available to persons who are enrolled in what is defined as a “qualified health plan”. Only certain types of health plans qualify for this tax benefit, and they are described below.
Once you have met one of the eligibility criteria mentioned above, the State Workforce Agency or the Pension Benefit Guaranty Corporation will send you the HCTC Program Kit, which includes a registration form and describes the eligibility requirements and the tax credit. Normally, you will be sent a kit if you qualify for this benefit, but if you have any questions, you can consult with your State Workforce Agency, or with the U.S. Department of Labor Employment and Training Administration.
Who Does Not Qualify
There are disqualifying criteria that make certain people ineligible for the Health Coverage Tax Credit. If any of the following apply, you are not eligible for this credit:
Ã?· You have health coverage through a plan maintained by your, or your spouse’s current or former employer, and the employer pays 50% or more of the cost of the coverage.
�· You are entitled to Medicare, even if you are not enrolled and are not receiving benefits.
�· You are enrolled in the Federal Employees Health Benefits Program (FEHBP).
Ã?· You are enrolled in Medicaid, or the State Children’s Health Insurance Program (SCHIP).
�· You have health coverage through the military (TRICARE/CHAMPUS). But this does not include Veterans Affairs (VA) benefits.
Ã?· You can be claimed as a dependent on someone else’s tax return.
There are additional eligibility requirements for workers who are at least 50 years of age and are receiving ATAA benefits. You are not eligible for the Health Coverage Tax Credit if you are enrolled in a qualified health plan and any of the following apply:
Ã?· You have health coverage and your or your spouse’s current or former employer is paying any of the cost of your health coverage.
Ã?· You are eligible for health coverage, and if you had coverage, your or your spouse’s employer or former employer would pay 50% or more of the cost.
�· You or your spouse could pay for the cost of your health coverage on a pre-tax basis.
Family Members
If you meet all of the eligibility requirements, and your family members are not covered by other health insurance coverage, you can use the Health Coverage Tax Credit to help pay for the cost of health insurance for them.
What Health Plans Qualify?
In order to be able to take advantage of the Health Coverage Tax Credit, you must be enrolled in what is defined as a qualified insurance plan. The family members you want to qualify for the credit must also be enrolled in a qualified plan. This can be the same plan in which you are enrolled, or in a separate plan, provided it is a qualified plan.
The following are defined as qualified health insurance plans for purposes of the Health Coverage Tax Credit:
�· COBRA extended health plans. These are temporary extensions of job-related health coverage that an employee can elect after a layoff, termination, or other specified events.
�· Non-group coverage. This is an individual health insurance policy you purchased and in which you were enrolled at least 30 days before you were separated from your employer and became entitled to TAA, ATAA or PBGC benefits.
Ã?· Spousal coverage. You can be covered under your spouse’s employer-sponsored health plan, provided the employer pays less than 50% of the cost of the coverage. Whether you can claim the Health Coverage Tax Credit as an advance payment or as a refund depends on whether the coverage is under COBRA. If the coverage is COBRA, you can claim the advance payment option. If not, you can only claim a refund when you file your tax return.
Ã?· State qualified health plans. A list of these plans, listed by state, can be found in the IRS website, under the “Individuals” tab, under the title “HCTC: Individuals – Overview”, at www.irs.gov.
What Types of Coverage Qualify?
The Health Coverage Tax Credit is intended to help pay for comprehensive, major medical coverage. Therefore, supplemental coverage, such as for dental, vision, and long-term care, do not qualify for the credit, unless they are included as part of a comprehensive benefit. But a policy that covers prescription drugs generally qualifies for the credit, whether it is a separate policy or part of major medical coverage.
Other types of health care coverage that do not qualify for the credit include:
�· Medicare supplemental (Medigap) insurance.
�· TRICARE supplemental insurance.
�· Coverage for on-site medical clinics.
�· Hospital indemnity or other fixed indemnity insurance.
�· Accident or disability insurance.
�· Liability insurance.
Ã?· Workers’ compensation insurance.
�· The medical payment portion of automobile insurance.
�· Benefits for nursing home care, home health care, or community-based care.
�· Insurance for a specific disease or illness.
�· Coverage under a flexible spending arrangement, such as a Health Savings Account (HSA) or an Archer Medical Savings Account (MSA).
Preexisting Conditions
When you are a candidate for the Health Coverage Tax Credit, the qualified medical plan may impose preexisting condition exclusions. The plan may exclude payment for treatment related to a preexisting condition if you had less than 3 months of continuous health coverage before you became eligible for the credit, or if you had a break in coverage of over 62 days immediately before applying for enrollment with the qualified health plan.
How To Claim the Health Coverage Tax Credit
There are two ways to claim the credit:
�· In advance, on a monthly basis during the year. Here you receive the credit in installment amounts ahead of time, and can use that money to pay the health coverage premiums as they become due.
�· In a lump sum, when you file your annual federal income tax return. In this case, the refund is received in one single amount, for the qualified health coverage premiums you paid during the tax year.
Claiming the Credit in Advance
In order to claim the credit in advance, you have to be registered with the HCTC program. You do this by completing and sending in the registration form that is included in the HCTC Program Kit that is sent to you when you become eligible. If you believe that you qualify, but do not receive this kit, you should contact your State Workforce Agency.
The steps you need to follow to receive advance payment of the Health Coverage Tax Credit are summarized as follows:
1. Apply for and receive either TAA, ATAA, or PBGC benefits, as applicable in your case.
2. Enroll in a qualified health plan.
3. Receive the HCTC Program Kit. Complete and mail the registration form.
4. Apply for state-level assistance for the HCTC (National Emergency Grant – NEG Bridge Grants) if available in your state. This will help you pay the health coverage premiums while you are registering for the HCTC advance payment.
5. Continue paying 100% of your health coverage premiums, until you receive an HCTC invoice. You can claim a refund for these amounts you pay when you file your annual federal income tax return.
6. Once your registration is complete, and you are enrolled in the HCTC program, you will begin receiving monthly invoices from the program. You must pay the HCTC portion on the invoice, which is 35% of your total health coverage premium. HCTC will then send your payment along with their payment for the 65% balance, to your health plan.
Claiming A Refund on Your Tax Return
You can claim the Health Coverage Tax Credit on your annual federal income tax return if you qualify for the credit but did not apply for advance payments. You can also claim a refund for the premiums you paid in full yourself, while you were in the processing of registering for the advance payment.
IRS Form 8885, Health Coverage Tax Credit, is used to claim the refund. This form should be completed and attached to your annual income tax return. There are detailed instructions indicating how to complete the form, and the supporting documentation you need to provide. For example, you will need to attach invoices and proof of payment of the health coverage premiums you paid yourself while in the process of registering for the credit. Form 8885 and its instructions can be downloaded from the IRS website.
Provided the eligibility requirements are met, the Health Coverage Tax Credit is available to citizens and residents of the U.S. as well as nonresident aliens. A U.S. citizen or resident would file Form 8885 with Form 1040, and a nonresident alien would file Form 8885 with Form 1040NR.
If you receive advance payments during the year you should receive a Form 1099-H in the early part of the next year, reporting the advance payments you received. The information on Form 1099-H is used to complete Form 8885.
Questions
In the IRS website, with the keyword HCTC, you can find a list of frequently asked questions about the Health Coverage Tax Credit program, who is eligible, what plans qualify, and how to claim the benefits of this program.
