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What is Health Coverage Tax Credit (HCTC) & How to Claim It?

Alyssa Corso14 Aug 2021

Health Coverage Tax Credit is administered by the IRS and provides a tax credit to eligible individuals to pay for monthly health insurance premiums. However, there are requirements and qualifications to claim the tax credit. Individuals who have insurance from the Affordable Care Act Marketplace are not eligible, but those who have COBRA may be eligible. 

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What is Health Coverage Tax Credit

The Health Coverage Tax Credit (HCTC) allows for eligible individuals to receive a tax credit to offset the cost of their monthly health insurance premiums for 2021, but only if they have qualified health coverage for the HCTC (below, we explain more about what is considered qualified health coverage). However, a health plan offered through the Health Insurance Marketplace has not qualified coverage for the HCTC. 

The HCTC has been extended for all coverage months beginning in 2021, according to the IRS. With this extension, participants may be able to work with their vendors or providers to be placed back on health coverage that qualifies for the HCTC and either re-enroll in the HCTC Advance Monthly Program, which allows for advance payments for their health insurance premiums, or they can claim the HCTC on their annual federal income tax return filed next year.

Qualifying Health Insurance Coverage

As of January 1, 2016, several types of health insurance qualify for the HCTC beginning. But, it’s important to know that contributions by your employer or your spouse’s employer may impact if you are qualified or not. 

Below you can find the types of health insurance coverage that qualifies for the HCTC:

  • COBRA coverage in continuation, if the former employer did not pay 50 percent or more of the cost of coverage;
  • Coverage under a group health plan that’s available through the employment of your spouse, if the employer did not pay 50% or more of the cost of coverage;
  • Coverage under an employee benefit plan funded by a voluntary employees’ beneficiary association (VEBA) that was established through the bankruptcy of your former employer;
  • Coverage obtained in the non-group (individual) health insurance market other than coverage offered through the Health Insurance Marketplace; and
  • Coverage under certain state-qualified health plans was established before January 1, 2014.

NOTE: If you have received a complete COBRA premium reduction from a former employer or COBRA administrator, then you are not eligible for advance HCTC for the coverage months for which you received such reduction.

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According to Alice Stevens, Senior Editor of Insurance at Best Company, “When you purchase a Health Insurance Marketplace plan through HealthCare.gov, you'll estimate your income for the upcoming year. Based on your prediction, HealthCare.gov will determine whether you qualify for a subsidy on your plan's premium and how much the subsidy is.

When you file taxes for that year, the balance will be settled. If you took too low of a subsidy, you'd be reimbursed for the remainder. If you took too high of a subsidy, you'd need to pay it back when you file.”

Eligibility Requirements for the HCTC

Eligibility for the HCTC is only available to the following groups of individuals:

  • Individuals who are eligible for Trade Adjustment Assistance (TAA) allowances due to a qualifying job loss.
  • People between the ages of 55 and 64 years old whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation (PBGC).

You also may be eligible to receive benefits of HCTC if you are one of the following:

  • An eligible trade adjustment assistance recipient, alternative TAA recipient, or reemployment TAA recipient;
  • An eligible Pension Benefit Guaranty Corporation payee; or The family member of an eligible TAA, ATAA, or RTAA recipient, or PBGC payee who is deceased or who finalized a divorce with you.

You are not eligible for the HCTC if you:

  • Can be claimed as a dependent on another person’s federal income tax return; or
  • Are enrolled in Medicare, Medicaid, the Children’s Health Insurance Program, or the Federal Employees Health Benefits Program or are eligible to receive benefits under the U.S. military health system (TRICARE); or
  • Are enrolled in an Affordable Care Act Marketplace insurance.

How to Claim Health Coverage Tax Credit

To register and claim for HCTC, you must complete and mail Form 13441-A, Health Coverage Tax Credit Monthly Registration and Update, with all of the required supporting health plan documents to the IRS to enroll. You should also keep a copy of the completed HCTC Monthly Registration and Update form and all required documents. 

It can take up to six weeks (if all requirements are met) for all documents to be processed and for you to expect a response. You should continue to pay the full health insurance premiums directly to your insurance vendor or provider until they receive the HCTC approval letter confirming their 2021 Advance Monthly Program payment amounts.

How to Determine the Tax Credit You Recieve

The tax credit you receive from the HCTC can be determined by filling out Form 8885. There are two parts of the form:

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Part I of Form 8885 establishes which months in the tax year you claim the HCTC. 

Part II of Form 8885 instructs you to declare the total amount you paid directly to your qualified health insurance provider while omitting any premiums paid to the HCTC program directly and any advance payments or reimbursements you received or premiums paid through a national emergency grant. 

Advance Monthly Payments

The payment you receive through the HCTC is offered every month through Advance Monthly Payments of the Health Coverage Tax Credit (AMP HCTC) program. If you are eligible, you can choose to have 72.5 percent of your qualified health insurance premiums paid in advance directly to your health plan administrator each month on your behalf to lower your out-of-pocket costs for your monthly premiums.

Requesting a Refund

If you are not part of the AMP HCTC, you would instead pay the complete costs of your health insurance premiums and then claim your HCTC once you file for your federal income tax return. It’s important to know that this can impact your refund by increasing your refund or lowering the amount of tax that you would otherwise owe. The HCTC program will expire on December 31, 2021, so be sure to plan accordingly.

Family Member Qualification for HCTC

A Health Coverage Tax Credit Qualifying Family Member (QFM) is:

  • Your spouse (a spouse doesn’t include someone who is legally separated from their spouse under a decree of divorce or separate maintenance)
  • Anyone whom you can claim as a dependent

For any month that you are eligible to take the HCTC, you can include premiums paid for a qualifying family member for that eligible coverage month if all of the following statements were true for the QFM as of the first day of that eligible coverage month.

  • Covered by qualified health insurance coverage for which you paid some or all of the premiums. You and your qualifying family member don’t have to be covered by the same coverage.
  • Not enrolled in Medicare Part A, B, or C.
  • Not enrolled in Medicaid or the Children’s Health Insurance Program (CHIP).
  • Not enrolled in the Federal Employees Health Benefits Program (FEHBP) or eligible to receive benefits under the U.S. military health system (TRICARE).
  • Not covered by, or eligible for coverage under, any employer-sponsored health insurance coverage.

Bottom Line

If you are eligible, you may want to take advantage and claim your Health Coverage Tax Credit. However, it’s important to be mindful of the documents that are to be submitted and qualifications in terms of adding a family member.

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