A Guide to the US Health Coverage Tax Credit
The Future Film Festival 2019- Lucia Rossetti
UPDATED JUNE 2ND, 2020
What is the Health Coverage Tax Credit?
The Health Coverage tax Credit (HCTC) used to subsidize a large portion of the cost of health insurance for eligible taxpayers and their family members. The purpose of the credit is to make health insurance more affordable to specified individuals. Generally speaking the credit is claimed by qualified unemployed individuals and retirees. The HCTC is currently set to expire on December 31st, 2020.
FEATURES OF THE HCTC
HCTC covers 72.5% of the cost of qualified health insurance for eligible taxpayers and their family members. The HCTC is refundable. Therefore taxpayers may claim the full credit amount even if they have little or no federal income tax liability. The credit can also be paid out in advance, so the taxpayers may receive the credit on a monthly basis to cover the cost of insurance premiums.
Who is Eligible to Receive the Health coverage Tax credit?
In order to claim the HCTC, the taxpayer must fit in of the two eligible groups listed below and not be enrolled (or sometimes even eligible for) stated types of health insurance. There are a number of other statutory limitations that also apply.
There two groups of taxpayers who are eligible for HCTC:
Recipients of certain benefits under the Trade Adjustment Assistance (TAA) program
The TAA is a program that provides assistance to workers who lose their jobs due to international trade. To qualify, a group of workers must petition the U.S. Department of Labor (DOL) to establish that their job loss was attributable to a qualified cause.
Individuals between the ages of 55 and 64 who receive payments from the Pension Benefit Guaranty Corporation
In order to receive the PGCB benefit, individuals must have worked for a film whose defined-benefit pension plan was insured and then taken over by PBGC. Individual who receive a PBGC0-paid pensions are eligible for the HCTC, provided that they are at least 55 years old and not yet entitled to medicare (which occurs at the age of 65).
You are not eligible for the HCTC if you
There are a number of variables that limit individual eligibility to HCTC. Individuals enrolled in the following are not eligible for the tax credit:
a health plan maintained by the individual’s employer or former employer6 (or by the employer or former employer of the individual’s spouse) that pays 50% or more of the total premium;
Medicare Part B;
the Federal Employees Health Benefits (FEHB) Program;
Medicaid; or
the State Children’s Health Insurance Program (CHIP).
Similarly, to be eligible for the HCTC, individuals may not be eligible for the following:
Medicare Part A; or
coverage provided through the U.S. military health system (e.g., Tricare).
In addition, individuals are not eligible for the HCTC if they are incarcerated or if they may be claimed as a dependent by another taxpayer.
Extending HCTC to Family members
If an individual is eligible to HCTC, they may use the health insurance to cover his/her spouse and any dependents who are claimed on his/her tax return. For children of divorced parents, the insurance is extendable to the child by the custodial parent only.
What types of health insurance are qualified?
An eligible taxpayer can only claim HCTC to cover part of the premium for qualified health insurance. Statute limits qualified insurance to 11 categories of coverage, identified as options A through to K. Individuals are not allowed to claim HCTC for any other type of insurance coverage.
Below are the coverage categories included:
A. Coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985.
B. State-based continuation coverage provided under a state law requiring such coverage.
C. Coverage offered through a state high-risk pool (HRP). 9
D. Coverage under a plan offered for state employees
E. Coverage under a state-based plan that is comparable to the plan offered to state employees.
F. Coverage through an arrangement entered into by a state and a group health plan, an issuer of health insurance, an administrator, or an employer.
G. Coverage through a state arrangement with a private-sector health care purchasing pool.
H. Coverage under a state-operated plan that does not receive any federal financing.
I. Coverage under a group health plan available through a spouse’s employer. J. Coverage under individual health insurance.
K. Coverage funded by a voluntary employees’ beneficiary association
Notifying Eligible Taxpayers
DOL requests that SWAs mail HCTC information packets to all eligible TAA beneficiaries. Included with the information packet is an HCTC eligibility certificate, a document that identifies the individual as potentially eligible for the tax credit. Similarly, the PBGC identifies beneficiaries who are potentially eligible for the HCTC and provides the beneficiaries’ relevant personal information to the IRS.
The IRS mails program kits to persons whose names are included on the lists provided by the SWAs and the PBGC.
Receiving HCTC
In order to claim HCTC, an eligible taxpayer must file a tax return. Other tax credits for which individuals are eligible have no effect on their eligibility for the HCTC, nor does the HCTC affect other credits, with one key exception: a taxpayer who chooses to receive the HCTC is prohibited from being eligible for the premium tax credit established under the Patient Protection and Affordable Care Act.\Receiving the HCTC After the End of the Tax Year
Taxpayers who choose to claim the HCTC after the tax year ends must complete Form 8885 and attach it to their standard Form 1040. Taxpayers must include invoices and proof of payment for qualified health insurance. In this case, the credit amount would be used to reduce the amount of taxes owed for a given taxpayer. Because the HCTC is refundable, if the credit amount exceeds the amount of taxes owed, the excess amount is provided to the taxpayer in the form of a tax refund.
Contact our team of US Accountants