HCTC Tax Credit: What It Was and How It Worked
A historical guide to the expired Health Coverage Tax Credit (HCTC), a federal subsidy that helped specific displaced workers and retirees with insurance costs.
The Health Coverage Tax Credit (HCTC) was a federal tax benefit designed to make health insurance more affordable, covering 72.5% of premium costs for specific groups of individuals. The credit could be received in two ways: either as an advance monthly payment sent directly to the insurance provider or as a refundable credit claimed annually on a tax return. The HCTC program expired and cannot be claimed for coverage months after December 31, 2021. However, individuals who qualified in the past may still claim the credit for tax years 2021 and earlier by filing an amended tax return.
Eligibility Requirements for the HCTC
To have been eligible for the HCTC, an individual needed to fall into one of two categories. The first group included individuals receiving benefits under a Trade Adjustment Assistance (TAA) program, such as a TAA, Alternative TAA (ATAA), or Reemployment TAA (RTAA) recipient. These programs assist workers who lost their jobs due to foreign trade.
The second category included retirees at least 55 years old who were receiving pension benefits from the Pension Benefit Guaranty Corporation (PBGC). The PBGC is a federal agency that insures private-sector pension plans. A qualifying family member of a TAA or PBGC recipient could also be eligible in certain situations, such as after the death or divorce of the primary recipient.
All eligible individuals also had to meet several other requirements for every month the credit was claimed. A person could not be claimed as a dependent on another’s tax return or be an inmate in a correctional facility. Additionally, they could not be enrolled in Medicare Part A, B, or C.
Qualifying Health Insurance Plans
The HCTC could only be applied to premiums for specific types of coverage, and not all health insurance plans were eligible. Qualifying plans included:
- COBRA continuation coverage.
- A group plan available through the spouse of the eligible individual.
- Individual health insurance, meaning a plan purchased directly from an insurance company outside of an employer.
- Certain state-sponsored or organized health plans that met the necessary criteria established for the HCTC program.
Health insurance purchased through the Health Insurance Marketplace, also known as Affordable Care Act (ACA) plans, did not qualify for the HCTC. Individuals with Marketplace coverage may have been eligible for the Premium Tax Credit (PTC), and taxpayers were not permitted to claim both credits for the same coverage period.
How the HCTC Was Claimed and Received
The HCTC could be claimed using one of two methods: receiving advance monthly payments or claiming the full credit on an annual tax return. Each method had a distinct process and required specific IRS forms.
To receive advance payments, an individual first had to register with the IRS by submitting Form 13441-A, HCTC Monthly Registration and Update. This form required official proof of eligibility, such as a copy of an official letter from the Department of Labor for TAA recipients or from the PBGC for pension recipients. The form, which is now obsolete, also required detailed information about the chosen health plan, including the monthly premium amount.
After the IRS approved the registration, the participant was responsible for paying their 27.5% share of the monthly premium directly to the HCTC program. The IRS would then add the remaining 72.5% and forward the full premium payment to the health plan administrator each month. This system ensured coverage remained active without the participant paying the full cost upfront.
The second method was to claim the HCTC annually by filing Form 8885, Health Coverage Tax Credit, with a federal income tax return. To complete this form, the filer reported the total amount of qualified health insurance premiums they paid out-of-pocket for each eligible month. Filers also had to report any advance HCTC payments made on their behalf and attach supporting documents, such as proof of premium payments, to their tax return.
The total credit calculated on Form 8885 was then carried to the main tax form, where it would first reduce any income tax liability the person owed. If the credit was larger than the taxes owed, the filer received the difference as a tax refund. Form 8885 is still used when filing an amended return to claim the credit for tax years 2021 and earlier.