What Is Form 8885 for the Health Coverage Tax Credit?

The Health Coverage Tax Credit (HCTC) assisted specific groups of individuals with the cost of their health insurance premiums. While the HCTC expired at the end of 2021, taxpayers who were eligible in prior years can still claim it by filing Form 8885, Health Coverage Tax Credit, with an original or amended tax return. This form allows qualified individuals to receive a credit for a portion of the amount they paid for health insurance. The credit was designed to provide financial relief for certain displaced workers and retirees to maintain their health coverage during periods of transition.

Determining Your Eligibility for the HCTC

The primary pathways to eligibility for the Health Coverage Tax Credit involve being a recipient of Trade Adjustment Assistance (TAA) benefits or certain pension payments. This includes individuals receiving Trade Readjustment Allowances, those on an approved break from TAA training, or those receiving unemployment benefits in place of a training allowance. The second main group consists of individuals aged 55 or older who are receiving pension benefits from the Pension Benefit Guaranty Corporation (PBGC).

A person cannot be claimed as a dependent on someone else’s federal tax return for the year the credit is claimed. It is also necessary to be enrolled in a qualified health insurance plan. These plans include COBRA continuation coverage, a group plan available through a spouse’s employer, or certain individual health insurance policies.

Not all health coverage qualifies for the HCTC. For instance, individuals enrolled in Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), or the Federal Employees Health Benefits Program are generally not eligible to claim the credit for those months of coverage. The taxpayer must also have paid for more than 50 percent of the health insurance premiums without reimbursement from other sources. Eligibility is determined on a month-by-month basis, and you must meet all requirements for each month the credit is claimed.

Information and Calculations Needed for Form 8885

You will need the official eligibility letter you received confirming your status as a TAA or PBGC recipient. You will also need Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments, if you received advance payments. This IRS form details the credit amount paid directly to your health plan administrator. Finally, you need detailed records of the total health insurance premiums you paid out-of-pocket.

The form is divided into two main parts. Part I is used to identify the months for which you are claiming the credit and to reconcile any advance payments you may have received. You will check a box for each month you met all the eligibility requirements. If you received a Form 1099-H, you will enter the advance payment amounts shown on it for the corresponding months.

Part II of the form is where the credit is calculated. You will enter the total amount of premiums paid for your qualified health plan, including only the amounts you personally paid and excluding any advance HCTC payments. You then multiply your qualified premium payments by 72.5%, the credit percentage. Any advance payments reported in Part I are then subtracted from this total to calculate the final credit amount.

Filing Form 8885 with Your Tax Return

Form 8885 must be submitted with your federal income tax return, such as Form 1040, as it cannot be filed by itself. Ensure that all required supporting documents, like proofs of premium payments, are attached to your return as instructed in the guidelines. Failure to do so could result in the disallowance of your credit.

The final credit amount calculated on Form 8885 is transferred to the appropriate line on your Form 1040. This credit is refundable, which means you can receive the full amount back as a refund, even if you do not owe any income tax. If you have a tax liability, the credit will first be applied to reduce the amount you owe, with any remaining credit refunded to you.