The Health Coverage Tax Credit (HCTC) is a valuable but often overlooked benefit that can substantially reduce the cost of health insurance for eligible individuals. Designed primarily for displaced workers and retirees from specific industries, the HCTC covers a significant percentage of qualified health insurance premiums. This credit can be a lifeline for individuals facing job loss due to trade-related layoffs or pension plan failures. In this comprehensive guide, we’ll explore what the HCTC is, who qualifies, what types of coverage are eligible, and how to claim the credit properly on your tax return.
What Is the Health Coverage Tax Credit (HCTC)?
The HCTC is a federal tax credit administered by the IRS that pays a percentage of qualified health insurance premiums. As of the most recent provisions, the HCTC covers 72.5% of the premiums, leaving you responsible for only 27.5%. It is available to specific groups of individuals such as:
- Workers who lose their jobs due to the effects of international trade (Trade Adjustment Assistance – TAA)
- Qualified recipients of the Alternative Trade Adjustment Assistance (ATAA) or Reemployment Trade Adjustment Assistance (RTAA)
- Individuals whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation (PBGC)
The HCTC can be claimed either through monthly advance payments (in which the IRS pays your insurer directly) or as a lump sum credit on your annual federal tax return using IRS Form 8885.
Eligibility Requirements for the HCTC
To qualify for the HCTC, you must fall into one of the following categories:
1. Trade-Impacted Workers
You qualify if you receive benefits under the Trade Adjustment Assistance (TAA), ATAA, or RTAA programs. These programs are for workers who lost their jobs due to foreign trade competition.
2. PBGC Pension Recipients
If you are aged 55–65 and receive pension payments from the PBGC, you may also qualify for the HCTC. The PBGC must have assumed responsibility for your employer’s pension plan.
3. Other Basic Criteria
In addition to belonging to an eligible group, you must meet all of the following:
- You are not enrolled in Medicare Part A, B, or C.
- You are not enrolled in Medicaid or the Children’s Health Insurance Program (CHIP).
- You are not enrolled in the Federal Employees Health Benefits Program (FEHBP).
- You are not eligible to be claimed as a dependent on another person’s tax return.
- You are enrolled in a qualified health plan.
What Types of Health Insurance Qualify?
Not all health plans are eligible for the HCTC. To claim the credit, your insurance must meet IRS criteria. Qualified coverage includes:
- Coverage purchased through COBRA continuation coverage
- Coverage purchased directly from an insurer or HMO
- Coverage through a spouse’s employer (if the employer does not pay more than 50% of the premiums)
- State-qualified health plans approved by the HCTC program
- Certain group health plans for PBGC payees
Important: Marketplace plans purchased through Healthcare.gov or a state-based exchange are not eligible for the HCTC.
Advance Monthly Payment Option
If you prefer to receive the credit throughout the year rather than waiting for your tax refund, you can opt into the Advance Monthly Payment (AMP) program. Here’s how it works:
- You enroll in the AMP program through the HCTC Program Center.
- You pay 27.5% of your monthly premiums directly to the IRS.
- The IRS pays the remaining 72.5% directly to your insurance provider.
This arrangement ensures you benefit from the credit immediately, making health insurance more affordable month-to-month.
Steps to Claim the HCTC on Your Tax Return
If you didn’t opt for monthly advance payments, you can claim the full HCTC for the year on your federal income tax return. Follow these steps:
Step 1: Complete IRS Form 8885
Form 8885, Health Coverage Tax Credit, is used to report your premium payments and calculate your credit. You’ll need to provide:
- Number of months you were eligible
- Total amount of premiums you paid
- Type of insurance and provider details
Step 2: Attach Documentation
You must submit proof of premium payments. Acceptable documentation includes:
- Invoices from the insurance provider
- Receipts or bank statements showing payment
- Certification letters confirming eligibility for TAA or PBGC benefits
Step 3: File Your Form 8885 with Form 1040
Attach Form 8885 to your federal tax return (Form 1040). Enter the calculated credit on the appropriate line of your 1040 form. If the credit is larger than your total tax liability, the excess is refunded to you.
What If You Didn’t Receive Advance Payments?
Even if you were eligible for the HCTC but didn’t participate in the advance monthly payment option, you can still claim the full credit at tax time. Just be sure you:
- Were eligible during the year
- Paid your own premiums (not covered by an employer or other subsidy)
- Kept detailed payment records
When and Where to Enroll for AMP
The HCTC AMP program usually opens for enrollment in January of each year. To enroll, contact the HCTC Customer Contact Center:
Phone: 1-844-853-7210
Website: [IRS HCTC page](https://www.irs.gov/credits-deductions/individuals/hctc)
You must complete IRS Form 13441-A and submit documents verifying your eligibility and insurance coverage.
Is the HCTC Still Available in 2025?
The Health Coverage Tax Credit has been reauthorized multiple times by Congress. As of 2025, the credit remains in effect, but it is subject to expiration or legislative extension. Taxpayers who may qualify should take advantage of the credit while it is available and check annually for updates on its status.
Check the IRS website or speak with a tax professional for the most current guidance on the program’s availability.
Important Considerations
- HCTC vs. Premium Tax Credit (PTC): You cannot claim both credits for the same coverage months. If you are eligible for the HCTC, you must opt out of the Premium Tax Credit.
- Coordination with COBRA: HCTC can be used to pay COBRA premiums, but only if COBRA is not subsidized by your employer.
- Recordkeeping: Always keep a detailed paper trail of premiums, payments, and eligibility documents in case the IRS requires verification.
Conclusion: Take Advantage of the HCTC If You Qualify
The Health Coverage Tax Credit is a powerful but underutilized benefit that can dramatically reduce your health insurance costs if you’re eligible. Whether you’re a displaced worker under TAA or receiving PBGC pension payments, the HCTC can save you thousands each year in premiums.
To maximize the benefit, understand the eligibility requirements, choose between monthly advance payments or an annual refund, and retain all documentation to support your claim. If you’re unsure whether you qualify or need help filing Form 8885, consider consulting a tax professional. Don’t leave this valuable credit unclaimed—act promptly to ease the financial burden of health insurance and boost your overall tax refund.
