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Taxmap/pubs/p502-012.htm#TXMP71f2a11b Health Coverage Tax Credit

HCTC

There is a health coverage tax credit available to certain individuals who receive a pension benefit from the Pension Benefit Guaranty Corporation (PBGC) or are eligible to receive certain Trade Adjustment Assistance (TAA) or who are eligible for the Alternate Trade Adjustment Assistance (ATAA) program. You qualify for this credit if you:

1. Are an eligible individual,
2. Pay for qualified health insurance covering an eligible coverage month for yourself or for yourself and qualifying family members,
3. Do not have other specified coverage, and
4. Are not in prison.

You qualify for this credit on a month-by-month basis. If you qualify, you can claim a credit equal to 65% of the premiums you pay for qualified health insurance.

You can either take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Your payments and any payments paid on your behalf in advance are treated as having been made on the first day of the month for which they are made. If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can claim on your tax return. If you received National Emergency Grant (NEG) payments during 2004 for qualified health insurance, that amount will also reduce the amount of the credit you can claim.

Taxmap/pubs/p502-012.htm#TXMP0aed8fb3 Eligible Individual

You are an eligible individual for any month during which one of the following is true.

1. You receive a TAA for individuals under the Trade Act of 1974 for at least one day in the month.
2. You would receive a TAA but do not because you have not yet exhausted your unemployment benefits, and are covered under a TAA certification.
3. You are a worker receiving a supplemental wage allowance under section 246 of the Trade Act of 1974 for such month.
4. You are at least 55 years old as of the first day of the month and are receiving pension benefits from the PBGC.

Once you qualify under (1) or (2) above, you remain eligible for the first month that you otherwise cease to be eligible.

Taxmap/pubs/p502-012.htm#TXMP6f5172d9
Example.

You receive a TAA for individuals during May, but do not receive another for the rest of the year. You are eligible for the health coverage tax credit for both May and June.

You are not an eligible individual if an exemption can be claimed for you on another person's tax return.

Taxmap/pubs/p502-012.htm#TXMP761b7002 ATAA workers.

If you are eligible for the Alternative Trade Adjustment Assistance (ATAA) program, you are eligible for this credit for a period not to exceed two years if you:

1. Are covered by a qualifying certification,
2. Are reemployed not more than 26 weeks after the date of separation from the adversely affected employment,
3. Are at least 50 years of age,
4. Do not earn more than $50,000 a year in wages from reemployment,
5. Are employed on a full-time basis, and
6. Do not return to the employment from which you were separated.

Taxmap/pubs/p502-012.htm#TXMP53205b66 Qualifying Family Member

You can include the premiums you pay for qualified health insurance for qualifying family members in figuring your credit. Qualifying family members are:

• Your spouse, and
• Your dependents for whom you can claim an exemption on your tax return. (For children whose parents are divorced, see Children of divorced parents, later.)

However, if any otherwise qualifying family member has other specified coverage (defined later), then that person is not a qualifying family member. Also, your spouse is not your qualifying family member if:

• You are married on the last day of your tax year,
• Your spouse is also an eligible individual, and
• You file separate returns.

Taxmap/pubs/p502-012.htm#TXMP2ffc7899 Children of divorced parents.

If a child is in the custody of one or both of the child's parents for more than one-half of the year, the child is generally considered the dependent of the parent having custody for the greater part of the year (the custodial parent) if the parents either:

• Are divorced or legally separated under a decree of divorce or separate maintenance,
• Are separated under a written separation agreement, or
• Lived apart at all times during the last 6 months of the year.

For purposes of the health coverage tax credit, a child in this situation is treated as the dependent of the custodial parent even if:

1. The custodial parent cannot claim an exemption for the dependent child because that parent released any claim to the exemption for the year, or
2. There is a pre-1985 decree or agreement that entitles the noncustodial parent to the exemption.

Taxmap/pubs/p502-012.htm#TXMP6bad8b23 Legally separated.

You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. You can claim the credit on a separate return.

Taxmap/pubs/p502-012.htm#TXMP4b9e82d3 Married and living apart.

You are not considered married and can claim the credit if all of the following apply.

• You file a separate return.
• Your home is the home of a qualifying person (defined later) for more than half the year.
• You pay more than half the cost of keeping up your home for the year.
• Your spouse does not live in your home for the last 6 months of the year.

Taxmap/pubs/p502-012.htm#TXMP26877994 Qualifying person.

A qualifying person is any of the following individuals.

• Your dependent under age 13 for whom you can claim an exemption.
• Your spouse or dependent who is physically or mentally not able to care for himself or herself.

Taxmap/pubs/p502-012.htm#TXMP077a024f Qualified Health Insurance

Qualified Health Insurance

The following health insurance qualifies for the credit.

• COBRA continuation coverage. (This is coverage that employers with 20 or more employees must offer to employees or former employees and their beneficiaries who have lost coverage because of certain events.)
• Coverage under a group health plan that is available through the employment of your spouse. (But see Other Specified Coverage, later.)
• Coverage under an individual health insurance policy if you were covered during the entire 30-day period that ends on the date you separated from the employment which qualified you for the allowance or benefit as an eligible individual (defined earlier). For this purpose, coverage under an individual health insurance policy includes medical insurance offered to individuals and their families, but does not include coverage under a federal, state, or other group health insurance policy.

Taxmap/pubs/p502-012.htm#TXMP12d50ae8 State-qualified health insurance.

The following health insurance qualifies for the credit to the extent the sponsoring state elects to have it apply.

• State-based continuation coverage provided by the state under a state law that requires such coverage.
• Coverage offered through a qualified state high-risk pool.
• Coverage under a health insurance program offered to state employees or a similar state-based health insurance program.
• Coverage through an arrangement entered into by the state and a group health plan, an issuer of health insurance coverage, an administrator, or an employer.
• Coverage offered through a state arrangement with a private sector health care coverage purchasing pool.
• Coverage under a state-operated health plan that does not receive any federal financial participation.

To find out which plans are qualified for your state, you can:

• Visit the website, www.irs.gov, type "hctc" in the IRS keyword box, click on "go," and then under Resources, click on A list of Qualified Health Plans organized by state, or
• You can call 1-866-628-4282 (tollfree) (or TDD/TTY 1-866-626-4282) between 7:00 a.m. and 7:00 p.m. central time, Monday through Friday.

Taxmap/pubs/p502-012.htm#TXMP39bc1ab5 Nonqualified Health Insurance

Nonqualified Health Insurance

The following health insurance does not qualify for the credit.

1. Medicare supplemental (Medigap) insurance, Tricare supplemental insurance, or similar supplemental insurance to an employer-sponsored group health plan.
2. Any insurance if substantially all of the coverage is:
   1. Coverage for on-site medical clinics,
   2. Hospital indemnity or other fixed indemnity insurance,
   3. Accident or disability income insurance (or a combination of the two),
   4. Liability insurance,
   5. A supplement to liability insurance,
   6. Workers' compensation or similar insurance,
   7. Automobile medical payment insurance,
   8. Credit-only insurance,
   9. Limited scope dental or vision benefits,
   10. Benefits for long-term care, nursing home care, home health care, community-based care (or any combination), or
   11. Coverage for only a specified disease or illness.
3. Coverage under a flexible spending or similar arrangement.

Taxmap/pubs/p502-012.htm#TXMP0f81bcd6 Insurance that covers other individuals.

If you have qualified health insurance that covers anyone besides yourself and your qualifying family member(s), (defined earlier), you may not be able to take into account all of your payments. You cannot treat an amount as paid for insurance for yourself and qualifying family members unless all of the following requirements are met.

• The charge for insurance for yourself and qualifying family members is either separately stated in the contract or furnished to you by the insurance company in a separate statement.
• The amount you paid for insurance for yourself and qualifying family members is not more than the charge that is stated in the contract or furnished by the insurance company.
• The amount stated in the contract or furnished by the insurance company is not unreasonably large in relation to the total charges under the contract.

Taxmap/pubs/p502-012.htm#TXMP6086f605 Eligible Coverage Month

Eligibility for the credit is determined on a monthly basis. An eligible coverage month is any month in which, as of the first day of the month, you:

1. Are an eligible individual (defined earlier),
2. Are covered by qualified health insurance (defined earlier) that you pay for,
3. Do not have other specified coverage (defined later), and
4. Are not imprisoned under federal, state, or local authority.

If you file a joint return, only one spouse has to satisfy the requirements.

Taxmap/pubs/p502-012.htm#TXMP74849d30 Other Specified Coverage

Even if you are otherwise eligible, you are not eligible for the credit for a month if, as of the first day of the month, you have other specified coverage. Other specified coverage is coverage under the following.

1. Any insurance which constitutes medical care (unless substantially all of that insurance is for benefits listed earlier under (1) or (2) under Nonqualified Health Insurance) if at least 50% of the cost of the coverage is paid by an employer (or former employer) of you or your spouse.
2. Any of the following government health programs:
   1. Medicare Part A or Part B,
   2. Medicaid, or the State Children's Health Insurance Program (SCHIP),
   3. The Federal Employees Health Benefit Plan (FEHBP), or
   4. Tricare, the medical and dental care program for members and certain former members of the uniformed services and their dependents.

Two important points here are that you are not entitled to the credit for a month, if on the first day of that month, you are either: Covered by Medicare, or Covered by a group health plan available through your or your spouse's employer and the employer contributes 50% or more of the premium.

Taxmap/pubs/p502-012.htm#TXMP7c62e1a8 How To Report

To claim the credit, complete Form 8885, Health Coverage Tax Credit, and attach it to your Form 1040 or Form 1040NR. Report the credit o n Form 1040, line 69, or Form 1040NR, line 63, and check box c. You cannot claim the credit on Form 1040A or Form 1040EZ.

You must attach invoices and proof of payment for any amounts you include on Form 8885, line 2, for which you did not receive an advance payment. If you file your return electronically, attach the invoices and proof of payment to your Form 8453. Proof of payment may include a pay stub if insurance is through a spouse's employment, a bank check, or bank statement for premiums that are automatically deducted from your account.

If you claim this credit, you cannot take the same expenses that you use to figure your health coverage tax credit into account in determining your:

• Medical and dental expenses on Schedule A (Form 1040),
• Self-employed health insurance deduction, or
• Archer Medical Savings Account (MSA) distributions.

Taxmap/pubs/p502-012.htm#TXMP2f0ca28b Refundable and Advanceable

Credit, Refund

You can claim this credit and receive a refund even if you do not owe any taxes or earn any income.

You can get your credit in advance by calling the HCTC customer contact center at 1-866-628-4282 (tollfree) (or TDD/TTY 1-866-626-4282) between 7:00 a.m. and 7:00 p.m. central time, Monday through Friday, to register. The Treasury Department will pay your insurer 65% of your health insurance premiums as you pay the remaining 35%. The amount of the credit you can claim on your tax return will be reduced by the amount of the credit you receive in advance.

Previous Page:  Publication 502 - Medical and Dental Expenses - Health Insurance Costs for Self-Employed Persons Next Page:  Publication 502 - Medical and Dental Expenses - How To Get Tax Help Use     to find additional instances of index items.