The Federal Health Coverage Tax Credit (HCTC)

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A federal income tax credit is available to help certain trade dislocated workers and early retirees, and their dependents, buy qualified health insurance coverage. The Health Coverage Tax Credit (HCTC) covers 65% of the insurance premium for qualified coverage. Under this program, you can either claim the tax credit at the end of the year on your tax return or you can elect to have the money paid directly to your qualified health plan each month by the Internal Revenue Service.

When am I eligible for the HCTC?

To be eligible for the tax credit, you must be receiving Trade Adjustment Assistance (TAA) benefits or retirement benefits from the PBGC. If you are receiving PBGC benefits, you also must be at least 55 years old.
In addition, you must meet other requirements. Specifically, you are not eligible for the HCTC if any of the following apply to you:
o You have a health plan maintained by an employer or former employer that pays at least 50% of the cost of your coverage. Any share of your premium that is paid by you or your spouse on a pre-tax basis is considered to have been paid by your employer and must be included as such when determining the percentage of employer coverage.
o You are enrolled in Medicare (Part A or B).
o You are enrolled in the Federal Employees Health Benefits Program (FEHBP), Medicaid, or State Children’s Health Insurance Program (SCHIP).
o You are entitled to health coverage through the U.S. military health system (Tricare/CHAMPUS).
o You can be claimed as a dependent on someone else’s federal tax return.
o You received a lump sum payment of your entire PBGC benefit before August 6, 2002.
o As of the first day of the current month in which you are otherwise eligible, you are imprisoned under a federal, state or local authority.
HCTC may apply to your family, too. If you are eligible, you can use the credit to help purchase qualified health coverage for your qualified family members. Qualified family members are your spouse and dependents that you can claim on your federal tax return. Family members are not eligible if they are enrolled in another group health plan where the employer pays at least 50% of the cost of coverage, or in Medicaid, SCHIP, FEHBP, Tricare/CHAMPUS.
Eligibility for HCTC is not based on income. In addition, the HCTC is refundable. This means you can claim the credit even if you do not earn enough income to owe federal income tax.

How much of my health coverage cost will the tax credit cover?

The HCTC is equal to 65% of health insurance premiums for qualified health insurance coverage.

What health coverage is eligible for the tax credit?

The HCTC can only be used to help pay for “qualified” health coverage. Qualified health coverage includes:
o COBRA continuation coverage or state continuation coverage, as long as your employer or former employer contributes less than 50% of the total health plan premium.
o Individual heath insurance in which you were enrolled for at least the last 30 days before you were separated from the job that makes you eligible for TAA benefits or for payments from the PBGC.
o State qualified plans: In Ohio, several private insurers offer, “qualified health coverage”. For more information, see http://www.irs.gov/individuals/index.html.
o Your husband’s or wife’s insurance from work, as long as the employer contributes less than 50% of the total health plan premium. (At this time, you can only claim the credit with this type of coverage when you file your federal tax return and not in advance.)

How do I claim the HCTC?

You can claim the HCTC on your tax return and be reimbursed for 65% of the premium you paid for qualified coverage while you were eligible for the HCTC. Currently, this is the only way to claim the HCTC if your qualified health plan is provided through a spouse’s employer.
Alternatively, you can choose to have your credit sent directly to your qualified health plan each month. To do this, you must register with the HCTC customer service center by calling 1-866-628-HCTC (1-866-628-4282), Monday through Friday between the hours of 7 am and 7 pm, Central time. TDD/TYY callers, please call 1-866-626-HCTC (1-866-626-4282).
You will have to fill out a registration form verifying your eligibility for the HCTC and your enrollment in qualified coverage. You will also fill out a payment invoice. Each month, you will send the HCTC program your 35% share of the premium for qualified coverage. The HCTC program will combine this payment with the tax credit covering the other 65% of the premium and forward the entire payment to your qualified health plan.
You must register in advance to have the HCTC paid directly to your health plan each month. Usually, the direct payments won’t begin until at least a month after you register with the HCTC program. Call the HCTC customer service center for more information

Where can I get more information?

For more information about the HCTC, contact the HCTC customer service center at 1-866-628-HCTC, or see the IRS website at http://www.irs.gov/individuals/index.html (click on HCTC).
For more information about TAA benefits contact, http://www.doleta.gov/tradeact/.
For more information about PBGC, contact, http://www.pbgc.gov/ or call 1-202-326-4000 with general inquiries.

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