What Is a Health Coverage Tax?

The Health Coverage Tax Credit (HCTC) is a federal credit that pays 80 percent of a qualified health plan premium for eligible individuals. The Internal Revenue Service (IRS), other federal agencies and private health insurers administer the HCTC. HCTC is a tax credit that taxpayers can receive monthly as their health plan premium becomes due each month or as a credit on their federal tax return at the end of the tax year.

Eligibility

• Taxpayers are potentially eligible for the health coverage tax credit if they are 55 years of age or older and receive pensions from the Pension Benefit Guaranty Corporation (PBGC), or receive a Trade Readjustment Allowance (TRA) and are attending TAA-approved training; or receive a wage subsidy under the Alternative TAA (ATAA)/Reemployment Trade Adjustment Assistance (RTAA) program for older workers. Individuals are ineligible if they are imprisoned, can be claimed as a dependent on another individual's federal tax return, are receiving Medicare benefits or if they are not enrolled in a qualified health plan.

Qualified Health Plans

• There are different types of qualified health plans. If an individual is eligible for health care coverage under COBRA, the taxpayers will pay more than 50 percent in order to receive the HCTC. A taxpayer covered under a spouse's heath care plan is required to pay more than 50 percent of the total monthly premium in order for the plan to qualify. If the health care plan is a non-group or individual policy, the taxpayer must enroll in the plan at least 30 days prior to his last day of paid work in order for the plan to qualify. Only certain VEBA provided health plans are qualified for the HCTC program. Taxpayers should call HCTC Customer Contact Center at 1-866-628-4282 to see if a VEBA provided health plan is a qualified plan.

Monthly HCTC

• Once enrolled in the monthly HCTC Program, taxpayers make payments to the HCTC. Taxpayers receive an invoice which must be paid in-full and on-time each month. After payment is received and processed by the HCTC, the HCTC Program adds the 80 percen, and pays the taxpayer's health plan administrator. Payments to the HCTC Program may be by personal check, business check, certified check, cashier's check, money order, credit card or debit card. Checks should be made payable to "U.S. Treasury - HCTC." The HCTC Program accepts Visa, MasterCard, American Express, Discover, and Diners Club. Taxpayers should always mail their payment with original HCTC payment coupons to the following address: US Treasury -- HCTC, P.O. Box 970023, St. Louis, MO 63197-0023.

Yearly HCTC

• As an alternative to monthly HCTC, taxpayers may claim a credit on their federal tax return at the end of the tax year by completing IRS Form 8885 and attaching it to their Form 1040 along with any supporting documents and schedules. The yearly HCTC, after being processed, will either be applied as a credit to any income tax liability owed or, if the taxpayer does not have a tax owing, will receive the HCTC as a refund. However, taxpayers need to take caution because should the IRS later determine that the taxpayer was not eligible for the HCTC, the taxpayer will have to repay the HCTC and, further, may be subject to interest and penalties.

National Emergency Grant (NEG) Bridge Program

• Some states have a temporary assistance programs which pays 80 percent of a taxpayer's qualified health plan premiums while he is enrolling in the Monthly HCTC Program. This temporary assistance program, the National Emergency Grant (NEG) Bridge Program, is for taxpayers who cannot afford to pay premiums on their qualified health plan while awaiting enrollment into the HCTC. The NEG Bridge Program ends when a taxpayer receives his first invoice from the HCTC Program.