Federal Form 8885 - Health Coverage Tax Credit Instructions

General Instructions  

What's New  

Decrease in the credit. For January and February 2011, the credit was 80% for amounts paid for qualified health insurance premiums. For March–December 2011 coverage, the tax credit decreased to 72.5%.

Additional 7.5% retroactive credit. Participants that received 65% advance monthly payments for March–December 2011 are eligible to receive an additional 7.5% retroactive credit. See the instructions for line 7 for more information.

Future developments. The IRS has created a page on IRS.gov for information about Form 8885 and its instructions at www.irs.gov/form8885. Information about future developments affecting Form 8885 (such as legislation enacted after we release it) will be posted on that page.

Purpose of Form  

Use Form 8885 to figure the amount, if any, of your health coverage tax credit (HCTC) or to take any additional 7.5% retroactive credit.

Self-Employment Health Insurance Deduction Worksheet. If you are completing the Self-Employed Health Insurance Deduction Worksheet in your tax return instructions and, during 2011, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient, you must complete Form 8885 before completing that worksheet. When figuring the amount to enter on line 1 of the worksheet do not include:

  • Any amounts you included on Form 8885, line 4,
  • Any qualified health insurance premiums you paid to “U.S. Treasury-HCTC,”
  • Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, or
  • Any additional retroactive credit amount in the box to the left of box 8 on Form 1099-H.

Who Can Take This Credit  

You can take this credit only if (a) you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension payee in 2011; or you were the family member of a TAA, ATAA, or RTAA recipient or PBGC payee who passed away or with whom you finalized a divorce, (b) you cannot be claimed as a dependent on someone else’s 2011 tax return, and (c) you met all of the other conditions listed on line 1. If you cannot be claimed as a dependent on someone else’s 2011 tax return, complete Form 8885, Part I, to see if you are eligible to take this credit.

Definitions and Special Rules  

TAA Recipient  

You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you:

  • Received a trade readjustment allowance, or
  • Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied).

Example. You received a trade readjustment allowance for January 2011. You were an eligible TAA recipient on the first day of January and February.

ATAA Recipient  

You were an eligible ATAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor.

Example. You received benefits under an alternative trade adjustment assistance program for older workers for October 2011. The program was established by the Department of Labor. You were an eligible ATAA recipient on the first day of October and November.

RTAA Recipient  

You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor.

Example. You received benefits under a reemployment trade adjustment assistance program for older workers for January 2011. The program was established by the Department of Labor. You were an eligible RTAA recipient on the first day of January and February.

PBGC Pension Payee  

You were an eligible PBGC pension payee on the first day of the month if both of the following apply.

  1. You were age 55 or older on the first day of the month.
  2. You received a benefit for that month that was paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA).

If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment.

Family Members in Certain Life Events  

Qualifying family members (spouses and dependents) are considered recipients and are eligible to receive the HCTC in the event that the TAA, ATAA, or RTAA recipient or PBGC payee dies or with whom they finalized a divorce. Qualified family members can receive the tax credit for up to 24 months from the event, or until January 1, 2014. Eligible taxpayers who plan to claim this credit under these life events, who were not enrolled in the monthly HCTC program in January or February 2011, must call the HCTC Program prior to filing Form 8885 to ensure it is processed correctly. See the TIP later for the phone number.

Example. Your spouse was a PBGC payee and died on August 20, 2011. You are eligible to receive the HCTC for August 2011 through July 2013.

Qualified Health Insurance Plan  

A qualified health insurance plan is any of the following.

  1. Coverage under a group health plan available through the employment of your spouse. But see the instructions for line 1.
  2. Coverage under individual health insurance if you were covered under individual health insurance during the entire 30-day period ending on the date you were separated from your job that qualified you for TAA, ATAA, RTAA, or PBGC pension benefits. Individual health insurance does not include any insurance connected with a group health plan or federal- or state-based health insurance coverage.
  3. Coverage under a COBRA continuation provision (as defined in section 9832(d)(1)).

    Note. As of February 2009, electing to receive the 65% COBRA premium reduction will disqualify you from receiving the HCTC in the same month. You must pay more than 50% of your COBRA coverage to be eligible for the HCTC.

  4. Coverage under a state-qualified health plan. State-qualified health plans include:
    1. Continuation coverage provided by the state under a state law that requires such coverage.
    2. A qualified state high risk pool (as defined in section 2744(c)(2) of the Public Health Service Act).
    3. A health insurance program offered for state employees.
    4. A state-based health insurance program that is comparable to the health insurance program offered for state employees.
    5. An arrangement entered into by a state and (a) a group health plan (including such a plan which is a multiemployer plan as defined in section 3(37) of ERISA), (b) an issuer of health insurance coverage, (c) an administrator, or (d) an employer.
    6. A state arrangement with a private sector health care coverage purchasing pool.
    7. A state-operated health plan that does not receive any federal financial participation.
     
  5. A health plan purchased through a Voluntary Employees' Beneficiary Association (VEBA) that was established through the bankruptcy of your former employer and was offered to you in lieu of COBRA coverage and retiree benefits. For more information, see the TIP at the end of this section.

Exception. A qualified health insurance plan does not include any of the following.

  • Any state-based coverage listed in 4a through 4g above unless it also meets the requirements of section 35(e)(2).
  • A flexible spending or similar arrangement.
  • Any insurance if substantially all of its coverage is of excepted benefits described in section 9832(c). For example, if you purchase dental or vision benefits separately, these benefits are not part of a qualified health insurance plan for the HCTC. But, if you purchase dental or vision benefits as part of a comprehensive package and these benefits do not represent substantially all of its coverage, these benefits may be part of a qualified health insurance plan and the premiums paid may be eligible for the HCTC.

TIP: If you are not sure whether your health insurance plan is a qualified health insurance plan, go to IRS.gov, enter HCTC Resources in the search box and link to HCTC: Resources for Individuals found under that heading. You can also contact the HCTC Customer Contact Center at 1-866-628-HCTC (1-866-628-4282) or 1-866-626-4282 (TTY).

Qualifying Family Member  

A qualifying family member is:

  • Your spouse (but see Married Persons Filing Separate Returns below), or
  • Anyone whom you can claim as a dependent (but see the exception for Children of Divorced or Separated Parents below).

For any month that you are eligible to claim the HCTC, you can include premiums paid for a qualifying family member for that month if all of the following statements were true as of the first day of that month.

  • The qualifying family member was covered by a qualified health insurance plan (defined earlier) for which you paid the premiums. You and your qualifying family member do not have to be covered by the same plan.
  • The qualifying family member was not enrolled in Medicare Part A, B, or C.
  • The qualifying family member was not enrolled in Medicaid or the Children’s Health Insurance Program (CHIP).
  • The qualifying family member was not enrolled in the Federal Employees Health Benefits Program (FEHBP) or eligible to receive benefits under the U.S. military health system (TRICARE).
  • The qualifying family member was not covered by, or eligible for coverage under, any employer-sponsored health insurance plan (see the instructions for line 1 on this page).

If you are a TAA, ATAA, or RTAA recipient or PBGC payee who enrolled in Medicare, you can receive the HCTC for the health plan premiums of your qualified family member(s) for up to 24 months from the month you enrolled in Medicare, or until January 1, 2014. In order to receive the HCTC, your qualified family members must meet all of the requirements described above. Eligible taxpayers who plan to claim this credit due to Medicare enrollment, who were not enrolled in the monthly HCTC program in January or February 2011, must call the HCTC Program prior to filing Form 8885 to ensure it is processed correctly. See the TIP above for the phone number.

Married Persons Filing Separate Returns  

Your spouse is not treated as a qualifying family member if your filing status is married filing separately and either (1) or (2) below applies.

  1. Your spouse also was an eligible TAA recipient, ATAA recipient, RTAA recipient, or PBGC pension payee in 2011.
  2. All of the following apply:
    1. You lived apart from your spouse during the last 6 months of 2011.
    2. A qualifying family member (other than your spouse) lived in your home for more than half of 2011.
    3. You provided over half of the cost of keeping up your home.
     

Children of Divorced or Separated Parents  

Even if you cannot claim your child as a dependent, he or she is treated as your qualifying family member for the HCTC if both of the following apply.

  • You were the child’s custodial parent. This is the parent with whom the child lived for the greater number of nights in 2011. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income.
  • The child’s other parent can claim the child as a dependent under the rules for children of divorced or separated parents (see the instructions for Form 1040, line 6c, or Pub. 501, Exemptions, Standard Deduction, and Filing Information, for details).

If both of the above apply, the child’s other parent cannot treat the child as a qualifying family member for the HCTC.

CAUTION! The child must also meet all of the other conditions of a qualifying family member defined earlier.

Specific Instructions  

Line 1  

Employer-sponsored health insurance plan. You cannot claim the HCTC for any month that, on the first day of the month, either (1) or (2) next apply.

  1. You were covered under any employer-sponsored health insurance plan (including any employer-sponsored health insurance plan of your spouse) (except insurance substantially all of the coverage of which is of excepted benefits described in section 9832(c)) and the employer paid 50% or more of the cost of the coverage.
  2. You were an ATAA or RTAA recipient and either of the following applies.
    1. You were eligible for coverage under any qualified health insurance plan (including any employer-sponsored health insurance plan of your spouse) (other than the plans listed under 3, 4a, or 4e in the definition of Qualified Health Insurance Plan) where the employer would have paid 50% or more of the cost of the coverage.
    2. You were covered under any qualified health insurance plan (including any employer-sponsored health insurance plan of your spouse) (other than the plans listed under 3, 4a, or 4e in the definition of Qualified Health Insurance Plan) and the employer paid any part of the cost of the coverage.
     

CAUTION! Any amounts contributed to the cost of coverage by you or your spouse on a pre-tax basis are considered to have been paid by the employer.

Check the boxes on line 1 for each month that, on the first day of the month, neither (1) nor (2) above applies and you met all of the other conditions listed on line 1.

Example 1. On October 1, 2011, your only health insurance coverage was under an employer-sponsored health insurance plan. The plan is not one in which substantially all of the coverage is of excepted benefits described in section 9832(c). The employer paid 40% of the cost of the coverage. You paid 20% of the cost of the coverage through pre-tax contributions. You cannot claim the HCTC for the month of October because the employer is considered to have paid 60% of the cost of the coverage.

Example 2. Assume the same facts as in Example 1 except that the employer paid only 25% of the cost of the coverage. The employer is considered to have paid 45% of the cost of the coverage (25% that was paid by the employer plus 20% that you paid through pre-tax contributions). If you were an eligible TAA recipient or PBGC pension payee, you can claim the HCTC for the month of October if you met all the other conditions listed on line 1 on October 1, 2011. If you were an ATAA or RTAA recipient, you can claim the HCTC for the month of October only if, on October 1, 2011, all of the following apply.

  • You were not eligible for coverage under any qualified health insurance plan (including any employer-sponsored health insurance plan of your spouse) (other than the plans listed under 3, 4a, or 4e in the definition of Qualified Health Insurance Plan) where the employer would have paid 50% or more of the cost of the coverage.
  • The plan was a type of plan listed under 3, 4a, or 4e in the definition of Qualified Health Insurance Plan.
  • You met all of the other conditions listed on line 1.

Line 2  

CAUTION! If your qualified health insurance plan covers anyone other than you and your qualifying family members, see Pub. 502, Medical and Dental Expenses (Including the Health Coverage Tax Credit), before completing line 2.

Enter the total amount of insurance premiums paid for coverage for you and all qualifying family members under a qualified health insurance plan (defined earlier) for all months checked on line 1. But do not include any qualified health insurance premiums you paid to “U.S. Treasury– HCTC” or any insurance premiums on coverage that was actually paid for with a National Emergency Grant. Also, do not include any advance (monthly) payments or reimbursement credits you received, as shown on Form 1099-H, box 1.

Example 1. You checked January on line 1. You paid $225 ($200 for basic coverage and $25 for dental benefits which are purchased separately) to your insurance company for coverage in January. The $25 you paid for dental benefits is ineligible for the HCTC. You would include the $200 you paid for your basic insurance on line 2, column A.

Example 2. Your insurance coverage for January cost $225 ($200 for basic coverage and $25 for dental benefits ineligible for the HCTC). You paid $65 to “U.S. Treasury–HCTC” for January. The $65 equals $40 (your 20% share of the $200 eligible premium) plus the $25 for dental benefits ineligible for the HCTC. You received a Form 1099-H showing an advance payment of $160 (80% of the $200 eligible premium) for January. You would check January on line 1 but you would include nothing for January on line 2.

Line 7  

Additional retroactive credit amount. If you received 65% advance (monthly) payments in any month from March through December, you are entitled to an additional 7.5% (.075) retroactive credit. The total amount of your additional retroactive credit for those months can be found in the box to the left of box 8 on your 2011 Form 1099-H. For more important information, refer to the Instructions for recipients on Form 1099-H.

If you are only claiming this additional retroactive credit, enter your name and social security number at the top of the form and enter on line 7 the amount shown in the box to the left of box 8 on your Form 1099-H. You do not have to complete lines 1 through 6 and you do not have to send in any documentation.

However, if you are also claiming the credit for any month you did not receive an advance payment, you must complete lines 1 through 6 for those months and add to this total the amount shown in the box to the left of box 8 on Form 1099-H and enter this total amount on line 7. You must submit all required documentation for those months you did not receive an advance payment.

Repayment of advance payment received in error. If you received an advance payment in any month not checked on line 1, you must reduce the amount on line 6 by the total of that advanced payment(s). (If you are also claiming the 7.5% additional retroactive credit shown in the box to the left of box 8 on Form 1099-H, combine the amount on line 6 with the additional retroactive credit before subtracting the advance payment received in error.)

If the result is less than zero, show the amount on line 7 as a negative number by enclosing it in parentheses. This amount is treated as an additional tax and must be treated as a positive amount and included in the total you enter on Form 1040, line 60; Form 1040NR, line 59; Form 1040-SS, line 5; or Form 1040-PR, line 5. On the dotted line next to that line enter “HCTC” and the amount of this additional tax.

Required Documents  

You must provide verifiable proof that your health insurance plan is qualified and that you paid the qualified health insurance premiums by attaching the documents listed below to your Form 8885.

All health plans. For all health plans you must include both of the following documents.

  1. A copy of your health insurance bills or COBRA payment coupons.* The bills must have:
    1. Your name (or name of the policy holder),
    2. The name of your health plan,
    3. Your monthly premium amount,
    4. Dates of coverage, and
    5. Your health plan identification number(s).

    *If your qualified health plan does not provide members with an insurance bill or COBRA payment coupon, you must provide health plan enrollment documents or an official letter from your health plan that has the required information listed under 1a through 1e earlier. If your monthly premium includes amounts that do not count towards the HCTC, such as dental or vision coverage or coverage for family members who are not eligible for the HCTC, your documentation must also specify those ineligible amounts.

  2. Proof of payment such as:**
    1. Canceled checks (copy of front and back),
    2. Bank statements,
    3. Credit card statements, or
    4. Money orders.

**Your proof of payment must indicate the amount paid and to whom it was paid. If you do not have one of these types of proof of payment, contact your health plan for a record of your payment(s).

COBRA coverage. You must include the information under All health plans and one of the following documents.

  1. A copy of your completed and signed COBRA Election Letter. It may also be called a COBRA Enrollment Form, Application Form, Enrollment Application for Continuing Coverage, or Election Agreement.
  2. A letter from your former employer or COBRA administrator saying you have COBRA coverage. The letter must have:
    1. The COBRA coverage start and end dates,
    2. Name of the health plan,
    3. Your home address, and
    4. Covered family members, their dates of birth, their relationship to you, and their social security numbers.
     
  3. A copy of “Notice of Rights to Continue Coverage.”

Non-group (individual) health plans. You must include the information under All health plans and both of the following documents.

  • A letter or other document from your former employer or your unemployment office that shows the date you left your job.
  • A document from your health plan that shows your first date of coverage. Your first day of coverage in a non-group (individual) health plan must have been at least 30 days before you left your job.

Coverage through your spouse’s employer. You must include the information under All health plans and the following documents.

  • Copies of paycheck stubs showing the health coverage deductions for the qualified months.
  • A letter or other statement from your spouse’s employer that states the employer contributed less than 50% of the cost of the coverage.

E-filed return. If you e-file, you must attach a copy of the required documents to Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return.

Example 1. You are eligible to claim the HCTC for October and November. In October, you paid $500 of qualified health insurance premiums for yourself and $250 for your qualifying family members. In November, you paid $262.50 (35% of the $750 November premium) to “U.S. Treasury–HCTC” and received an advance payment of $487.50 (65% of the $750 November premium). Form 1099-H shows the total advance of $487.50 in box 13. Form 1099-H also shows $56.25 (your additional 7.5% retroactive credit for November) in the box to the left of box 8. You would include $750 on line 2, column B, for the October insurance payment. You would not include any part of the November insurance premium since you already received the advance (monthly) payment for this month. You must attach copies of your health insurance bills and proofs of payment for October for you and your qualifying family members totaling $750, along with any other required documents. Also, to receive the additional 7.5% retroactive credit for November, you must add the $56.25 from the box to the left of box 8 of your Form 1099-H to the total amount on line 7.

Example 2. You are eligible to claim the HCTC for February, March, and April. You paid $500 of qualified health insurance premiums in each month for yourself and $250 for your qualifying family members directly to your qualified health plan. The amount on Form 8885, line 2, column A is $750 (the February premium). The amount on line 2, column B, is $1,500 ($750 each for March and April). You did not receive any HCTC advance (monthly) payments during 2011. You would enter $600 (80% of your $750 February premium) on line 6, column A, and $1,087.50 (72.5% of your March and April premiums) on line 6, column B. Your total health coverage tax credit, line 7, would be $1,687.50 ($600 (for February) plus $1,087.50 (for March and April)). You must attach copies of your health insurance bills and proofs of payment for February, March, and April for you and your qualifying family members totaling $2,250 ($750 for each month), along with any other required documents.