ARRA Changes to the HCTC

Q: What is the Health Coverage Tax Credit (HCTC)?

A: The HCTC was originally created as part of the Trade Act of 2002. Congress created the HCTC Program to help workers who lost their jobs due to trade and qualified for Trade Adjustment Assistance (TAA) or Alternative Trade Adjustment Assistance (ATAA). It was also created to help retirees, over age 55, whose pensions were taken over by the Pension Benefit Guaranty Corporation (PBGC). The HCTC legislation also provided that family members of these trade-affected workers and retirees can receive the tax credit.

A new law called the Trade Adjustment Assistance Health Coverage Improvement Act — part of the American Recovery and Reinvestment Act (ARRA) — resulted in changes to HCTC. Beginning in May 2009, the tax credit has increased from 65 percent to 80 percent of qualified health insurance premiums. Additional information on how the ARRA changed the HCTC is outlined below.

Q: Who is eligible for the HCTC?

A: The HCTC assists three specific groups of people. If you belong to one of these groups, you may be eligible to receive the tax credit:

• PBGC Pension Benefit Recipients — you are at least 55 years old and receive a pension benefit payment from the Pension Benefit Guaranty Corporation (PBGC). You also qualify if you currently receive PBGC benefits as a survivor, beneficiary or an alternate payee and are at least 55 years old.
• TAA Recipients — you are eligible to receive benefits under the Trade Adjustment Assistance (TAA) for Workers program.
• ATAA or RTAA Recipients — you receive benefits under the Alternative Trade Adjustment Assistance (ATAA) or Reemployment Trade Adjustment Assistance (RTAA) programs.

If you belong to one of these groups, you will receive an HCTC Program Kit in the mail when the HCTC Program is notified by your state workforce agency or the PBGC that you are potentially eligible for the tax credit.

Q: Is there any time limit to the new provisions?

A: Yes. The Trade Adjustment Assistance Health Coverage Improvement Act of 2009 expires on Dec. 31, 2010. At this time, the changes to the HCTC — including the new timeframes for extended benefits — are only valid for the remainder of 2009 and 2010.

Q: The American Recovery and Reinvestment Act (ARRA) established that employers partially subsidize COBRA premiums for some employees (65 percent COBRA Premium Reduction). Is that different from changes to the Health Coverage Tax Credit (HCTC)?

A: Yes, the 65 percent COBRA Premium Reduction is different from the HCTC. Beginning in February 2009, individuals who were/are involuntarily separated from their jobs on or after Sept. 1, 2008 are eligible to receive a 65% COBRA Premium Reduction through their former employer. A critical consideration for anyone who is eligible for HCTC, which could be more valuable than the COBRA Premium Reduction, is that electing to receive a COBRA Premium Reduction will disqualify the individual from receiving the HCTC during the same month. The HCTC provides an 80 percent tax credit compared to the 65% COBRA Premium Reduction.

Q: I am eligible for the HCTC and I have COBRA coverage. Do any of the HCTC changes affect me?

A: Yes. Section 1899F of the ARRA temporarily extends COBRA benefits for HCTC-eligible individuals. You can now continue your COBRA coverage through the timeframes listed below (but not beyond Dec. 31, 2010): 

• TAA, ATAA and RTAA recipients can receive COBRA as long as they are TAA eligible.
• PBGC recipients can receive COBRA as a lifetime benefit. Qualified PBGC beneficiaries continue their COBRA for an additional 24 months after the death of the primary PBCG recipient.

The law that created these extensions expires on Dec. 31, 2010. Therefore, these extensions also expire on Dec. 31, 2010, unless Congress reauthorizes to extend them beyond that date.

Q: I enrolled in the HCTC program this calendar year, and I paid my qualified health plan for premiums during the enrollment process.  Can I receive the HCTC for those months? 

A: Yes. Starting in August 2009, you can request to receive credit on your Monthly HCTC account for qualified health insurance payments you made directly to your health plan while enrolling in the HCTC Program. You may also claim these amounts on your federal tax return using Form 8885. 

Q: Have any of the requirements changed?

A: Yes. Training requirements have changed for certain TAA recipients, making it easier to be eligible for the HCTC.

Q: Can my family members receive the HCTC?

A: Yes. Qualified family members may receive the HCTC. Also, the HCTC will soon be available to your family members for a longer period of time. Beginning in January 2010, qualified family members may continue receiving the HCTC for up to 24 months (but not beyond Dec. 31, 2010) after the primary eligible individual experiences one of the following life events - enrollment in Medicare, divorce or death.

Q: Can I get the HCTC even if I don’t owe any tax?

A: Yes. The HCTC is a refundable tax credit, which means it is paid in full no matter how much federal income tax an eligible individual owes.

Q: How is the HCTC different from other tax credits?

A: The HCTC is available on a monthly basis to help individuals pay their health insurance costs as they become due or on a yearly basis when they file their federal tax return. The HCTC Program partners with various federal and state agencies and Health Plan Administrators (HPAs) to deliver the tax credit to eligible individuals.

The HCTC is also unique because it is the first time a federal tax credit is being used to help individuals, who are affected by trade or individuals whose pensions are taken over as a result of an employer’s financial hardship, to afford health insurance.

Related Item: HCTC: Frequently Asked Questions