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Questions and Answers on Qualified Health Insurance Plans for the Health Coverage Tax Credit Eligibility beginning January 1, 2016

Taxpayers eligible for the health coverage tax credit should ensure that they are enrolled in health care coverage that qualifies for the HCTC.

1. Beginning January 1, 2016, what types of health insurance qualify for the HCTC?

There are several types of health insurance that qualify for the HCTC beginning January 1, 2016. However, contributions by your employer or your spouse’s employer may limit qualification. See the next question.

(1) Coverage under a COBRA continuation provision;
(2) Coverage under a group health plan available through the employment of your spouse;
(3) Coverage under an employee benefit plan funded by a voluntary employees’ beneficiary association (VEBA) that was established through the bankruptcy of your former employer;
(4) Coverage obtained in the non-group (individual) health insurance market other than coverage offered through the Health Insurance Marketplace; and
(5) Coverage under certain state-qualified health plans established prior to January 1, 2014.

A qualified health insurance plan for the HCTC does not include: 

  • Health Insurance Marketplace coverage after Dec. 31, 2015, or
  • Flexible spending or similar arrangements and any insurance if substantially all of its coverage is of excepted benefits described in section 9832(c) of the Internal Revenue Code.

For example, dental or vision benefits purchased separately aren’t part of a qualified health insurance plan for the HCTC. But, premiums paid for a comprehensive package that includes dental or vision benefits may be eligible for the HCTC if the dental or vision benefits don’t represent substantially all of its coverage.

2. What if my employer or my spouse’s employer pays part of the premium?

You can’t claim the HCTC for any month that either of the following applies. 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.

(1) You can’t claim the HCTC for any month that, on the first day of the month, you were covered under an employer-sponsored health insurance plan (including any employer-sponsored health insurance plan of a spouse) and the employer paid 50% or more of the cost of coverage.
(2) If you are an Alternative Trade Adjustment Assistance (ATAA) or Reemployment Trade Adjustment Assistance (RTAA) recipient, you can’t claim the HCTC for any month that, on the first day of the month, you were eligible for certain kinds of coverage (including any employer-sponsored health insurance plan of your spouse) where the employer would have paid 50% or more of the cost of the coverage or you were covered under certain kinds of coverage (including any employer-sponsored health insurance plan of your spouse) where the employer paid any part of the cost of coverage.

3. Have the types of qualifying health insurance changed since 2013?

All insurance that was qualified in 2013 will be qualified after December 31, 2015. In addition, an old rule limiting qualifying individual health coverage to coverage obtained prior to leaving your job was eliminated.

4. Will the coverage for my qualifying family members continue to qualify for the HCTC when I reach 65?

There were no changes to this rule. You can receive the HCTC for the health plan premiums of your qualified family members for up to 24 months from the month you enroll in Medicare, or until the coverage month begins in or after January 2020, whichever comes first.

5. I am enrolled in individual coverage offered through the Marketplace. Must I find other insurance?

All taxpayers eligible for both the HCTC and the premium tax credit (PTC) should compare the out-of-pocket costs and benefits of Marketplace plans against the HCTC-qualified health insurance plans listed above. If you are eligible for the HCTC and the PTC, you may prefer coverage through a qualified health plan offered through the Marketplace because the Marketplace may be more affordable. Beginning January 1, 2016, Marketplace coverage isn’t qualifying insurance for the HCTC and you will be able to claim only the PTC for your Marketplace coverage and not the HCTC when you file your tax return.  

6. When will the IRS begin making advance monthly payments of the HCTC?

The IRS begins making payments for the advance monthly program in January. You can claim the HCTC for any months during the year that you are enrolled in insurance coverage that qualifies for the HCTC, when you file your income tax return by following instructions for Form 8885. 

7. Can I claim both the HCTC and the premium tax credit or receive advance payments of the PTC in the same year?

Yes, but you cannot claim both the HCTC and the premium tax credit or advance payments of the PTC for the same coverage for the same coverage months. If you enrolled in Health Insurance Marketplace coverage for any month during the year, you must reconcile any advance payments of the premium tax credit paid on your behalf, when you file your tax return.

8. I enrolled in a health plan through a Health Insurance Marketplace. Can I still claim the HCTC?

After December 31, 2015, you cannot claim the HCTC on your tax return for months you are enrolled in Marketplace insurance.  You can only claim the HCTC when you file your income tax return, if you are enrolled in HCTC-qualified coverage.  The election required to claim the HCTC can be made for any coverage month and doesn't prevent you from claiming the PTC in earlier months in the year, but you must be enrolled in qualified insurance (see question and answer 1). If it is possible for you to switch into HCTC-qualified health coverage, check with your coverage provider to ensure no gap in coverage would result from terminating your Marketplace coverage. You are still required to reconcile any advance payments of the premium tax credit paid on your behalf during the year when you file. Once you elect to take the HCTC for any month in a year, the election to take the HCTC applies to all subsequent eligible coverage months in the same year for the same coverage.

9. If I switch from coverage offered through the Marketplace to qualified coverage listed in answer 1 above, can I receive the benefit of advance payments of the HCTC to pay my premiums?

No. If you enroll in HCTC-qualified coverage listed in answer 1 for any months during the year, you can only claim the HCTC when you file your  income tax return.  However, if you are enrolled in the Health Insurance Marketplace, you can continue to receive the benefit of advance payments of the premium tax credit toward your premiums. You would not be eligible for the HCTC for any months you have Marketplace coverage beginning January 1, 2016.

10.  I’m eligible for both the PTC and the HCTC.  Can I switch from Marketplace coverage into a VEBA plan for my  coverage during an open enrollment period in November?

Yes. For example, if you enrolled in Marketplace coverage, you can claim the PTC and receive advance payments through December 2017, switch for January 2018 into VEBA coverage, elect the HCTC for January 2018, and claim the HCTC for the 2018 coverage as either advance HCTC (monthly option) or annually (on Form 8885). Your HCTC election applies only to the 2018 coverage. You remain eligible for the PTC for the 2017 coverage.

For more information about the Health Coverage Tax Credit, go to IRS.gov/HCTC.

IRS.gov/ACA has more information about the health care law and the premium tax credit.