Health Tax Credit Tips for Pension Clients
If you have clients receiving pensions from the Pension Benefit Guaranty Corporation or benefits under the Trade Adjustment Assistance programs, they may be eligible for the Health Coverage Tax Credit (HCTC).
The HCTC pays 65 percent of qualified health plan premiums for eligible individuals. These individuals can choose to have the 65 percent credit applied either monthly directly to their health plan as their premiums become due, or yearly on their federal tax return as a refund or credit against taxes owed. You can help individuals understand their options and make informed tax decisions.
Individuals receiving pensions from the PBGC or workers laid off due to foreign trade are potentially eligible for the HCTC. While the HCTC Program notifies individuals who are potentially eligible by mail, we need your help to make sure eligible individuals know about and claim the HCTC. Start by asking if the individuals during any part of the tax year:
- Receive pension payments from the PBGC and are at least 55 years old,
- Receive benefits under the Trade Adjustment Assistance (TAA) program, or
- Receive benefits under the Alternative Trade Adjustment Assistance (ATAA) program.
If the answer to any of these questions is "yes," and if the individuals are enrolled in a qualified health plan and cannot receive Medicare benefits, it will be worthwhile to review the HCTC Program Kit in detail with them to determine if they can receive this valuable tax credit.
Helpful Tips When Claiming the HCTC
The following tips are provided to help you avoid common mistakes made when claiming the HCTC:
- Any person who can receive Medicare benefits cannot receive the HCTC. Any person receiving Social Security disability benefits for two years or more
automatically becomes enrolled in Medicare and therefore cannot receive the HCTC.
- If a potentially eligible individual does not have qualified health coverage or has coverage such as Medicare or Medicaid, then that individual cannot claim the HCTC. Because HCTC eligibility is dependent on the potentially eligible individual, the individual’s family members also cannot receive the HCTC.
- Insurance providers may have non-HCTC products with the same or similar names as ones that are HCTC-qualified. The individual should make sure that the health plan is HCTC-qualified before enrolling.
- A group health plan through the eligible individual’s employer (former employer or employees’ union) is not qualified health coverage unless it is COBRA.
- The 30-day rule for non-group/individual coverage is not tied to the date an individual became PBGC-eligible but rather to the date of separation from employment that made the individual PBGC-eligible.
- Dental and vision plans are not qualified health coverage for the HCTC, unless they are included as part of a qualified health plan's coverage.
- Payroll deductions for premiums cannot be claimed for the HCTC if the income is not included in box 1 of IRS Form W-2, Wage and Tax Statement.
- Premiums claimed on line 2 of IRS Form 8885, Health Coverage Tax Credit, may not be claimed elsewhere on the federal tax return (e.g., Schedule A Medical and Dental Expenses). Also, advance (monthly) payments from the HCTC Program - which are listed on Form 1099-H - and amounts paid to "U.S. Treasury - HCTC" cannot be included on line 2.
The HCTC Program Kit contains steps for determining if one is eligible for the HCTC and information on the ways to receive the tax credit. Since August 2003, the HCTC Program has sent all potentially eligible individuals a HCTC Program Kit in the mail to notify individuals of their eligibility for the credit. This online version does not include the HCTC Registration Form for the monthly HCTC; that form is only mailed to potentially eligible individuals.
The following attachments will help you understand the HCTC so you can help individuals claim the tax credit:
- HCTC Eligibility Chart - to help you quickly determine if the individual is potentially eligible
- HCTC Drop-In Article - to include in your client, association, or organization newsletters
- HCTC Frequently Asked Questions