What Form 8885 Is For

Form 8885, Health Coverage Tax Credit, was a specialized IRS form that allowed eligible individuals to claim the Health Coverage Tax Credit (HCTC)—a federal tax credit designed to help cover 72.5% of qualified health insurance premiums. The credit was specifically created for displaced workers who received Trade Adjustment Assistance (TAA), Alternative TAA (ATAA), or Reemployment TAA (RTAA) benefits, as well as certain individuals receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC).

Critical Update for 2022: The HCTC program expired on December 31, 2021. According to IRS Publication 974, ""Beginning in tax year 2022, Form 8885 and its instructions have been discontinued by the IRS."" This means Form 8885 cannot be used to claim credits for coverage months beginning in 2022 or later IRS.gov.

When You’d Use Form 8885 (Late/Amended Returns)

Even though the HCTC expired at the end of 2021, you may still need to file Form 8885 in 2022 under these circumstances:

Filing Your 2021 Tax Return in 2022

If you're filing your 2021 tax return during the 2022 calendar year (before the deadline or with an extension), you would use Form 8885 to claim the credit for eligible coverage months in 2021.

Amended Returns for Prior Years

You can file an amended return (Form 1040-X) with Form 8885 attached to claim the HCTC for tax years 2019, 2020, or 2021 if you were eligible but didn't originally claim the credit. Generally, you must file within three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.

Reconciling Advance Payments

Even if you cannot claim any additional credit, you must file Form 8885 if you participated in the advance monthly payment program during 2021. Failing to file the form and make a timely election could require you to repay advance HCTC payments as additional tax owed.

Key Rules or Details for 2022 (Last Year of Eligibility)

Since 2022 is the first year the credit is unavailable, here are the critical rules to understand:

Expiration

The HCTC expired December 31, 2021. No coverage months beginning in 2022 or later qualify for the credit, regardless of your eligibility status IRS.gov.

Who Was Eligible (for 2021 returns filed in 2022)

• TAA recipients who received trade readjustment allowances
• ATAA or RTAA recipients receiving benefits from Department of Labor programs
• PBGC payees aged 55-65 (not enrolled in Medicare) receiving pension benefits
• Qualifying family members (spouses and dependents) of eligible individuals, even after death or divorce (up to 24 months from the event)

Credit Percentage

The HCTC covered 72.5% of qualified health insurance premiums you paid directly to your health plan.

Qualified Coverage Types

• COBRA continuation coverage
• Spouse's employer group health plan (with restrictions)
• Non-group individual health insurance (not through Healthcare.gov Marketplace)
• State-based coverage programs
• Certain VEBA-funded plans

Important Exclusions

You were not eligible for any month when:

• Your employer paid 50% or more of coverage costs
• You were enrolled in Medicare, Medicaid, CHIP, FEHBP, or TRICARE
• You received a 100% COBRA premium reduction
• You were imprisoned (except pending disposition of charges)
• You could be claimed as a dependent on someone else's return

Step-by-Step (High Level)

Step 1: Determine Your Eligibility

Review whether you were an eligible TAA, ATAA, RTAA recipient, or PBGC payee during 2021. You should have received official letters from the Department of Labor or PBGC confirming your status.

Step 2: Make Your Election (Part I)

Check the box for the first eligible coverage month you're electing to take the HCTC. Once you elect the credit for one month, it automatically applies to all subsequent eligible months in that tax year. You must check boxes for all eligible months following your election month.

Step 3: Calculate Premiums Paid (Part II, Line 2)

Total all health insurance premiums you paid directly to your health plan during eligible months. Do not include premiums paid to ""US Treasury-HCTC"" as part of the advance payment program, amounts shown on Form 1099-H, or premiums for which you received reimbursements via Form 14095.

Step 4: Subtract HSA/MSA Distributions (Line 3)

If you used Archer MSA or Health Savings Account distributions to pay premiums, enter that amount and subtract it from your total premiums paid.

Step 5: Calculate Your Credit (Line 5)

Multiply your eligible premium amount by 72.5% (0.725). If you received advance monthly payments for months you didn't elect on Line 1, you may need to complete the Excess Advance HCTC Repayment Worksheet to determine if you must repay any excess advance payments.

Step 6: Gather Required Documentation

Attach proof including: official eligibility letters, health insurance bills/COBRA coupons, and payment proof (canceled checks, bank statements, credit card statements).

Step 7: Attach to Your Tax Return

Include completed Form 8885 with your Form 1040, 1040-SR, 1040-NR, 1040-SS, or 1040-PR. Enter the credit amount on Schedule 3 (Form 1040), line 13c.

Common Mistakes and How to Avoid Them

Mistake #1: Including Advance Payments in Line 2

Many taxpayers incorrectly include premiums paid through the advance payment program. Solution: Only report premiums paid directly to your health plan. Advance payments shown on Form 1099-H should not be included on Line 2.

Mistake #2: Forgetting to File When Required

Even if your credit calculation results in zero or a negative number, you must file Form 8885 if you participated in the advance payment program. Solution: File the form to make your election official and avoid repayment penalties.

Mistake #3: Claiming Ineligible Coverage

Stand-alone dental or vision plans, excepted benefits, and Healthcare.gov Marketplace plans (qualified health plans) are not HCTC-qualified coverage. Solution: Review the specific coverage types listed in the instructions carefully.

Mistake #4: Missing Documentation

The IRS will disallow your credit without proper documentation. Solution: Attach copies of: (1) official eligibility letters, (2) insurance bills showing coverage dates and amounts, and (3) payment proof for each claimed month.

Mistake #5: Claiming Months with Employer Coverage

If your or your spouse's employer paid 50% or more of premiums, you're ineligible for those months. Solution: Obtain a letter from the employer stating the exact percentage they contributed. Pre-tax payroll contributions count as employer-paid.

Mistake #6: Incorrect Election Timing

Once you check a box to elect the HCTC, all subsequent eligible months must also be checked. Solution: Choose your first election month carefully—you cannot skip months after making your election.

What Happens After You File

IRS Processing Timeline

The IRS typically processes returns with Form 8885 within the standard timeframe (21 days for e-filed returns, 6-8 weeks for paper returns), though complex credits may require additional review.

Credit Application

Your HCTC reduces your total tax liability dollar-for-dollar. If the credit exceeds your tax owed, you'll receive the difference as a refund. Unlike some credits, the HCTC is fully refundable.

Audit and Verification

The IRS may request additional documentation to verify your eligibility, coverage, and payments. Keep all supporting documents for at least three years from your filing date.

Excess APTC Repayment

If you received advance monthly payments exceeding your calculated credit, you must repay the excess. The repayment amount is added to your tax liability, though limitations may apply based on your household income.

Coordination with Other Credits

If you claimed both HCTC and the Premium Tax Credit (Form 8962) for different types of coverage or different months, ensure proper coordination. You cannot claim both credits for the same coverage in the same month.

State Tax Implications

Some states offer additional health coverage tax benefits. Check your state's tax agency website to determine if you need to file additional state forms.

FAQs

Q1: Can I claim the HCTC for 2022 coverage?

No. The HCTC expired December 31, 2021. Coverage months beginning in 2022 or later do not qualify for the credit. You can only use Form 8885 when filing 2021 or earlier tax returns.

Q2: What if I received advance payments but my actual credit is less?

You must repay the excess advance payment amount, which will be added to your tax owed. However, repayment limitations may apply based on your household income and circumstances. Complete the Excess Advance HCTC Repayment Worksheet included in the Form 8885 instructions IRS.gov.

Q3: Can I claim the HCTC for my spouse and children?

Yes, if they are qualifying family members enrolled in qualified health insurance coverage and meet all eligibility requirements. They cannot be enrolled in Medicare, Medicaid, CHIP, FEHBP, or TRICARE, and cannot be eligible for employer coverage where the employer pays 50% or more.

Q4: What's the difference between HCTC and the Premium Tax Credit (Form 8962)?

The HCTC (Form 8885) was specifically for displaced workers and certain PBGC payees and covered 72.5% of premiums for COBRA and other specific coverage types. The Premium Tax Credit (Form 8962) is for anyone purchasing qualified health plans through Healthcare.gov or state Marketplaces. You cannot claim both credits for the same coverage in the same month.

Q5: I paid premiums late—can I still claim them?

Premiums must be paid by the due date of your tax return (not including extensions) to qualify. If you became eligible for APTC after a successful eligibility appeal and retroactively enrolled, premiums must be paid within 120 days of the appeals decision.

Q6: How do I prove I was eligible for TAA benefits?

Attach a copy of your official letter from the Department of Labor, your state workforce agency, or employment office confirming your TAA eligibility. For PBGC eligibility, attach the official letter or your Form 1099-R from PBGC showing pension benefits.

Q7: What happens if I don't file Form 8885 but received advance payments?

If you participated in the advance monthly payment program but don't file Form 8885 to make a timely election, the IRS will require you to repay all advance HCTC payments as additional tax owed on your return. Filing the form—even if your final credit is zero—protects you from this repayment requirement.

Additional Resources

For More Information: Visit IRS.gov/HCTC or download the official Form 8885 and instructions. Since this credit has expired, consult Publication 974 for current health coverage tax credit options, including the Premium Tax Credit.