What the Form Is For

Form 8885 is used to claim the Health Coverage Tax Credit (HCTC), a tax benefit that helped eligible individuals pay for qualified health insurance premiums. This credit was available to a very specific group of people who lost their jobs due to foreign trade or whose pension plans were taken over by the Pension Benefit Guaranty Corporation (PBGC).

The HCTC was designed to cover 72.5% of qualified health insurance premiums for eligible individuals and their qualifying family members. This meant if you qualified and paid $1,000 in eligible premiums, you could potentially receive a credit of $725 back on your tax return.

Importantly, Form 8885 served two purposes: claiming the credit on your tax return and reconciling any advance monthly payments you received during the year. Even if you received advance payments covering most of your premiums and weren't claiming additional credit, you still needed to file this form to elect the HCTC for those months.

When You'd Use (Late/Amended)

You must file Form 8885 by the due date of your tax return, including extensions, to claim the HCTC. This deadline was critical for 2017 returns. Missing this deadline meant you couldn't claim the credit at all, and worse, any advance monthly payments you received during the year would be treated as additional tax owed.

If you received advance monthly payments through the advance payment program but failed to file Form 8885 on time, the IRS would require you to repay those amounts as additional tax. This harsh consequence made timely filing essential, even for taxpayers who weren't claiming any additional credit beyond what they'd already received in advance payments.

For amended returns, if you discovered you were eligible for the HCTC after filing your original return but before the deadline (including extensions), you could file an amended return using Form 1040X and attach Form 8885. However, the election still had to be made by the original deadline.

Key Rules for 2017

Eligibility Requirements

To qualify for the HCTC in 2017, you needed to meet very specific criteria. First, you had to fall into one of these categories:

• TAA Recipient: You received trade readjustment allowances because your job was affected by foreign trade
• ATAA Recipient: You received benefits under the alternative trade adjustment assistance program for older workers
• RTAA Recipient: You received reemployment trade adjustment assistance benefits
• PBGC Payee: You were between ages 55 and 65, not enrolled in Medicare, and received pension benefits paid by the PBGC
• Qualifying Family Member: Your spouse or the person you depended on fell into one of the above categories and either passed away or finalized a divorce with you

Coverage Requirements

Your health insurance had to be "qualified health insurance coverage," which included:

• COBRA continuation coverage
• State-based coverage programs
• Coverage through a health plan funded by a voluntary employees' beneficiary association (VEBA) established through bankruptcy court
• Non-group health insurance plans (excluding Marketplace plans)
• Certain coverage through your spouse's employer (with restrictions)

Notably, qualified health plans purchased through the Affordable Care Act Marketplace were not qualified health insurance coverage for HCTC purposes.

Disqualifying Factors

You couldn't claim the HCTC for any month when:

• You were enrolled in Medicare Part A, B, or C (unless claiming only for family members)
• You were enrolled in Medicaid or CHIP
• You were enrolled in the Federal Employees Health Benefits Program (FEHBP)
• You were eligible for TRICARE (military health coverage)
• You were imprisoned under federal, state, or local authority
• Your or your spouse's employer paid 50% or more of the coverage cost
• Someone else could claim you as a dependent

The Credit Amount

For 2017, the HCTC covered 72.5% of your qualified health insurance premiums. You were responsible for paying the remaining 27.5%. If you participated in the advance monthly payment program, the government paid your health plan administrator 72.5% of the premium directly each month, and you paid only 27.5% to "U.S. Treasury–HCTC."

Step-by-Step (High Level)

Step 1: Determine Your Election Months

Review each month of 2017 and identify which months you met all the eligibility requirements. You must elect the HCTC starting with your first eligible month by checking the box for that month on Line 1. Once you elect for one month, you must check all subsequent eligible months—the election applies continuously through the end of the year for all eligible months.

Step 2: Calculate Your Premium Payments

Add up all the qualified health insurance premiums you paid directly to your health plan for the months you checked on Line 1. Do not include premiums you paid to "U.S. Treasury–HCTC" as part of the advance payment program, and don't include any amounts your health plan administrator received as advance payments from the IRS (shown on Form 1099-H). Enter this total on Line 2.

Step 3: Subtract Health Account Distributions

If you used money from an Archer MSA or Health Savings Account to pay for your qualified coverage, subtract those amounts on Line 3. Then subtract Line 3 from Line 2 to get your Line 4 amount.

Step 4: Calculate Your Credit

Multiply Line 4 by 72.5% (0.725) to determine your basic credit amount. However, if you received advance monthly payments for any month you didn't check on Line 1, you must complete the Excess Advance HCTC Repayment Worksheet to calculate any repayment amount. This reduces your credit or creates additional tax owed.

Step 5: Gather Required Documentation

You must attach specific documents to your Form 8885, including:

• Official eligibility letter from the Department of Labor, your state workforce agency, or PBGC
• Copies of health insurance bills or COBRA payment coupons showing your name, health plan name, monthly premium, coverage dates, and plan ID number
• Proof of payment (canceled checks, bank statements, credit card statements, or money orders)
• For COBRA coverage: your COBRA Election Letter or notice of rights
• For spouse's employer coverage: paycheck stubs showing deductions

Step 6: Transfer to Your Tax Return

Enter the Line 5 amount on the appropriate line of your Form 1040, 1040NR, 1040-SS, or 1040-PR and attach Form 8885 to your return.

Common Mistakes and How to Avoid Them

Mistake 1: Missing the Filing Deadline

The most critical error was failing to file Form 8885 by the tax return deadline. This mistake made you ineligible for the credit and required repayment of all advance payments received.

How to avoid: Mark your calendar for the tax filing deadline and file even if you received advance payments covering all your premiums. The form serves as your election to take the credit.

Mistake 2: Including Ineligible Premium Amounts

Many taxpayers incorrectly included premiums for months they participated in the advance payment program, premiums for dental or vision coverage purchased separately, or premiums for family members who didn't qualify.

How to avoid: Carefully review Form 1099-H to identify which months you received advance payments. Only include premiums you paid directly to your health plan for eligible months. If your premium included separate dental or vision coverage, subtract those amounts.

Mistake 3: Failing to Attach Required Documentation

Claims were frequently delayed or denied because taxpayers didn't attach the required eligibility letters, insurance bills, and proof of payment.

How to avoid: Create a checklist of required documents before filing. Make copies of all bills and payment records for the months you're claiming. Request your eligibility letter from the appropriate agency well in advance of tax season.

Mistake 4: Checking Months When Employer-Sponsored Coverage Was Available

Taxpayers sometimes checked months when they or their spouse had employer coverage available that would have paid 50% or more of the cost, making them ineligible.

How to avoid: For ATAA and RTAA recipients, you couldn't be eligible for any employer coverage where the employer would pay 50% or more. For TAA recipients and PBGC payees, you couldn't be actually covered by such plans. Review your employment situation and your spouse's employment carefully for each month.

Mistake 5: Not Understanding the "Qualifying Family Member" Rules

After a divorce or death, former family members sometimes incorrectly claimed the credit or failed to claim when they were eligible.

How to avoid: If your spouse or the person you claimed as a dependent died or divorced you in 2016 or 2017, you could be eligible to receive the credit as a "recipient" for up to 24 months from the event. File Form 8885 under your own name and social security number.

Mistake 6: Confusing HCTC with the Premium Tax Credit

The HCTC and the Premium Tax Credit (PTC, claimed on Form 8962) were completely different credits with different rules. You couldn't take the PTC for months you elected the HCTC.

How to avoid: Marketplace plans were not qualified coverage for HCTC. If you had both types of coverage in different months, complete both forms carefully, ensuring you don't claim both credits for the same month.

What Happens After You File

Processing Timeline

Once you filed Form 8885 with your tax return, the IRS processed your HCTC claim along with your regular return. If you e-filed, the processing was generally faster (within 21 days for most returns). Paper returns could take 6-8 weeks or longer.

Credit Application

Your HCTC credit reduced your total tax liability. If the credit exceeded your tax owed, the excess was refunded to you. The credit appeared on Line 73 of Form 1040, Line 69 of Form 1040NR, or Line 10 of Form 1040-SS or 1040-PR.

IRS Verification

The IRS verified that you attached all required documentation. Missing documentation could trigger a request for additional information or disallowance of the credit. If disallowed, you would receive a notice explaining the reason and your appeal rights.

Form 1099-H Reconciliation

If you received advance payments, the IRS compared the amounts on your Form 1099-H with the months you checked on Line 1. Any mismatch could generate a notice asking you to explain the discrepancy or confirm your calculations on the Excess Advance HCTC Repayment Worksheet.

Repayment Requirements

If you received excess advance payments for months you didn't check on Line 1, you had to repay those amounts. The repayment amount either reduced your credit to zero or below zero (creating additional tax owed). Unlike the Premium Tax Credit, there was no repayment limitation—you had to repay all excess amounts.

Audit Considerations

HCTC claims faced higher scrutiny due to the substantial dollar amounts involved and complex eligibility rules. The IRS might audit your return to verify your eligibility status, coverage type, premium amounts, and payment records. Keep all documentation for at least three years after filing.

FAQs

1. Can I claim the HCTC if I'm enrolled in a Marketplace health plan?

No. Qualified health plans offered through the Affordable Care Act Marketplace were not qualified health insurance coverage for HCTC purposes in 2017. However, you might be able to claim the Premium Tax Credit (Form 8962) for Marketplace coverage in months you didn't elect the HCTC for other coverage.

2. What happens if I paid my premiums late?

You generally couldn't claim the HCTC for any month if you didn't pay your share of the premiums by the due date of your tax return (not including extensions). If your health plan terminated coverage due to non-payment, you couldn't claim the HCTC for months you weren't covered, even if you later paid the premiums.

3. Can I claim the HCTC for my family members if I'm enrolled in Medicare?

Yes. If you were an eligible TAA, ATAA, RTAA recipient, or PBGC payee who enrolled in Medicare, you could still claim the HCTC for your qualifying family members' coverage for up to 24 months from the month you enrolled in Medicare. Your family members had to meet all other HCTC requirements, including not being enrolled in Medicare, Medicaid, CHIP, FEHBP, or TRICARE.

4. How does filing status affect my eligibility?

Generally, filing status didn't affect HCTC eligibility as long as no one else claimed you as a dependent. You could be single, married filing jointly, married filing separately, head of household, or qualifying widow(er) and still claim the HCTC if you met all other requirements.

5. What if my Form 1099-H shows advance payments for months I wasn't eligible?

You must complete the Excess Advance HCTC Repayment Worksheet on page 5 of the Form 8885 instructions. This worksheet calculates how much of the advance payment you must repay. The repayment amount reduces your credit on Line 5 or creates additional tax owed if it exceeds your calculated credit.

6. Can I claim the HCTC for COBRA coverage from my spouse's former employer?

Yes, COBRA coverage was qualified health insurance coverage for HCTC purposes. You could claim the credit for COBRA coverage whether it came from your own former employer or your spouse's former employer, as long as you met all other eligibility requirements and the employer didn't pay 50% or more of the cost.

7. What if I received the credit but later find out I wasn't eligible?

If you claimed the HCTC but later discovered you weren't eligible (for example, you were actually enrolled in Medicare or your employer paid more than 50% of premiums), you should file an amended return using Form 1040X. Remove the credit and pay back any amount you received plus applicable interest. Filing an amended return voluntarily typically results in lower penalties than waiting for the IRS to discover the error.

All information in this guide is based on official IRS publications for tax year 2017, including Form 8885, Instructions for Form 8885, and Publication 974.

‍

‍