The Health Coverage Tax Credit (HCTC) was a federal program that helped make health insurance more affordable for specific groups of American workers and retirees. If you paid health insurance premiums in 2021 and qualify, Form 8885 could put money back in your pocket—covering up to 72.5% of your insurance costs. Here's everything you need to know about this credit, which expired at the end of 2021. IRS.gov

What Form 8885 Is For

Form 8885 allows eligible individuals to claim the Health Coverage Tax Credit, a refundable tax credit that paid 72.5% of qualified health insurance premiums. This wasn't your typical tax deduction—it was real money back, designed to help workers displaced by foreign trade and certain retirees whose pension plans failed. IRS.gov

The credit worked in two ways: you could receive advance monthly payments sent directly to your insurance company throughout the year, or claim it all at once when filing your annual tax return using Form 8885. The form calculates how much credit you're entitled to based on the premiums you paid out-of-pocket for qualified health coverage during eligible months in 2021.

Only very specific groups qualified for this credit. You needed to be either: a Trade Adjustment Assistance (TAA) recipient who lost your job due to foreign trade; an Alternative or Reemployment TAA recipient (age 50-65); a Pension Benefit Guaranty Corporation (PBGC) payee (age 55-65) whose pension plan was taken over by the federal government; or a qualifying family member of someone in these groups who passed away or divorced you.

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

You must file Form 8885 with your 2021 federal income tax return to claim the yearly credit. The form is required even if you can't claim any credit on your return—specifically, if you participated in the advance monthly payment program, you must file Form 8885 to avoid having those advance payments treated as additional tax owed.

For late filing, the election to take the HCTC must be made no later than the due date of your 2021 tax return, including extensions. If you missed the original deadline, you can still file Form 8885 with an amended return (Form 1040-X) within the statute of limitations—generally within three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.

Important note: The HCTC expired December 31, 2021. You cannot claim this credit for coverage months beginning in 2022 or later years. This means Form 8885 is only relevant for 2021 tax returns or amended 2021 returns. IRS.gov

If you received advance monthly payments shown on Form 1099-H but didn't file Form 8885 initially, filing an amended return becomes critical—without the proper election, those advance payments could be recaptured as tax owed.

Key Rules or Details for 2021

Several strict eligibility requirements determined whether you could claim the HCTC for any given month in 2021. First, you must have been an eligible TAA, ATAA, or RTAA recipient, or PBGC payee as of the first day of the month. Eligibility is determined monthly, not annually—you needed to meet requirements on the first day of each month you're claiming.

You couldn't be claimed as a dependent on someone else's 2021 tax return. Additionally, you needed qualified health insurance coverage and couldn't be enrolled in Medicare, Medicaid, CHIP (Children's Health Insurance Program), the Federal Employees Health Benefits Program, or TRICARE (military health system).

Regarding employer-sponsored coverage, the rules were particularly strict. You couldn't take the HCTC for any month where: you were covered by employer-sponsored health insurance (yours or your spouse's) where the employer paid 50% or more of the premiums; or if you were an ATAA or RTAA recipient, you were eligible for or covered under employer-sponsored insurance where the employer paid any portion of the cost. Importantly, pre-tax contributions you made count as employer-paid amounts. IRS.gov

Qualified health insurance for HCTC purposes included: COBRA continuation coverage (where you/your spouse pay more than 50%); state-qualified health plans; coverage through your spouse's employer (paying more than 50%); individual/non-group health insurance (in effect 30 days before your last paid work day); and certain VEBA plans established through bankruptcy. Marketplace plans purchased through Healthcare.gov did NOT qualify for HCTC, though you could potentially claim both the Premium Tax Credit and HCTC in the same year for different coverage types.

The credit covered 72.5% of qualified premiums you paid for yourself and qualifying family members (spouse and dependents). You could only claim the credit for premiums you paid directly—not amounts paid through the advance program or any amounts for which you received reimbursement.

Step-by-Step (High Level)

Overview

Step 1: Determine Eligibility and Make Your Election

Review Part I of Form 8885 carefully. Check the box for the first eligible coverage month you want to elect the HCTC. Once you check that first month, you must check every subsequent eligible month through the rest of 2021. The election is binding—once made, it applies to all future eligible months in 2021.

Step 2: Calculate Qualifying Premiums

On Line 2, enter the total insurance premiums you paid out-of-pocket for qualified coverage during all months checked on Line 1. Don't include: premiums paid to “US Treasury-HCTC” (these were advance payments); amounts shown on Form 1099-H as advance payments; or premiums for which you received reimbursement via Form 14095. Also exclude separately purchased dental/vision coverage and premiums for non-qualifying family members.

Step 3: Calculate Your Credit

Lines 3 and 4 perform automatic calculations based on your Line 2 amount. Line 5 shows your final credit amount—72.5% of qualifying premiums, reduced by any advance payments or reimbursements received for months not checked on Line 1.

Step 4: Handle Excess Advance Payments

If you received advance monthly payments for months you're not eligible for (shown on Form 1099-H), you'll need to repay them. The Excess Advance HCTC Repayment Worksheet helps calculate any repayment limitation. If you also claimed the Premium Tax Credit (Form 8962) for Marketplace coverage in different months, special reconciliation rules apply.

Step 5: Gather Required Documentation

You must attach specific supporting documents: an official eligibility letter (from Department of Labor or PBGC); health insurance bills or COBRA coupons for each claimed month; and proof of payment (cancelled checks, bank statements, credit card statements). For COBRA coverage, also include your COBRA Election Letter and Notice of Rights to Continue Coverage. For spousal employer coverage, include paycheck stubs and an employer letter confirming they paid less than 50% of premiums.

Step 6: File with Your Tax Return

Attach completed Form 8885 and all supporting documentation to Form 1040, 1040-SR, 1040-NR, 1040-SS, or 1040-PR. You cannot use Forms 1040-EZ or 1040-A. If e-filing, follow your software's instructions for attaching PDF documents, or mail documents with Form 8453.

Common Mistakes and How to Avoid Them

Mistake #1: Including Ineligible Premiums on Line 2

Many filers mistakenly include premiums for months where they received advance payments, separately purchased dental/vision coverage, or premiums for family members enrolled in Medicare or Medicaid. Solution: Carefully review what qualifies. Only include premiums you paid directly out-of-pocket for qualified coverage during eligible months. Exclude any amounts paid to “US Treasury-HCTC” or shown on Form 1099-H.

Mistake #2: Not Filing Form 8885 When Required

If you participated in the advance monthly payment program at any point during 2021, you MUST file Form 8885 to make a timely election, even if you can't claim any additional credit on Line 5. Failing to file means the IRS can recapture those advance payments as additional tax owed. Solution: Always file Form 8885 if you received Form 1099-H, regardless of whether you're claiming additional credit.

Mistake #3: Missing Required Documentation

The IRS requires specific supporting documents: eligibility letters, insurance bills, and proof of payment for each month claimed. Missing documentation can delay processing or result in denied credits. Solution: Gather all documents before filing. Make copies of cancelled checks (front and back), bank statements showing insurance payments, and keep all COBRA enrollment paperwork together.

Mistake #4: Misunderstanding Employer-Sponsored Coverage Rules

The employer coverage rules are complex and trip up many filers. Remember, pre-tax contributions you make count as employer-paid. If your total employer contributions (including your pre-tax amounts) reach 50% or more, you're ineligible for that month. Solution: Get a written statement from your employer or your spouse's employer specifying what percentage they paid.

Mistake #5: Incorrect Election Timing

Some filers check random months on Line 1 rather than consecutive months starting from their election month. The rules require that once you elect HCTC for one month, you must elect it for all subsequent eligible months. Solution: Check boxes consecutively starting with your first eligible month, then check every eligible month after that through December 2021.

Mistake #6: Confusing HCTC with Premium Tax Credit

Marketplace plans (Healthcare.gov) are NOT qualified coverage for HCTC. However, you can claim both credits in the same year for different types of coverage or different family members. Solution: If you had both Marketplace and COBRA coverage in 2021, keep them separate. Use Form 8962 for Marketplace months and Form 8885 for COBRA months, following the special reconciliation instructions.

What Happens After You File

Once you file Form 8885 with your tax return, the IRS will process your claim following standard refund timelines. If you e-filed and chose direct deposit, you can generally expect your refund (including any HCTC amount) within 21 days of IRS acceptance, assuming no issues arise. Paper returns take significantly longer—typically 6-8 weeks or more.

The IRS will verify your eligibility by checking your documentation against their records from the Department of Labor (for TAA recipients) and PBGC (for pension recipients). They'll also verify that advance payment amounts match Form 1099-H. If documentation is missing or unclear, the IRS will send a letter requesting additional information, which can delay your refund by several months.

If you received excess advance payments, any repayment amount calculated on Line 5 (shown as negative) will reduce your refund or increase your tax owed. However, repayment limitations may apply depending on your income level and whether you also claimed the Premium Tax Credit, potentially softening the repayment burden.

Because the HCTC expired December 31, 2021, this is the final year anyone can claim this credit. The IRS will continue processing 2021 returns with Form 8885 through the normal statute of limitations period, but the advance monthly payment program has permanently closed.

Keep copies of your filed Form 8885 and all supporting documentation for at least three years after filing. If the IRS audits your return or questions your HCTC claim, you'll need these documents to substantiate your credit.

FAQs

Q1: I received Form 1099-H but my credit on Form 8885 Line 5 is zero. Do I still need to file it?

Yes, absolutely. If you participated in the advance monthly payment program at any point during 2021 (evidenced by receiving Form 1099-H), you must file Form 8885 to make a timely election for the HCTC, even when Line 5 is zero or blank. Failing to file could result in the IRS treating those advance payments as taxable income. The form serves as your official election, not just a way to claim additional credit. IRS.gov

Q2: Can I claim HCTC if my spouse's employer pays for part of our health insurance?

It depends on how much the employer pays. If the employer pays 50% or more of the premium cost (including any pre-tax contributions you or your spouse make), you cannot claim HCTC for those months. If the employer pays less than 50% and you're otherwise eligible, you may claim the credit. For ATAA and RTAA recipients, the rules are stricter—any employer contribution disqualifies you. Get written documentation from the employer specifying their contribution percentage.

Q3: What if I lost my TAA eligibility partway through 2021?

Eligibility is determined monthly. Check boxes on Form 8885 Line 1 only for months where you met all requirements as of the first day of that month. For example, if you were eligible January through June but enrolled in Medicare in July, only check January through June. Your credit on Line 2 should only include premiums paid during those eligible months.

Q4: Can I claim both the Premium Tax Credit and HCTC in the same tax year?

Yes, but not for the same coverage or same months. Marketplace plans don't qualify for HCTC, but you can claim the Premium Tax Credit (Form 8962) for Marketplace coverage and HCTC for COBRA or other qualified coverage. You can also claim different credits for different family members in the same month—for example, HCTC for your COBRA coverage and Premium Tax Credit for your children's Marketplace coverage. Special reconciliation instructions on Form 8962 apply in these situations. IRS.gov

Q5: What qualifies as “proof of payment” for the documentation requirements?

Acceptable proof includes: cancelled checks (both front and back copies); bank statements showing electronic funds transfers to your insurance company; credit card statements showing insurance payments; or money orders. The proof must clearly show the amount paid, the date, and who received the payment. If you can't locate these documents, contact your health plan administrator for a payment history statement.

Q6: I received a 100% COBRA premium reduction through the American Rescue Plan. Can I still claim HCTC for those months?

No. The American Rescue Plan Act of 2021 provided temporary 100% COBRA premium subsidies for certain periods. For any months where you received these 100% subsidies, don't check the box on Form 8885 Line 1—you're not eligible for HCTC during those months. Additionally, if you received advance HCTC payments for those same months, you may need to repay them using Line 5. IRS.gov

Q7: The HCTC expired in 2021. Can I still file an amended return to claim it?

Yes, if you were eligible in 2021 but didn't claim the credit on your original return. You can file Form 1040-X (amended return) with Form 8885 attached within the statute of limitations—generally three years from when you filed your original 2021 return or two years from when you paid the tax, whichever is later. However, the credit only applies to 2021 tax year; you cannot claim it for 2022 or later years because the program expired December 31, 2021.

Sources

All information in this guide comes from official IRS publications: 2021 Instructions for Form 8885, IRS HCTC FAQ for Tax Professionals, and IRS.gov HCTC Expiration Notice.