Form 8885 (2021)—Health Coverage Tax Credit Checklist
Purpose
Form 8885 allows eligible Trade Adjustment Assistance (TAA), Alternative TAA (ATAA), Reemployment TAA (RTAA) recipients, or Pension Benefit Guaranty Corporation (PBGC) payees—and their qualifying family members—to claim a 72.5% refundable credit on qualified health insurance premiums paid directly to health plans for months in 2021 when eligibility conditions were met.
Filing Steps
Step 1: Confirm TAA/ATAA/RTAA/PBGC Status for Each Month
Verify you held an eligible status, or were a qualifying family member of a recipient, on the first day of each month you mark on Part I, line 1. You are an eligible TAA recipient if you received a trade readjustment allowance or would have been entitled to receive one except that you had not exhausted unemployment insurance rights.
You are an eligible ATAA or RTAA recipient if you received benefits under the Department of Labor’s alternative or reemployment assistance programs for trade adjustment. You are an eligible PBGC payee if you were age 55 to 64, not enrolled in Medicare, and received a benefit paid by the PBGC under title IV of ERISA. Status changes affect which months qualify for the credit.
Step 2: Exclude Advance Monthly Payments Shown on Form 1099-H
Do not enter any premiums for months when you participated in the advance monthly payment program on line 2. The IRS already paid 72.5% of your premium directly to your health plan for those months, as shown on Form 1099-H. Including these amounts would result in double-crediting the same premium.
You paid only 27.5% of your premium to “US Treasury-HCTC” for advance payment months. However, you must still file Form 8885 to elect the HCTC for any months you participated in the advance monthly payment program, even if you cannot claim additional credit on your return.
Step 3: Exclude Form 14095 Reimbursements
If you filed Form 14095 during 2021 and received a monthly HCTC reimbursement for any month, do not include those premiums on line 2. Reimbursements have already reduced your out-of-pocket premium cost. Including reimbursed amounts would result in claiming credit twice for the same premiums.
Step 4: Verify Non-Enrollment in Disqualifying Coverage
For each checked month on line 1, confirm you were not enrolled in Medicare Part A, B, or C; Medicaid; Children’s Health Insurance Program; Federal Employees Health Benefits Program; or eligible for U.S. military health benefits, including TRICARE.
You are also ineligible if you were covered by employer-sponsored health insurance where the employer paid 50% or more of the cost, or if you were an ATAA or RTAA recipient eligible for or covered by any employer-sponsored coverage where the employer paid any part of the cost. Any amounts you or your spouse contributed to coverage on a pre-tax basis are considered to have been paid by the employer.
Step 5: Confirm Direct Premium Payment to Health Plan
Enter only premiums you paid directly to your health plan for coverage during eligible months checked on line 1. Include only amounts paid for qualified health insurance coverage, which includes COBRA coverage, spouse’s employer group health plan coverage, non-group individual health insurance not purchased through a Marketplace, state-based coverage, including state continuation coverage and state high-risk pools, and coverage under health plans funded by voluntary employees’ beneficiary associations.
Do not include premiums paid by your employer, premiums reduced 100% by COBRA subsidies, premiums where your employer paid 50% or more, or amounts paid to “US Treasury-HCTC” for advance payment months.
Step 6: Verify Qualified Health Insurance Coverage Only
Ensure the premiums you enter on line 2 are only for qualified health insurance coverage that provides comprehensive benefits. Do not include premiums for flexible spending arrangements, dental or vision benefits purchased separately, or any insurance where substantially all coverage is of excepted benefits.
If your monthly premium includes amounts for coverage that do not count toward the HCTC, such as separately purchased dental or vision coverage or premiums for family members who are not eligible for the HCTC, you must reduce the amount you enter on line 2 by those ineligible amounts.
Step 7: Include Archer MSA and Health Savings Account Distributions
On line 3, enter distributions from Archer Medical Savings Accounts or Health Savings Accounts that you used to pay qualified health insurance premiums in 2021. These distributions reduce the net premiums eligible for the credit. Subtract line 3 from line 2 to arrive at your net eligible premiums on line 4.
Step 8: Calculate 72.5% Credit Percentage
Multiply line 4 by exactly 0.725 to calculate your Health Coverage Tax Credit. For 2021, the credit percentage is 72.5%. This amount is multiplied and becomes your credit on line 5, before any adjustments for excess advance payments.
Step 9: Adjust for Excess Advance Payments if Applicable
If you received advance monthly payments or Form 14095 reimbursements for any month not checked on line 1, you must reduce your line 5 credit amount by the total of these payments. Use the Excess Advance HCTC Repayment Worksheet provided in the Form 8885 instructions to calculate the amount you must repay. The repayment ensures you only receive credit for eligible coverage months.
Step 10: Report Credit on Correct Form and Schedule
Report your final line 5 amount on Schedule 3, line 13c if filing Form 1040 or 1040-SR. If filing Form 1040-SS, enter the amount on line 10. If filing Form 1040-PR, enter the amount on line 10. If both spouses qualify for the HCTC, each spouse must file a separate Form 8885 under their own name and social security number.
Step 11: Understand Family Member Eligibility
You can include premiums paid for qualifying family members if they meet all eligibility requirements. Qualifying family members include your spouse and any dependents you can claim on your tax return. Family members must not be enrolled in Medicare, Medicaid, CHIP, FEHBP, or eligible for TRICARE on the first day of each eligible coverage month.
Qualifying family members of deceased or divorced TAA/ATAA/RTAA/PBGC recipients can claim the credit under their own name for up to 24 months from the date of death or divorce, or until coverage months begin after December 31, 2021, whichever comes first. This provision has been available since 2009 under the American Recovery and Reinvestment Act of 2009.
Step 12: Gather and Attach Required Documentation
Attach proof of TAA/ATAA/RTAA/PBGC status, including official letters from the Department of Labor, state workforce agency, or PBGC. Attach copies of health insurance bills or COBRA payment coupons for each month claimed on line 2, showing your name, health plan name, monthly premium amount, dates of coverage, and health plan identification numbers.
Attach proof of payment, such as canceled checks, bank statements, credit card statements, or money orders showing amounts paid and to whom payment was made.
For COBRA coverage, include your completed COBRA Election Letter or a letter from your former employer confirming COBRA coverage with start and end dates. For coverage through a spouse’s employer, include paycheck stubs showing health coverage deductions and a letter from the employer stating they contributed less than 50% of the cost.
Step 13: Verify Dependent Status Disqualification
Do not file Form 8885 if you can be claimed as a dependent on another person’s 2021 return. This disqualifies you from claiming the credit regardless of other eligibility factors.
Step 14: Coordinate with Premium Tax Credit if Applicable
You cannot take the premium tax credit for any months checked on line 1. Qualified health plans offered through a Marketplace are not qualified health insurance coverage for the HCTC. However, you can claim both credits in the same year for different coverage types or different months.
If you elected the HCTC for at least one month and individuals covered under qualified health insurance were also enrolled in a Marketplace plan for other months, complete Form 8962 using the special instructions provided in the Form 8885 instructions to coordinate both credits and any required repayments properly.
Step 15: Understand Program Expiration
The HCTC expires at the end of 2021. You cannot claim the credit for coverage months beginning in 2022 or later years. The advance monthly payment program continued through December 2021 but did not accept payments for coverage in 2022. This was the final year to claim this credit.
Year-Specific 2021 Notes
The 2021 tax year represents the final year of the Health Coverage Tax Credit program, which expired on December 31, 2021. Form 1099-H issuance for 2021 required explicit exclusion of advance monthly payment amounts from line 2, and instructions reinforced that filers must cross-reference 1099-H documentation to prevent duplicate crediting.
The 2021 instructions specifically required adjustment on line 5 if Form 14095 reimbursements were received for any month not checked on line 1, establishing clear tracking requirements for reimbursements received in one year for months in another year.
Form 8885 for 2021 is tied directly to Schedule 3, line 13c, as the entry point for the refundable credit.
Form 1040-SS and Form 1040-PR filers used alternate line entries. The American Rescue Plan Act of 2021 provided temporary 100% COBRA premium subsidies for eligible individuals. If you received a 100% COBRA premium reduction from your former employer or COBRA administrator, you could not claim the HCTC for those months and had to repay any advance HCTC payments made for your benefit during those months.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
