Health Coverage Tax Credit Checklist for 2016 Tax Year
Purpose of Form 8885
Form 8885 enables eligible individuals to claim the Health Coverage Tax Credit (HCTC), a refundable federal tax credit equal to 72.5% of qualified health insurance premiums paid during the 2016 tax year. This credit is available to Trade Adjustment Assistance (TAA) recipients, Alternative TAA (ATAA) recipients, Reemployment TAA (RTAA) recipients, and Pension Benefit Guaranty Corporation (PBGC) payees who meet specific eligibility requirements.
The 72.5% credit rate applies specifically to the 2016 tax year and represents the statutory percentage established for HCTC recipients during this period. Eligible taxpayers must complete Form 8885 and attach it to their primary tax return to claim this credit, which helps offset the cost of health insurance premiums for qualifying individuals and their family members.
Eligibility Requirements Checklist
Step 1: Verify Your Qualifying Status
Confirm that you held one of the four eligible designations during 2016. You must have been an eligible TAA recipient, ATAA recipient, RTAA recipient, or PBGC payee as of the first day of each month for which you claim the credit. For TAA recipients, eligibility exists if you received a trade readjustment allowance during the month or prior month, or would have received such allowance except that you had not exhausted unemployment insurance benefits.
ATAA and RTAA recipients must have received benefits under programs established by the Department of Labor. PBGC payees must have been age 55 to 64 and received benefits paid by the PBGC under ERISA Title IV.
Step 2: Confirm Your Tax Filing Independence
Verify that you cannot be claimed as a dependent on another person’s 2016 tax return. Individuals who can be claimed as dependents are categorically ineligible to claim the HCTC, regardless of whether they meet all other requirements. This rule applies even if another taxpayer chooses not to claim you as a dependent but has the legal right to do so.
Step 3: Document Premium Payments
Ensure you paid qualified health insurance premiums directly to your health plan or insurance provider for coverage months in 2016. You must have paid your portion of the premiums, and these amounts must be verifiable through canceled checks, bank statements, credit card statements, or money orders. Do not include any premiums paid through the advance monthly payment program, as these amounts are reported separately on Form 1099-H and should not be entered on line 2 of Form 8885.
Step 4: Verify Medicare Non-Enrollment for Yourself
Confirm you were not enrolled in Medicare Part A, Part B, or Part C as of the first day of each month you are claiming the credit. Enrollment in any part of Medicare generally disqualifies you from claiming the HCTC for yourself. However, if you enrolled in Medicare during 2016, you may continue to claim the HCTC for qualifying family members for up to 24 months from the month you enrolled in Medicare, provided those family members meet all other eligibility requirements.
Step 5: Check Medicaid and CHIP Enrollment Status
Verify your own non-enrollment in Medicaid or the Children’s Health Insurance Program (CHIP) as of the first day of each month claimed. If you were enrolled in either program, you cannot claim the HCTC for that month. For family members, CHIP or Medicaid enrollment disqualifies only that specific individual from being a qualifying family member for HCTC purposes. You may still claim the credit for yourself and other family members who are not enrolled in these programs and meet all the different requirements.
Step 6: Confirm Federal Employee and Military Coverage Status
Certify that neither you nor your spouse was enrolled in the Federal Employees Health Benefits Program (FEHBP) or eligible for TRICARE benefits during the months claimed in 2016. Enrollment in or eligibility for military health system coverage disqualifies you from claiming the HCTC for those months. This requirement applies throughout the tax year for any months you elect to take the credit.
Step 7: Verify Non-Incarceration Status
Confirm you were not imprisoned under federal, state, or local authority during any month claimed in 2016. Incarceration disqualifies you from receiving the HCTC for those specific months. This rule applies regardless of whether you maintained health insurance coverage during imprisonment or paid premiums for that coverage.
Step 8: Review Employer-Sponsored Coverage Rules
Verify that you were not covered under an employer-sponsored health insurance plan where the employer paid 50% or more of the coverage cost as of the first day of each month claimed. For TAA recipients and PBGC payees, enrollment in employer-sponsored coverage with employer contributions of 50% or more disqualifies you for that month.
For ATAA and RTAA recipients, the rule is stricter: any employer contribution to coverage costs disqualifies you, and even eligibility for employer-sponsored coverage where the employer would pay 50% or more disqualifies you, regardless of whether you enrolled. Amounts you or your spouse contributed on a pre-tax basis are considered employer-paid contributions.
Step 9: Identify Qualifying Family Members
Determine which family members qualify for inclusion in your HCTC claim. Qualifying family members include your spouse (unless legally separated) and anyone you can claim as a dependent.
For each eligible coverage month, you may consist of premiums paid for qualifying family members if, as of the first day of that month, the family member was covered by qualified health insurance, not enrolled in Medicare Parts A, B, or C, not enrolled in Medicaid or CHIP, not enrolled in FEHBP or eligible for TRICARE, and not covered by or eligible for employer-sponsored coverage meeting the disqualifying thresholds.
Step 10: Verify Qualified Health Insurance Coverage
Confirm your health insurance meets the definition of qualified coverage for HCTC purposes. Qualifying coverage includes COBRA continuation coverage, spouse’s employer-sponsored coverage (if employer contribution requirements are met), non-group individual health insurance (excluding Marketplace plans), specific state-based coverage programs, and VEBA-funded health plans established through bankruptcy court.
Marketplace coverage through a Health Insurance Exchange does not qualify for HCTC in 2016, though you may be eligible for the Premium Tax Credit on Form 8962 for those months instead.
Step 11: Calculate Your Credit Amount
Complete the calculation on Form 8885 by first entering total premiums paid on line 2 for all eligible coverage months, excluding advance monthly payments. Subtract any Archer MSA or Health Savings Account distributions used for premiums on line 3. Subtract line 3 from line 2 to get line 4. Multiply line 4 by exactly 0.725 (representing the 72.5% credit rate) to determine your credit amount on line 5. This percentage is fixed for 2016 and does not vary based on income, filing status, or any other factor.
Step 12: Gather Required Documentation
Collect all necessary documentation before filing. You must attach proof of your eligible status (Department of Labor letter for TAA/ATAA/RTAA recipients or Form 1099-R from PBGC for PBGC payees), copies of health insurance bills or COBRA payment coupons showing your name, plan name, monthly premium, coverage dates, and plan identification number, and proof of payment for each month claimed. Additional documentation requirements depend on your coverage type, such as COBRA election letters, spousal employer attestations, or state program verification.
Step 13: Make Your HCTC Election
Complete Part I of Form 8885 to elect the HCTC by checking the box for the first eligible coverage month and all subsequent months for which you meet eligibility requirements. Your election applies to all subsequent eligible coverage months in 2016 once made. You must make this election even if you received advance monthly payments and are not claiming additional credit on your return. The election must generally be made within three years after the due date of your 2016 tax return, including extensions.
Step 14: Attach Form 8885 to Your Tax Return
Attach the completed Form 8885 with all required documentation to your primary 2016 tax return. Form 8885 has Sequence Number 134 and must be attached to Form 1040, Form 1040NR, Form 1040-SS, or Form 1040-PR. If you e-file your return, you can attach required documents as PDF files if your tax software supports this feature, or you must mail them with Form 8453 to the IRS according to that form’s instructions.
Step 15: Enter Credit on Primary Return
Transfer the final credit amount from Form 8885, line 5, to the appropriate line of your 2016 primary tax return. For Form 1040 filers, enter this amount on line 73 and check box c to indicate the credit is from Form 8885. For Form 1040NR filers, enter the amount on line 69 and select checkbox C. For Form 1040-SS or Form 1040-PR filers, enter the amount on line 10. This credit is refundable, meaning you may receive a refund even if the credit exceeds your tax liability.
Special Considerations for 2016
The advance monthly payment program became available in 2016 on a limited basis, with the IRS making payments directly to health plan administrators starting in July of that year. If you participated in this program, you will receive Form 1099-H, which shows the advance payments made on your behalf. You must include these months on line 1 of Form 8885 to elect the HCTC, but should not report the corresponding premiums on line 2, as you already received the benefit of the advance payment.
Qualifying family members of deceased or divorced TAA, ATAA, RTAA recipients, or PBGC payees may continue to receive the HCTC as recipients themselves for up to 24 months from the date of death or divorce, provided they were qualifying family members immediately before the event. Eligibility may begin in either the month of death or divorce, or the following month, and the original recipient does not need to have elected the HCTC before the event.
For married persons filing separately, special rules apply. Your spouse is not treated as a qualifying family member if both you and your spouse were eligible TAA, ATAA, RTAA recipients, or PBGC payees in 2016. However, if you lived apart from your spouse during the last six months of 2016, another qualifying family member resided in your home for more than half the year, and you provided over half the cost of maintaining your home, your spouse may be considered a qualifying family member.
The HCTC operates independently from the Affordable Care Act Premium Tax Credit. You cannot claim both credits for the same coverage in the same month, but you may claim the HCTC for some coverage or months and the Premium Tax Credit for different coverage or months within the same tax year. Special reconciliation rules apply when completing Form 8962 if you received both advance payments of the Premium Tax Credit and elected the HCTC during different months of 2016.
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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.
