Form 8885 (2020) Health Coverage Tax Credit Checklist
Understanding Form 8885 and the Health Coverage Tax Credit
Form 8885 enables eligible individuals to claim the Health Coverage Tax Credit, a refundable federal tax credit covering 72.5% of qualified health insurance premiums paid during the 2020 tax year. This credit specifically assists Trade Adjustment Assistance recipients, Alternative TAA recipients, Reemployment TAA recipients, and Pension Benefit Guaranty Corporation payees, along with their qualifying family members.
The HCTC program was initially scheduled to expire on December 31, 2020, as indicated in the original IRS instructions. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended the program through December 31, 2021. The credit remains available for eligible coverage months in 2020, with specific requirements and documentation standards that filers must meet to claim the benefit successfully.
Eligibility Requirements
To qualify for the HCTC in 2020, you must meet specific eligibility criteria tied to your status as a recipient of certain federal assistance programs. You must have been an eligible TAA, ATAA, RTAA recipient, or PBGC payee as of the first day of each month for which you claim the credit. Additionally, you cannot be claimed as a dependent on another person’s tax return for 2020.
Qualifying family members of eligible individuals are also eligible to receive coverage under the HCTC. Spouses and dependents who meet the definition of qualifying family members may have their premiums included in the credit calculation, provided they meet all eligibility requirements as of the first day of each coverage month.
In cases where a TAA, ATAA, RTAA recipient, or PBGC payee passes away or finalizes a divorce, the surviving spouse or divorced spouse may continue to claim the HCTC as a recipient for up to 24 months following the event or until coverage months beginning after December 31, 2020, whichever occurs first.
Step-by-Step Filing Checklist
Step 1: Verify Your Eligibility Category
Confirm you were an eligible TAA, ATAA, RTAA recipient, or PBGC payee as of the first day of each month you plan to claim. TAA recipients must have received trade readjustment allowances or been entitled to receive them. ATAA and RTAA recipients must have received benefits under Department of Labor programs for older workers.
PBGC payees must have been age 55 to 65, not enrolled in Medicare, and received pension benefits paid by the PBGC under title IV of ERISA. Obtain official documentation from the Department of Labor, state workforce agency, or PBGC confirming your eligibility status for 2020.
Step 2: Confirm Health Coverage Qualification
Ensure your health insurance qualifies as eligible coverage under HCTC rules. Qualified health insurance includes coverage under a group health plan through spousal employment where the employer paid less than 50% of costs, non-group individual health insurance, COBRA continuation coverage, state-based coverage, and coverage under health plans funded by a voluntary employees’ beneficiary association established through bankruptcy court.
Coverage through a qualified health plan offered through a Marketplace does not qualify for the HCTC in 2020. However, you can claim the Premium Tax Credit for Marketplace coverage in the same year for different months or different family members.
Step 3: Check Disqualifying Coverage Restrictions
Verify you were not enrolled in Medicare Part A, B, or C as of the first day of each month claimed, unless a family member independently qualified for HCTC under separate eligibility conditions. Confirm you had no enrollment in Medicaid, the Children’s Health Insurance Program, the Federal Employees Health Benefits Program, or TRICARE as of the first day of each coverage month.
Verify that you were not covered under an employer-sponsored health insurance plan where the employer paid 50% or more of the premium cost. ATAA and RTAA recipients face stricter rules and cannot have been eligible for employer-sponsored coverage where the employer would have paid 50% or more of the premium, even if they were not enrolled.
Step 4: Separate Advance Payments from Direct Payments
Review Form 1099-H if you participated in the advance monthly payment program during 2020. The form shows the total advance payments made on your behalf directly to your health plan administrator. Do not include on Form 8885, line 2, any premiums for months where you received advance monthly payments, as these amounts are already reflected on Form 1099-H and will be reconciled separately.
Similarly, exclude any amounts for which you received reimbursement by filing Form 14095 during the tax year. Only include premiums you paid directly to your health plan or to the US Treasury-HCTC for months not covered by advance payments or reimbursements.
Step 5: Gather Required Documentation
Collect official letters confirming your TAA, ATAA, RTAA, or PBGC eligibility for each month claimed in 2020. For TAA recipients, obtain documentation from the Department of Labor, the state workforce agency, or the local employment office. For PBGC payees, get a copy of the official eligibility letter or Form 1099-R that shows receipt of the PBGC benefit.
Gather health insurance bills or COBRA payment coupons for each month claimed, ensuring they show your name, health plan name, monthly premium amount, coverage dates, and plan identification number. If your health plan does not provide bills, obtain enrollment documents or an official letter from the health plan containing the required information.
Compile proof of payment documentation, including canceled checks showing front and back, bank statements, credit card statements, or money order receipts clearly indicating the amount paid and the payee.
Step 6: Account for Health Savings Account Distributions
If you used distributions from an Archer Medical Savings Account or Health Savings Account to pay qualified health insurance premiums in 2020, calculate the total distribution amount used for premium payments.
Enter this amount on Form 8885, line 3. This amount will reduce the net premiums eligible for the credit calculation. Attach documentation showing the HSA or Archer MSA distributions and proof that these funds were used to pay health insurance premiums for HCTC-qualified coverage.
Step 7: Calculate Qualified Premium Amounts
Enter the total amount of qualified health insurance premiums paid by you for coverage for yourself and all qualifying family members for all eligible coverage months checked on Form 8885, line 1. Include only premiums for qualified health insurance coverage as defined in the instructions.
Exclude premiums paid to the US Treasury for HCTC participation in the advance monthly payment program. Exclude advance monthly payments shown on Form 1099-H, box 1. Exclude premiums for which you received Form 14095 reimbursements during the year. Do not include premiums for coverage of individuals who are not you or your qualifying family members.
Exclude separately purchased dental or vision coverage that represents substantially all of the coverage, though dental and vision benefits included as part of a comprehensive insurance package may be included in qualified premiums.
Step 8: Apply the 72.5% Credit Rate
After reducing line 2 by any HSA or Archer MSA distributions entered on line 3, multiply the result shown on line 4 by 72.5% or 0.725. This percentage represents the fixed HCTC credit rate for all months in 2020, regardless of advance payment status. The resulting amount on Form 8885, line 5, means your preliminary HCTC before considering any excess advance payments that must be repaid.
Step 9: Reconcile Advance Payments and Reimbursements
If you received advance monthly payments or Form 14095 reimbursements for any months not checked on Form 8885, line 1, you must repay these excess advance payments. Complete the Excess Advance HCTC Repayment Worksheet included in the Form 8885 instructions. Calculate the total advance monthly payments shown on Form 1099-H for ineligible months plus reimbursements received via Form 14095 for ineligible months.
Follow the worksheet instructions to determine whether the excess advance payment amount reduces your credit below zero, requiring additional tax payment, or whether repayment limitations apply if qualifying family members were enrolled in Marketplace coverage during other months of the year.
Step 10: Make the HCTC Election
Check the box on Form 8885, line 1, for the first eligible coverage month you elect to take the HCTC. This represents your election month. Once you elect the HCTC for a coverage month in 2020, the election automatically applies to all subsequent eligible coverage months in 2020. Check the box for every month after your election month for which you remained eligible, even if you are not claiming premiums for those months due to advance payment program participation.
The election must be made no later than the due date of your 2020 tax return, including extensions. If you participated in the advance monthly payment program for any months, you must file Form 8885 to make a timely election, even if you cannot claim additional credit on your tax return, as failing to elect will require reporting advance payments as additional tax owed.
Step 11: Report Credit on Your Tax Return
Enter the amount from Form 8885, line 5, on Schedule 3 (Form 1040), line 12c. The HCTC is a refundable credit that appears in Part II of Schedule 3 under Other Payments and Refundable Credits.
If filing Form 1040-SS, enter the line 5 amount on line 10. If filing Form 1040-PR, enter the amount from line 5 on line 10. The credit flows through Schedule 3 to Form 1040, increasing your refund or reducing tax owed.
If the amount on line 5 is negative due to excess advance payment repayment exceeding your current year credit, follow the repayment worksheet instructions to determine the proper reporting location, which may require entering the repayment amount on Form 1040, line 16, with the notation “HCTC” next to box 3.
Step 12: Attach Form 8885 and Supporting Documents
Include completed Form 8885 with your 2020 federal income tax return. Attach all required supporting documentation, including eligibility verification letters, health insurance bills or COBRA payment coupons, proof of payment for each month claimed, and any HSA or Archer MSA distribution documentation.
If you e-file your return, attach required documents as PDF files if your tax software supports this functionality. Suppose your software does not support PDF attachments. Complete Form 8453 and mail the required documents to the IRS, following the instructions for that form. Failure to attach complete documentation for months claimed on line 2 will result in disallowance of the claimed credit.
Step 13: Coordinate with Premium Tax Credit if Applicable
If you or qualifying family members are enrolled in a qualified health plan through a marketplace during 2020, you cannot claim the Premium Tax Credit for the same coverage in the months for which you checked the box on Form 8885, line 1.
You may claim both credits in the same year for different months or for other individuals. Complete Form 8962 following the special instructions provided in the Form 8885 instructions if you received advance payments of the Premium Tax Credit and also received HCTC advance payments or reimbursements for different months.
Figure your PTC only for months not checked on Form 8885, line 1, but complete Form 8962, column f, for all months advance payments of the Premium Tax Credit were made. If calculating excess advance PTC repayment, determine repayment limitations by adding any excess advance HCTC repayment amounts to the applicable PTC repayment limitation before completing Form 8962, line 28.
Step 14: Understand Self-Employed Health Insurance Deduction Interaction
If you are completing the Self-Employed Health Insurance Deduction Worksheet in your tax return instructions, complete Form 8885 before completing that worksheet. When calculating the self-employed health insurance deduction, do not include any amounts entered on Form 8885, line 4, any amounts entered on Form 14095, any qualified premiums paid to the US Treasury-HCTC for months participating in the advance monthly payment program, or any advance monthly payments your health plan administrator received as shown on Form 1099-H. This prevents double-claiming the same premium amounts as both a deduction and a credit.
Step 15: Review Special Filing Status Rules
If married filing separately, your spouse is not treated as a qualifying family member unless your spouse was also an eligible TAA, ATAA, RTAA recipient, or PBGC payee in 2020, or you lived apart from your spouse during the last six months of 2020, a qualifying family member other than your spouse lived in your home for more than half of 2020, and you provided over half the cost of keeping up your home. If both spouses were eligible individuals, each must file a separate Form 8885 claiming only their own premiums.
If you can claim a child as a dependent under special rules for children of divorced or separated parents, even though the child’s other parent claims the dependency exemption, the child is your qualifying family member for HCTC purposes if you were the custodial parent. The child must meet all other qualifying family member conditions, including not being enrolled in disqualifying coverage.
Program Extension and Future Coverage
While the 2020 Form 8885 instructions initially indicated the HCTC would expire on December 31, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended the program through December 31, 2021. Eligible individuals can claim the HCTC for eligible coverage months in both 2020 and 2021 using the same eligibility rules, documentation requirements, and 72.5% credit percentage.
The advance monthly payment program continued to accept payments through December 2021 before coming to an end. The HCTC program ultimately expired on December 31, 2021, and cannot be claimed for coverage months beginning in 2022 or later years.
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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.
