The Health Coverage Tax Credit (HCTC) expired on December 31, 2021. Beginning with tax year 2022, Form 8885 and its instructions have been discontinued by the IRS. This guide covers the form's final year of use (2021) and may be helpful for understanding historical tax returns or amended returns for prior years.

What the Form Is For

Form 8885, Health Coverage Tax Credit, was used by eligible taxpayers to claim a federal tax credit that helped pay for health insurance premiums. The HCTC was designed to make health insurance more affordable for specific groups of Americans facing economic hardship.

The credit covered 72.5% of qualified health insurance premiums paid by eligible individuals and their qualifying family members. This meant if you paid $1,000 in eligible premiums, the government would provide a tax credit of $725, leaving you responsible for only $275.

The form served two main purposes: first, to elect to take the HCTC for eligible coverage months, and second, to calculate the credit amount you could claim on your federal income tax return. Some taxpayers received advance monthly payments throughout the year (where the IRS paid 72.5% directly to their insurance company), while others paid full premiums and claimed the entire credit when filing their tax return.

When You'd Use It (Late/Amended Returns)

Even though the HCTC expired after 2021, you might still need Form 8885 if:

Filing a late 2021 tax return: If you were required to file a 2021 return but haven't yet, you must use the 2021 version of Form 8885 to claim any eligible HCTC. Your election to take the HCTC must be made by the due date of your tax return, including extensions.

Filing an amended 2021 return: If you filed your 2021 return but forgot to claim the HCTC, you can file Form 1040-X (Amended U.S. Individual Income Tax Return) with Form 8885 attached to claim the credit you missed. Standard rules for amended returns apply—generally, you have three years from the original filing date or two years from when you paid the tax, whichever is later.

Reconciling advance payments: Even if you cannot claim additional HCTC on your return, you were still required to file Form 8885 if you participated in the advance monthly payment program. Failing to make a timely election would have required you to report advance monthly HCTC payment amounts as additional tax owed on your return.

For tax years 2022 and beyond, Form 8885 cannot be used because the credit no longer exists. If you need health insurance tax credits for current years, you should explore Form 8962, Premium Tax Credit (PTC), for qualified health plans purchased through the Health Insurance Marketplace.

Key Rules for 2023 (Final Year: 2021)

Since Form 8885 was discontinued for 2023, the key rules below reflect the final year the credit was available (2021):

Eligibility requirements: You could only take the HCTC if you were an eligible TAA (Trade Adjustment Assistance) recipient, ATAA (Alternative Trade Adjustment Assistance) recipient, RTAA (Reemployment Trade Adjustment Assistance) recipient, or PBGC (Pension Benefit Guaranty Corporation) payee. Qualifying family members of deceased or divorced eligible individuals could also claim the credit.

Cannot be claimed as a dependent: You could not use Form 8885 if someone else could claim you as a dependent on their 2021 tax return.

Qualified health insurance coverage only: The credit applied only to specific types of health insurance: COBRA continuation coverage, coverage through your spouse's employer (with limitations), certain state-based coverage, non-group (individual) health insurance plans (but not Marketplace plans), and health plans funded through bankruptcy-established VEBAs.

Employer coverage restrictions: You could not claim the HCTC for any month when your employer (or your spouse's employer) paid 50% or more of the health insurance premium. Pre-tax contributions you made were considered employer-paid.

Other coverage exclusions: You were ineligible for any month you were enrolled in Medicare Part A, B, or C; Medicaid or CHIP; Federal Employees Health Benefits Program (FEHBP); or TRICARE. You also couldn't claim the credit if you were imprisoned or received a 100% COBRA premium reduction.

The 72.5% credit rate: The credit amount was always 72.5% of eligible premiums paid. This rate remained consistent throughout the program's final years.

Election requirement: You had to affirmatively elect to take the HCTC by checking boxes on Form 8885 for each eligible coverage month. Once you elected the credit for one month in 2021, the election automatically applied to all subsequent eligible months in that year.

Step-by-Step Filing Guide (High Level)

Step 1: Determine eligibility

Check whether you were an eligible TAA, ATAA, RTAA recipient, or PBGC payee during 2021. You should have received official notification letters from the Department of Labor or PBGC confirming your eligibility status.

Step 2: Verify your coverage qualified

Confirm that your health insurance was qualified coverage under HCTC rules. Marketplace plans, Medicare, Medicaid, FEHBP, and TRICARE did not qualify. COBRA coverage and certain spouse employer plans were the most common qualifying types.

Step 3: Gather required documents

Collect all documentation: your eligibility letter from the Department of Labor or PBGC, health insurance bills or COBRA payment coupons for each claimed month, and proof of payment (canceled checks, bank statements, credit card statements, or money orders).

Step 4: Complete Part I (Election)

Check the box for the first month you want to elect the HCTC. This is your election month. Then check boxes for every month after your election month when you met all eligibility requirements and paid premiums for qualified coverage.

Step 5: Complete Part II (Calculate credit)

On line 2, enter the total amount you paid directly to your health plan for all months checked in Part I. Do not include amounts paid to "US Treasury-HCTC" or advance payments shown on Form 1099-H. On line 3, enter any Archer MSA or Health Savings Account distributions used to pay premiums. Line 4 subtracts line 3 from line 2. Line 5 calculates your credit by multiplying line 4 by 72.5%.

Step 6: Handle advance payments if applicable

If you received advance monthly payments for months you didn't check in Part I, or received HCTC reimbursements via Form 14095 for unchecked months, you must complete the Excess Advance HCTC Repayment Worksheet to determine any repayment obligation.

Step 7: Attach required documentation

Attach copies (not originals) of all required documents: your eligibility letter, health insurance bills or COBRA coupons, and proof of payment for each claimed month. These documents were mandatory—without them, your credit would be disallowed.

Step 8: Transfer to your tax return

Enter the amount from Form 8885, line 5, on Schedule 3 (Form 1040), line 13c. Attach Form 8885 to your Form 1040, 1040-SR, 1040-NR, 1040-SS, or 1040-PR.

Common Mistakes and How to Avoid Them

Mistake #1: Including ineligible premium amounts

Many taxpayers incorrectly included premiums for dental or vision coverage purchased separately, or premiums for family members enrolled in Medicare or Medicaid. Solution: Carefully review the qualified health insurance coverage definition. Only include premiums for comprehensive health coverage for eligible individuals.

Mistake #2: Forgetting to exclude advance payments

Taxpayers who participated in the advance monthly payment program sometimes included those months' premiums on line 2, essentially trying to claim the credit twice. Solution: Do not include on line 2 any premiums you paid to "US Treasury-HCTC" or any amounts shown on Form 1099-H (advance payments). You already received the benefit of those payments.

Mistake #3: Failing to attach required documentation

The instructions explicitly stated that without required documents, your credit would be disallowed. Some taxpayers claimed the credit without attaching eligibility letters, insurance bills, or proof of payment. Solution: Make copies of all required documents and attach them to your return. For e-filed returns, attach PDFs if your software supports it, or mail documents using Form 8453.

Mistake #4: Claiming months with employer coverage

Taxpayers often didn't realize that pre-tax payroll deductions for health insurance counted as employer-paid. If you and your employer together paid 100% of premiums through pre-tax deductions, you couldn't claim the HCTC. Solution: Review pay stubs carefully. If any portion came out pre-tax, that's considered employer-paid and must be counted toward the 50% threshold.

Mistake #5: Not understanding the election requirement

Some eligible taxpayers thought they could pick and choose individual months. The rules required that once you elected the HCTC for one month, it applied to all subsequent eligible months that year. Solution: Check the first month you're eligible and want the credit, then check every subsequent eligible month—even if you received advance payments for some of those months.

Mistake #6: Missing the coordination with Form 8962

Taxpayers with Marketplace coverage in some months and HCTC-qualified coverage in other months had to carefully coordinate Form 8885 and Form 8962 (Premium Tax Credit). Solution: You could claim both credits in the same year for different coverage, but you had to follow special instructions for completing Form 8962 to avoid claiming credits for the same months on both forms.

Mistake #7: Incorrect repayment calculations

Taxpayers who received advance payments for months they later became ineligible often miscalculated repayment amounts. Solution: Carefully complete the Excess Advance HCTC Repayment Worksheet if you received advance payments or Form 14095 reimbursements for any months not checked on line 1.

What Happens After You File

Processing your return

The IRS processes your Form 8885 along with your tax return. The credit from line 5 reduces your total tax liability, potentially increasing your refund or decreasing the amount you owe.

Verification and documentation review

The IRS may verify the information on your Form 8885 against records from the Department of Labor, PBGC, and Form 1099-H reports from your insurance company. Having complete documentation attached helps prevent processing delays.

Refund or reduced tax bill

If your HCTC produces a refund, you'll receive it according to normal IRS refund timelines. If you owed tax, the credit reduces what you pay. The HCTC was a refundable credit, meaning you could receive a refund even if you had no tax liability.

Potential audits or inquiries

Because the HCTC was a specialized credit with strict eligibility requirements, the IRS sometimes requested additional documentation or clarification. Common inquiry topics included proof of TAA/PBGC eligibility, verification that coverage was qualified, and confirmation that employer coverage restrictions weren't violated.

Adjustments or corrections

If the IRS finds errors—such as missing documentation, ineligible coverage periods, or calculation mistakes—they may adjust your credit and send a notice explaining the changes. You typically have the right to respond and provide additional information.

No future filings required

Since the HCTC expired after 2021, you won't file Form 8885 for tax year 2022 or later. The advance monthly payment program continued through December 2021 but didn't accept payments in 2022 or beyond.

FAQs

Q1: Can I still claim the HCTC for 2023 or 2024?

No. The HCTC expired on December 31, 2021. Form 8885 was discontinued beginning with tax year 2022. You cannot claim this credit for any coverage months beginning in 2022 or later. If you need help paying for health insurance now, explore the Premium Tax Credit (Form 8962) for coverage purchased through the Health Insurance Marketplace.

Q2: I was eligible in 2021 but forgot to claim it. What should I do?

File an amended return using Form 1040-X for tax year 2021 with Form 8885 attached. You generally have three years from your original filing date to claim a refund. Make sure to include all required documentation (eligibility letters, insurance bills, proof of payment).

Q3: What if I received advance HCTC payments but didn't file Form 8885?

You were required to file Form 8885 to elect the HCTC for any months you participated in the advance monthly payment program. If you didn't file the form and make a timely election, those advance payments may be treated as taxable income that you must repay. Consult with a tax professional about filing a late or amended return.

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

Yes, but only for different coverage. You could claim the HCTC for qualified health insurance coverage (like COBRA) for certain months and the Premium Tax Credit for Marketplace coverage in other months. However, you couldn't claim both credits for the same coverage in the same month. Special coordination instructions applied when completing Form 8962 in these situations.

Q5: My spouse and I were both eligible recipients. Do we each file Form 8885?

Yes. If both spouses were eligible TAA, ATAA, RTAA recipients or PBGC payees, each spouse had to complete a separate Form 8885. Each form showed that person's eligible months and premiums paid for their coverage and any qualifying family members' coverage.

Q6: What types of health insurance qualified for the HCTC?

Qualified coverage included: COBRA continuation coverage, coverage under your spouse's employer group health plan (with restrictions), certain state-based coverage, non-group (individual) health insurance plans, and health plans funded by bankruptcy-established VEBAs. Qualified health plans from the Marketplace, Medicare, Medicaid, FEHBP, and TRICARE did not qualify.

Q7: Where can I find the 2021 Form 8885 and instructions?

The 2021 Form 8885 and its instructions remain available on the IRS website at IRS.gov/Form8885 for taxpayers who need to file late or amended returns for 2021. You can also find them by searching for "Form 8885" on IRS.gov or accessing the IRS Forms and Publications page.

Sources

All information in this guide comes exclusively from official IRS publications including Form 8885 and its instructions (2021), Publication 974 (Premium Tax Credit), and official IRS.gov notices regarding the HCTC expiration.

For more information about health insurance tax credits currently available, visit IRS.gov or consult with a qualified tax professional.