Form 8885 helped eligible individuals claim a substantial tax credit—72.5% of their health insurance premiums—during a critical period when this benefit was reinstated after expiring. If you received trade adjustment assistance, were affected by pension plan failures, or knew someone who qualified, understanding this form could have meant thousands of dollars in tax savings.

What Form 8885 Is For

Form 8885 is the IRS form used to claim the Health Coverage Tax Credit (HCTC), a refundable tax credit that covered 72.5% of qualified health insurance premiums for specific groups of Americans who lost jobs due to foreign trade or whose pension plans were taken over by the federal government. IRS Form 8885 Instructions

The credit applied to premiums you and your qualifying family members (spouse and dependents) paid for eligible health coverage, including COBRA continuation coverage, spouse's employer coverage (with restrictions), individual health insurance plans, state-qualified health plans, and—uniquely for 2014 and 2015—qualified health plans purchased through the Health Insurance Marketplace (HealthCare.gov or state exchanges).

Importantly, the HCTC expired at the end of 2013 but was retroactively reinstated for 2014 and extended through 2019 by the Trade Preferences Extension Act of 2015. This meant eligible individuals could amend their 2014 returns to claim thousands in previously unavailable credits. IRS Notice 2016-02

When You'd Use It (Late or Amended Filing)

For 2014 Returns: If you were eligible for the HCTC in 2014 but already filed your return before the credit was reinstated, you needed to file an amended return using Form 1040X. The IRS required a specific two-step process: first file your original 2014 return (if you hadn't already), then amend it using the 2013 version of Form 8885 (modified for 2014 use by crossing out "2013" and writing "2014" in bold at the top). You had until April 17, 2018, to amend your 2014 return—three years from the April 15, 2015, filing deadline. IRS Form 8885 Instructions

For 2015 Returns: You could claim the HCTC on your original 2015 tax return by attaching the 2015 Form 8885. The general election deadline was the due date of your tax return (including extensions). However, for returns filed before June 29, 2015, you had a three-year window from your filing date to make the election.

If you needed to file late or amend, you had to write "HCTC" in large, bold letters at the top of Form 1040X and state in Part III: "I am taking the HCTC. I elect the HCTC starting in [month]." IRS Form 8885 Instructions

Key Rules and Eligibility for 2015

Who Qualified

You could take this credit only if you were (or your family member was) an eligible individual who:

• Trade Adjustment Assistance (TAA) recipients: Received trade readjustment allowances or would have been entitled to them (eligibility extended through the month following benefit receipt)
• Alternative/Reemployment TAA (ATAA/RTAA) recipients: Received benefits under Department of Labor programs for older workers
• PBGC pension payees: Were age 55-65 (not enrolled in Medicare) and received benefits from the Pension Benefit Guaranty Corporation
• Surviving family members: Remained eligible for up to 24 months after the qualified individual's death or divorce finalization

Critical Restrictions

You could NOT take the credit if you:

• Could be claimed as someone else's dependent
• Were enrolled in Medicare Part A, B, or C, Medicaid, CHIP, FEHBP, or TRICARE
• Had employer-sponsored health insurance where the employer paid 50% or more of premiums (note: pre-tax contributions you made counted as "employer-paid")
• For ATAA/RTAA recipients only: Were eligible for employer coverage paying 50% or more, even if not enrolled

IRS Form 8885 Instructions

The 2015 Marketplace Exception

For 2014 and 2015 only, qualified health plans from the Health Insurance Marketplace counted as qualified coverage for the HCTC. This created a unique situation where individuals could claim either the HCTC or the Premium Tax Credit (PTC)—but never both for the same coverage in the same month. Once you elected the HCTC for a coverage month, you couldn't take the PTC for that same coverage for the rest of the tax year. IRS Notice 2016-02

The Irrevocable Election

Making the HCTC election was mandatory and permanent for the tax year. Once you checked a month on Line 1 of Form 8885, the election applied to all subsequent months you remained eligible—you couldn't switch back to the PTC later. IRS Form 8885 Instructions

Step-by-Step (High Level)

Step-by-Step Filing Process (High Level)

Step 1: Determine Eligibility

Verify your status as an eligible individual and confirm you had qualified health insurance coverage. Check that you weren't disqualified by Medicare, Medicaid, or employer coverage with 50%+ employer contributions.

Step 2: Make the Election (Line 1)

On Form 8885, check the box for the first eligible coverage month you're electing the HCTC. Then check every subsequent month through the end of the year that you remained eligible. This election prevents you from taking the PTC for those same months.

Step 3: Calculate Total Premiums Paid (Line 2)

Add up all premiums you paid for qualified coverage for yourself and qualifying family members for the months checked on Line 1. If you had Marketplace coverage with advance premium tax credit (APTC) payments, you MUST include those APTC amounts as premiums you "paid"—this was a unique rule for Marketplace enrollees.

Step 4: Calculate the Credit (Lines 3-5)

Multiply your total premiums by 72.5% (0.725). This is your HCTC. For example, if you paid $10,000 in qualifying premiums, your credit would be $7,250.

Step 5: Gather Required Documentation

Attach extensive proof to your return:

• Official eligibility letter (from Department of Labor or PBGC)
• Health insurance bills showing your name, plan name, premium amounts, coverage dates, and policy numbers
• Proof of payment (canceled checks, bank statements, credit card statements)
• For COBRA: election letter and notice of rights
• For spouse's employer coverage: pay stubs and employer letter confirming less than 50% employer contribution

Step 6: Coordinate with Form 8962 (If Applicable)

If you had Marketplace coverage with APTC, you also had to file Form 8962 to reconcile the advance payments. Importantly, the normal PTC repayment cap didn't apply—you had to repay every dollar of APTC for months you elected the HCTC, potentially creating a substantial tax liability.

IRS Form 8885 Instructions

Common Mistakes and How to Avoid Them

Mistake #1: Including Ineligible Premiums

Many taxpayers included premiums for standalone dental or vision coverage, which didn't qualify for the HCTC. Solution: Only include comprehensive health insurance premiums. If dental/vision was bundled with medical coverage and didn't constitute "substantially all" of the coverage, it could be included. IRS Form 8885 Instructions

Mistake #2: Forgetting to Include APTC in Line 2

For Marketplace enrollees, failing to add APTC amounts to premiums paid resulted in a smaller credit. The IRS treated APTC as money you "paid," even though it went directly to insurers. Solution: Add your actual premium payments PLUS the monthly APTC amounts from Form 1095-A (lines 21-32, column C) for all months you're claiming the HCTC. IRS Form 8885 Instructions

Mistake #3: Claiming Both HCTC and PTC for the Same Coverage

The election was irrevocable—once you chose HCTC for a month, you couldn't take PTC for that same coverage in later months. Solution: Before electing, compare total credits for different scenarios (e.g., HCTC for all 12 months vs. PTC for six months and HCTC for six months) to maximize your benefit. IRS Notice 2016-02

Mistake #4: Missing the Employer Coverage Trap

Pre-tax contributions through Section 125 cafeteria plans counted as employer-paid. If the employer paid 40% and you paid 20% pre-tax, the employer was considered to have paid 60%—disqualifying you. Solution: Get a detailed letter from your spouse's employer showing the exact breakdown of contributions, including pre-tax amounts. IRS Form 8885 Instructions

Mistake #5: Incomplete Documentation

The IRS required specific documents, and missing any could delay your refund or trigger an audit. Solution: Use the detailed checklist in the Form 8885 instructions and attach every required document, including enrollment forms, premium notices, and payment proofs for every month claimed. IRS Form 8885 Instructions

Mistake #6: Allocating Policy Amounts Incorrectly

When divorced parents or split families shared Marketplace coverage, premiums had to be allocated using Section 36B rules. Solution: Complete Form 8962, Part IV first to determine your allocated share, then use only that allocated amount on Form 8885, Line 2. IRS Notice 2016-02

What Happens After You File

Processing Timeline

The IRS processed HCTC claims as refundable credits, meaning if your credit exceeded your tax liability, you received the difference as a refund. Processing typically took the same time as regular returns (6-8 weeks for e-filed returns, 12-16 weeks for paper returns), though amended returns took longer—up to 16 weeks.

Repayment of APTC

If you had Marketplace coverage and elected the HCTC, you had to repay ALL excess APTC for those months, without the normal repayment cap protection. This could result in owing significant additional tax, even if your income was below 400% of the federal poverty level. The IRS added this repayment to your tax liability, reducing any refund or increasing any amount due. IRS Notice 2016-02

Impact on Other Deductions

Claiming the HCTC reduced other tax benefits. You couldn't deduct the same premiums as medical expenses on Schedule A or claim them for the self-employed health insurance deduction on Form 1040, Line 29. If you amended your 2014 return, you had to reduce these deductions accordingly. IRS Form 8885 Instructions

Advance Payment Program

Although Form 8885 was for annual credit claiming, the IRS announced plans to restart monthly advance payments (similar to APTC for the PTC) beginning in July 2016. This would allow eligible individuals to have 72.5% of premiums paid directly to insurers, reducing out-of-pocket costs throughout the year. IRS Form 8885 Instructions

Audit Risk

HCTC claims required extensive documentation, and incomplete submissions flagged returns for review. If audited, you needed to prove eligibility status, coverage qualifications, and payment amounts for every month claimed. Keeping organized records for at least three years after filing was essential.

FAQs

Q1: If I was eligible for both the HCTC and the Premium Tax Credit, which should I choose?

Compare the total benefit. The HCTC provided 72.5% of premiums paid (including APTC), while the PTC varied by income. Generally, if you were eligible all year and your premium exceeded the second-lowest-cost silver plan in your area by a large margin, the HCTC typically provided a larger subsidy. However, remember that choosing HCTC meant repaying all APTC without the repayment cap, which could reduce your overall benefit. Run the numbers both ways before deciding. IRS Notice 2016-02

Q2: Could I claim the HCTC for some months and the Premium Tax Credit for other months?

Yes, but strategically. Once you elected the HCTC for a month, it applied to all remaining months you were eligible that year for that same coverage. So if you were eligible for HCTC for all of 2015, you could claim PTC for January-June and HCTC for July-December, but you couldn't reverse course mid-year. You had to file both Form 8962 and Form 8885 and carefully coordinate the calculations. IRS Notice 2016-02

Q3: What if my spouse had employer coverage but I had COBRA—could I still claim the HCTC?

It depends on the employer's contribution. If your spouse's employer paid 50% or more of their coverage cost (including your spouse's pre-tax contributions), you were disqualified from the HCTC even for your separate COBRA coverage. However, if you and your spouse filed separately and met specific living-apart requirements, you might qualify. This was complex and often required professional tax advice. IRS Form 8885 Instructions

Q4: I received a lump-sum PBGC payment years ago. Am I still eligible?

Yes, if the lump sum was received after August 5, 2002. The IRS considered you eligible for any month you would have received monthly PBGC benefits had you not taken the lump sum. You still needed to meet the age requirements (55-65) and not be enrolled in Medicare. IRS Form 8885 Instructions

Q5: Can I claim the credit for my adult child's coverage?

Only if you could claim them as a dependent on your tax return, even under the special divorced/separated parents rules. They also couldn't be enrolled in Medicare, Medicaid, CHIP, or have access to employer coverage. The "under 26 on parent's plan" rule for the Affordable Care Act didn't automatically make adult children qualifying family members for the HCTC. IRS Form 8885 Instructions

Q6: What happened if I made a mistake on my Form 8885?

You could file an amended return (Form 1040X) within three years of your original filing date (or two years from when you paid the tax, whichever was later). Attach a corrected Form 8885 and write "Amended HCTC" at the top. If the mistake resulted in a larger credit, you'd receive an additional refund. If it resulted in a smaller credit, you might owe additional tax plus potential interest.

Q7: The HCTC was reinstated retroactively—why couldn't I just claim it on my original 2014 return?

The credit wasn't technically available when most people filed their 2014 returns in early 2015—it wasn't reinstated until June 29, 2015. The IRS required you to file your original 2014 return first (even if you had no filing requirement), then amend it. This two-step process maintained the integrity of the original filing deadline while allowing retroactive claims for the reinstated credit. IRS Notice 2016-02

For More Information

Review the complete 2015 Form 8885 Instructions and IRS Notice 2016-02 for detailed guidance on the credit's interaction with Marketplace coverage.