Form 8885 is the IRS form used to claim the Health Coverage Tax Credit (HCTC), a federal tax benefit that helped eligible individuals pay for health insurance premiums in 2016. The HCTC was designed to make health coverage more affordable for specific groups of workers who lost their jobs due to foreign trade or international shifts in production, as well as certain retirees receiving pension benefits from the Pension Benefit Guaranty Corporation (PBGC).

For the 2016 tax year, the HCTC covered 72.5% of qualified health insurance premiums. This means if you were eligible and paid $1,000 for qualified health insurance, you could claim a credit of $725 on your tax return. You were responsible for paying the remaining 27.5% of the premium yourself.

The credit was available to four main groups: Trade Adjustment Assistance (TAA) recipients, Alternative TAA (ATAA) recipients, Reemployment TAA (RTAA) recipients, and PBGC payees aged 55-65 who weren't enrolled in Medicare. Qualifying family members—including spouses and dependents—could also be covered under this credit if they met all eligibility requirements. IRS Form 8885 Instructions

What Form 8885 Is For

Form 8885 is the IRS form used to claim the Health Coverage Tax Credit (HCTC), a federal tax benefit that helped eligible individuals pay for health insurance premiums in 2016. The HCTC was designed to make health coverage more affordable for specific groups of workers who lost their jobs due to foreign trade or international shifts in production, as well as certain retirees receiving pension benefits from the Pension Benefit Guaranty Corporation (PBGC).

For the 2016 tax year, the HCTC covered 72.5% of qualified health insurance premiums. This means if you were eligible and paid $1,000 for qualified health insurance, you could claim a credit of $725 on your tax return. You were responsible for paying the remaining 27.5% of the premium yourself.

The credit was available to four main groups: Trade Adjustment Assistance (TAA) recipients, Alternative TAA (ATAA) recipients, Reemployment TAA (RTAA) recipients, and PBGC payees aged 55-65 who weren't enrolled in Medicare. Qualifying family members—including spouses and dependents—could also be covered under this credit if they met all eligibility requirements. IRS Form 8885 Instructions

When You'd Use This Form (Including Late or Amended Returns)

You would file Form 8885 with your 2016 federal income tax return if you met the eligibility criteria and paid for qualified health insurance during 2016. The form must be attached to Form 1040, 1040NR, 1040-SS, or 1040-PR.

Late or Amended Returns: The IRS allowed flexibility for claiming the HCTC. Generally, you had up to three years after the due date of your tax return (including extensions) to elect the HCTC for 2016. For most taxpayers, the 2016 return was due April 15, 2017, meaning you could have filed an amended return using Form 1040X with Form 8885 attached through April 2020 to claim this credit.

There were also special circumstances: Starting in July 2016, the IRS began an advance monthly payment program where the IRS paid 72.5% of premiums directly to health plans. If you participated in this program, you still had to file Form 8885 to elect the credit—even if you weren't claiming any additional amounts. You would receive Form 1099-H showing the advance payments made on your behalf. IRS Form 8885 Instructions

Key Rules for the 2016 Tax Year

Eligibility Status

Your eligibility was determined on a monthly basis. You had to meet all requirements as of the first day of each month you wanted to claim. If you received a trade readjustment allowance in January 2016, for example, you were eligible as of the first day of both January and February.

No Marketplace Coverage

You could not claim the HCTC for any month you or your family members were enrolled in a qualified health plan through a Health Insurance Marketplace (Obamacare exchange). However, you could claim the Premium Tax Credit (PTC) for Marketplace coverage instead—just not both for the same coverage in the same month.

Employer Coverage Restriction

You were ineligible for any month where your employer (or your spouse's employer) paid 50% or more of your health insurance premium. For ATAA and RTAA recipients, the rules were stricter—any employer contribution made you ineligible.

No Double-Dipping

You couldn't claim the credit if you paid premiums using pre-tax dollars (like through an employer cafeteria plan), and you couldn't count money withdrawn from Archer MSA or Health Savings Accounts toward your eligible premium payments.

Qualified Coverage Types

Only certain types of coverage qualified, including COBRA, spouse's employer coverage (if you paid more than 50%), non-group health plans (but not Marketplace plans), and certain state-based programs. Medicare, Medicaid, CHIP, FEHBP, and TRICARE coverage made you ineligible. IRS Form 8885 Instructions

Step-by-Step (High Level)

Form 8885 Completion Overview

Step 1: Make Your Election (Part I, Line 1)

Check the box for the first month you want to elect the HCTC. Once you check a month, you must also check boxes for all subsequent eligible months in 2016. This is crucial—the election applies forward automatically to all months where you remain eligible.

Step 2: Calculate Your Qualified Premiums (Part II, Line 2)

Add up all insurance premiums you paid directly to your health plan for the months you checked in Step 1. Do NOT include months where the IRS advance payment program paid your premiums (those were reported on Form 1099-H). Only count premiums paid for yourself and eligible family members who met all the requirements.

Step 3: Subtract HSA/MSA Distributions (Line 3)

If you used money from an Archer Medical Savings Account or Health Savings Account to pay premiums, enter that amount here. Most people leave this line blank.

Step 4: Net Eligible Premiums (Line 4)

Subtract Line 3 from Line 2. This is your total out-of-pocket premium cost that qualifies for the credit.

Step 5: Calculate Your Credit (Line 5)

Multiply Line 4 by 72.5% (or 0.725). This is your Health Coverage Tax Credit. Transfer this amount to your Form 1040, line 73 (checking box c), or the appropriate line on Form 1040NR, 1040-SS, or 1040-PR.

Step 6: Attach Required Documentation

This is critical and often overlooked. You must attach proof including: eligibility letters (from Department of Labor or PBGC), health insurance bills showing monthly premiums, and proof of payment (canceled checks, bank statements, credit card statements). Without proper documentation, your credit will be disallowed. IRS Form 8885

Common Mistakes and How to Avoid Them

Mistake #1: Forgetting to File Form 8885 for Advance Payments

Even if you participated in the advance payment program and the IRS already paid 72.5% of your premiums directly to your insurer, you still must file Form 8885 to formally elect the credit. Failure to file means you may have to repay the advance payments.

Mistake #2: Including Ineligible Family Members

Not all family members automatically qualify. Each family member must meet the eligibility requirements independently—they can't be enrolled in Medicare, Medicaid, CHIP, FEHBP, or TRICARE, and they can't have employer coverage where the employer pays 50% or more. Double-check each family member's status for each month claimed.

Mistake #3: Missing Required Documentation

The IRS requires extensive documentation: eligibility letters, insurance bills with specific information (name, plan name, premium amount, coverage dates, plan ID), and proof of payment. Missing or incomplete documentation is the most common reason credits get disallowed. Gather everything before filing.

Mistake #4: Claiming Marketplace Coverage

2016 was notable because you could not use the HCTC for Health Insurance Marketplace plans. If you had Marketplace coverage, you needed to claim the Premium Tax Credit (Form 8962) instead. Attempting to claim HCTC for Marketplace coverage results in denial.

Mistake #5: Including Dental or Vision-Only Premiums

Standalone dental or vision insurance doesn't qualify for the HCTC. If your monthly bill includes these items separately, you must exclude them from Line 2. Only the basic health coverage premium counts. IRS Form 8885 Instructions

What Happens After You File

Processing and Refunds

After filing Form 8885 with your tax return, the IRS processes your credit as part of your overall tax return. If the credit creates a refund or increases your existing refund, you'll receive that money according to the normal IRS refund timeline—typically within 21 days for e-filed returns with direct deposit.

If You Participated in Advance Payments

The IRS reconciles the advance payments made to your health plan (shown on Form 1099-H) with your actual eligibility and coverage. If everything matches, there's nothing more to do. If you received advance payments for months you weren't actually eligible, you may need to repay some or all of those payments.

Verification and Audits

Because the HCTC involves substantial documentation requirements, the IRS may request additional verification of your eligibility, coverage, or payment proofs. Keep all original documents for at least three years after filing.

Future Coverage

The HCTC program had a sunset provision. While it applied to 2016 coverage, the program was subsequently extended but eventually expired on December 31, 2021. For coverage months after that date, the HCTC is no longer available.

FAQs

Q1: Can I claim the HCTC if I was covered by my spouse's employer plan?

Yes, but only if your spouse's employer paid less than 50% of the premium cost. You must obtain a letter from the employer stating they contributed less than 50% of the coverage cost and attach it to Form 8885.

Q2: What if I only became eligible partway through the year?

That's fine. Eligibility is determined monthly. Start checking boxes on Line 1 beginning with the first month you became eligible. You don't have to claim the credit for the entire year—only for the months when you met all requirements.

Q3: Can I take both the HCTC and the Premium Tax Credit in the same year?

Yes, but not for the same coverage in the same month. For example, if you had COBRA coverage (HCTC-eligible) for January through June and then switched to a Marketplace plan (PTC-eligible) for July through December, you'd file both Form 8885 and Form 8962, claiming each credit for the appropriate months.

Q4: What happens if I can't find all my payment receipts?

Contact your health insurance company. They can usually provide a payment history or letter documenting your premium payments for the year. The IRS requires verifiable proof of payment—estimates or self-created records won't suffice.

Q5: I received Form 1099-H showing advance payments. Do I need to report this as income?

No. Form 1099-H is informational only. The advance HCTC payments are not taxable income. The form simply tells you which months the IRS paid premiums on your behalf so you don't double-count them on Line 2 of Form 8885.

Q6: Can qualifying family members claim the credit after divorce or death?

Yes. Under special continuation rules, qualifying family members (spouses and dependents) could claim the HCTC for up to 24 months following the death or divorce of an eligible TAA/ATAA/RTAA recipient or PBGC payee, as long as they met all other eligibility requirements and the coverage months began before January 1, 2020.

Q7: What if I made pre-tax contributions through my paycheck to pay for health insurance?

Pre-tax contributions are considered employer payments for HCTC purposes. If you and your employer together paid 50% or more of the premium through pre-tax and employer contributions combined, you're ineligible for that month. Only premiums paid with after-tax dollars qualify for the credit.

For More Information

For More Information: Visit the official IRS Health Coverage Tax Credit page at www.irs.gov/form8885 or consult IRS Publication 502 for additional guidance on medical expenses and health coverage tax benefits.