What Form 8885 Is For

Form 8885 is the IRS form used to claim the Health Coverage Tax Credit (HCTC), a federal tax credit that covered 72.5% of qualified health insurance premiums for eligible individuals and their families during 2020. This was the final year for the HCTC program, which expired on December 31, 2020. IRS.gov

The HCTC was designed to help two specific groups afford health insurance: displaced workers receiving Trade Adjustment Assistance (TAA) benefits and retirees aged 55-64 receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC). If you paid health insurance premiums out-of-pocket in 2020 and qualified for the credit, Form 8885 allowed you to recover nearly three-quarters of those costs.

The form serves a dual purpose: it both elects your participation in the HCTC program and calculates your credit amount. Even if you received advance monthly payments through the government's pre-payment program, you must still file Form 8885 to finalize your election and reconcile those advance payments. Without filing this form, advance payments could be treated as additional taxable income.

When You’d Use It (Late or Amended Returns)

For the 2020 tax year, Form 8885 must be filed with your original tax return by the filing deadline, including extensions—typically April 15, 2021, or October 15, 2021, if you requested an extension. The HCTC election is time-sensitive and must be made by this deadline to receive the credit. IRS.gov

If you missed filing Form 8885 with your original 2020 return, you can file an amended return using Form 1040-X to claim the credit, but you must do so within the statute of limitations—generally within three years of the original filing deadline or two years from when you paid the tax, whichever is later. For a 2020 return filed by April 15, 2021, this typically means you have until approximately April 15, 2024, to file an amended return claiming the HCTC.

You would file a late or amended Form 8885 if you discovered you were eligible after filing your original return, if you initially forgot to claim the credit, or if you need to correct errors in your original HCTC calculation. Keep in mind that you'll need to include all required documentation with your amended submission.

Key Rules or Details for 2020

Eligibility Requirements

To claim the HCTC for 2020, you must have been an eligible TAA, ATAA (Alternative TAA), or RTAA (Reemployment TAA) recipient or PBGC payee. TAA recipients were workers who lost jobs due to foreign trade impacts and received trade readjustment allowances. PBGC payees were individuals aged 55 to 64 (not yet on Medicare) receiving pension benefits from the PBGC. Surviving spouses and dependents could continue receiving the credit for up to 24 months after the eligible person's death or divorce. IRS.gov

Credit Percentage

The HCTC covered 72.5% of qualified health insurance premiums you paid directly. You were responsible for paying the remaining 27.5%. For example, if your monthly premium was $500, the credit would reimburse you $362.50.

Qualified Coverage Types

Eligible insurance included COBRA continuation coverage, state-based health plans, coverage through a spouse's employer (with restrictions), and certain voluntary employee beneficiary association (VEBA) plans established through bankruptcy. Marketplace plans purchased through the Affordable Care Act exchanges did not qualify for the HCTC. IRS.gov

Disqualifying Factors

You couldn't claim the HCTC for any month if you were enrolled in Medicare, Medicaid, CHIP, FEHBP (Federal Employees Health Benefits Program), or TRICARE (military health benefits). You also couldn't claim it if your employer paid 50% or more of your health insurance premium costs, or if you were imprisoned under federal, state, or local authority. IRS.gov

Monthly Election System

The HCTC operated on a month-by-month basis. You elected to take the credit starting with your first eligible month, and that election automatically applied to all subsequent eligible months in 2020. You couldn't selectively choose which months to include once you made your initial election.

Step-by-Step (High Level)

Step 1: Gather Documentation

Before completing Form 8885, collect proof of your eligibility status (official letter from the Department of Labor or Form 1099-R from PBGC), health insurance bills or COBRA payment coupons showing your name, plan name, monthly premium amounts, coverage dates, and policy numbers, and proof of payment such as canceled checks, bank statements, credit card statements, or money orders. IRS.gov

Step 2: Complete Part I – Make Your Election

Check the box for the first month you're electing to take the HCTC. All eligibility conditions must have been true as of the first day of that month. Then check boxes for every subsequent month where you remained eligible. Remember, once you check that first month, you must check all following eligible months—you can't pick and choose.

Step 3: Calculate Premiums Paid (Line 2)

Enter the total amount you paid directly to your health insurance company for all months checked in Part I. Do not include any premiums you paid to "US Treasury-HCTC" as part of the advance payment program, any advance payments shown on Form 1099-H that your insurer received directly from the IRS, or any amounts you were reimbursed for by filing Form 14095 during the year.

Step 4: Subtract HSA/MSA Distributions (Line 3)

If you used Health Savings Account (HSA) or Archer Medical Savings Account (MSA) distributions to pay for your health insurance, enter that amount here. Most filers will leave this line blank.

Step 5: Calculate Your Credit (Lines 4-5)

Subtract line 3 from line 2 and enter the result on line 4. Then multiply line 4 by 72.5% (0.725) to get your HCTC amount. If you received advance monthly payments for months not checked on line 1, you'll need to complete the Excess Advance HCTC Repayment Worksheet to determine if you owe any repayment. IRS.gov

Step 6: Attach Documentation and File

Attach all required documentation to Form 8885 and include it with your Form 1040, 1040-SR, or other applicable tax return. If you're e-filing, you can attach documents as PDFs (if your software supports it) or mail them using Form 8453.

Common Mistakes and How to Avoid Them

Mistake #1: Including Ineligible Months

Many taxpayers incorrectly check boxes for months when they didn't meet all eligibility requirements. For example, if your employer paid 50% or more of your premium in November, you cannot check November even if you were eligible in October. Solution: Review each month individually against all eligibility criteria before checking the box. IRS.gov

Mistake #2: Double-Counting Advance Payments

If you participated in the advance monthly payment program, you cannot include those months' premiums on line 2. The government already paid 72.5% directly to your insurer. Solution: Compare your Form 1099-H (which shows advance payments received) with line 1. Only include on line 2 the months where you paid the full premium yourself.

Mistake #3: Missing Required Documentation

The IRS will disallow your entire credit if you don't attach proper documentation proving eligibility and payment. Solution: Create a checklist from the instructions and gather all documents before filing: eligibility letter, insurance bills for each claimed month, and payment proof for each claimed month. Make copies of everything you submit. IRS.gov

Mistake #4: Including Non-Qualified Coverage

Marketplace plans, standalone dental/vision coverage, and plans where your employer paid most costs don't qualify. Solution: Carefully review the "Qualified Health Insurance Coverage" section in the instructions to confirm your specific coverage type qualifies. IRS.gov

Mistake #5: Failing to File When Required

Even if your calculation shows no additional credit due (perhaps because you received full advance payments), you must still file Form 8885 to elect the HCTC. Without this election, your advance payments become taxable income. Solution: File Form 8885 with your return even if lines 4 and 5 are zero or negative. IRS.gov

Mistake #6: Incorrectly Calculating Premium Amounts for Family Coverage

If your health plan covers people other than yourself and qualifying family members, you must prorate the premium to include only eligible individuals. Solution: Consult IRS Publication 502 for guidance on allocating premiums when coverage includes non-qualifying individuals. IRS.gov

What Happens After You File

IRS Processing and Review

Once you file Form 8885 with your tax return, the IRS will process your credit claim. The IRS matches information on your Form 8885 against records from the Department of Labor (for TAA recipients) or PBGC (for pension recipients) to verify your eligibility status. They also cross-reference Form 1099-H if you received advance payments.

Credit Application

If approved, your HCTC reduces your tax liability dollar-for-dollar. If your credit exceeds your tax owed, you'll receive the difference as part of your tax refund. The credit appears on Schedule 3 (Form 1040), line 13c, and flows through to your main Form 1040. IRS.gov

Advance Payment Reconciliation

If you received advance monthly payments during 2020, the IRS reconciles what you received against what you were entitled to claim. If you received too much (because you were ineligible for certain months), you may owe repayment as additional tax. If you received too little, you'll get the difference as an additional refund. IRS.gov

Audit and Correspondence

The HCTC has specific documentation requirements. If the IRS questions your claim, they'll send a notice explaining the issue and giving you time to respond. Keep all original documentation for at least three years in case of audit.

Future Impact

Since the HCTC expired after 2020, this credit cannot be claimed for 2021 or later tax years. If you filed for 2020, ensure you retain all records, as the IRS has up to three years (or longer in certain circumstances) to audit your return.

FAQs

Q1: Can I claim the HCTC if I had Marketplace coverage for part of 2020?

Yes, but only for months when you had qualified coverage (like COBRA) instead of Marketplace coverage. You cannot claim the HCTC for months when you had a qualified health plan through the Healthcare.gov Marketplace or state exchange. You may be able to claim the Premium Tax Credit (Form 8962) for those Marketplace months instead, but you cannot claim both credits for the same coverage in the same month. IRS.gov

Q2: What if I'm married—can both spouses claim the HCTC?

If both spouses were eligible TAA recipients or PBGC payees, each must file a separate Form 8885 and claim only their own premiums. If only one spouse was eligible, that spouse claims both their own coverage and any premiums paid for the other spouse as a qualifying family member. Married couples filing separately face additional restrictions outlined in the instructions. IRS.gov

Q3: How does the HCTC affect my self-employed health insurance deduction?

If you're self-employed and claim the self-employed health insurance deduction on Schedule 1, you cannot double-dip. You must complete Form 8885 first, then exclude any premiums claimed on Form 8885 from your self-employed health insurance deduction calculation. This prevents you from getting both a credit and a deduction for the same premiums. IRS.gov

Q4: I participated in the advance payment program but lost eligibility mid-year. What happens?

You'll need to repay the advance payments you received for ineligible months using the Excess Advance HCTC Repayment Worksheet found in the Form 8885 instructions. The repayment amount gets added to your tax liability on your return. There are some repayment limitations based on income, but they're complex—follow the worksheet carefully. IRS.gov

Q5: Can I claim the HCTC for 2020 if I didn't file Form 8885 with my original return?

Yes, you can file an amended return (Form 1040-X) with Form 8885 attached, but you must do so within the statute of limitations—generally three years from your original filing date. For 2020 returns filed by the April 15, 2021 deadline, you have until approximately April 15, 2024, to amend and claim the credit. Include all required documentation with your amended return.

Q6: What if I received a PBGC lump-sum payment instead of monthly payments?

If you received a lump-sum payment from PBGC after August 5, 2002, you're still eligible for the HCTC for months when you would have received PBGC benefits had you not taken the lump sum. The IRS considers you a PBGC payee for those months as long as you meet all other eligibility requirements. IRS.gov

Q7: Are there income limits for the HCTC?

No, there are no income limits for claiming the HCTC itself. However, your eligibility is based on your status as a TAA recipient or PBGC payee, not your income level. Eligibility for the HCTC is determined on a monthly basis—you must be a PBGC payee or TAA, ATAA, or RTAA recipient, meet the general requirements, and be enrolled in a qualified health plan to receive the HCTC for a given month. IRS.gov

For More Information

Visit the official IRS HCTC page at IRS.gov/HCTC or review the complete 2020 Instructions for Form 8885.

Note: This summary is based on official IRS guidance for the 2020 tax year. Since the HCTC expired on December 31, 2020, this information applies only to 2020 and earlier tax years. For current tax credits related to health insurance, see Form 8962 (Premium Tax Credit) for Marketplace coverage.