The Health Coverage Tax Credit allows you to have 72.5% of your qualified health insurance coverage premiums to be paid directly to your health plan administrator on a monthly basis on your behalf. This tax credit was created to lower your out-of-pocket payments for monthly insurance premiums.
As far as tax credits go, this is a pretty beneficial one since it gives you the option of having a monthly benefit, rather than just waiting until tax season comes around.
It is restricted to taxpayers who are at least 55 and up to 65 years of age and are receiving benefits from the Pension Benefit Guaranty Corporation (PBGC) or a qualified healthcare plan. A qualifying family member may also be eligible for the HCTC.
This is a refundable credit that you can claim on your annual tax return. When taking credits, it’s a good idea to enlist the help of a qualified tax consultant or other qualified tax professional, as he or she will understand the tax laws, rules, and regulations associated with tax credits.
Another benefit of working with a qualified tax professional is that they are very familiar with the schedules, forms, and backup documentation needed to take a tax credit. You can expect them to do an accurate and thorough job, but make sure you find someone credible – someone with the right credentials and qualifications.
The last thing you want is to be audited and not have the right backup to support your tax credit. For this reason, it’s a good idea to work with a qualified tax accountant when filing your tax return. Their knowledge and expertise can prove to be very useful, and they can reduce a lot of headaches associated with taxes.
What is the Health Coverage Tax Credit?
The Health Coverage Tax Credit is a federal tax credit offered by the IRS. It has been extended for all coverage months in 2020. Eligible taxpayers may receive a tax credit to offset the cost of their monthly health care insurance premiums for 2020, provided they have coverage with a qualified health plan.
If you claim this tax credit on your annual tax return, you may be eligible for a greater tax refund or a reduced tax bill if you’re eligible. If you have tax debt to settle, you will need to work directly with the IRS to weigh the options they have available for that kind of tax relief.
Alternatively, you can contact our office to see how we help with tax relief. We will, at least, point you in the right direction and make sure your needs are well taken care of.
Who is allowed to claim the tax credit?
Eligibility for the Health Coverage Tax Credit is restricted to the following:
- Taxpayers eligible for Trade Adjustment Assistance (TAA) allowances due to a qualifying job loss.
- Taxpayers between 55 and 64 years old, who had defined-benefit pension plans that were taken over by the Pension Benefit Guaranty Corporation (PBGC).
- Eligible trade adjustment assistance recipients, alternative TAA recipients, or reemployment TAA recipients.
- Eligible Pension Benefit Guaranty Corporation payees.
- A family member of an eligible TAA, ATAA, or RTAA recipients, or PBGC payees who are deceased or finalizing a divorce with you.
You cannot claim the Health Coverage Tax Credit if you are one of the following:
- Enrolled in Medicare, Medicaid, the Children’s Health Insurance Program, or the Federal Employees Health Benefits Program.
- Eligible to receive benefits under the United States military health system (TRICARE).
- Enrolled in an Affordable Care Act Marketplace insurance.
For proof of enrollment in the Pension Benefit Guaranty Corporation (PBGC), the IRS accepts IRS Form 1099-R: Distributions from Pensions, Annuities, Retirement, or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which you will receive from PBGC, not the IRS.
PBGC mails these forms on January 31 of the following year. If you have not received this form by February 3 of the following year, contact the Pension Benefit Guaranty Corporation (PBGC) Customer Care Center.
How can I re-enroll in an HCTC program?
With the 2020 Health Coverage Tax Credit (HCTC), participants can work with vendors/providers to be placed on a health coverage plan qualified for the HCTC. Participants can re-enroll in the Health Coverage Tax Credit Advance Monthly Program or claim the HCTC on their annual tax return filed in 2021.
Basically, if you were enrolled in the HCTC Advance Monthly Program, you are required to submit a new application via IRS Form 13441-A: Health Coverage Tax Credit Monthly Registration and Update so that you can re-enroll for the 2020 tax year.
You’ll need to provide all required documentation, which includes a copy of the health insurance bill reflecting your 2020 insurance rates. You will need to continue paying the entire premium amounts to your insurance provider until you receive an HCTC approval letter confirming your 2020 Advance Monthly Program payment amounts.
How do I claim the Health Coverage Tax Credit?
The benefit offered by the Health Coverage Tax Credit is offered monthly in 2020. If you qualify, you can have up to 72.5% of your qualified health insurance premiums paid in advance. These payments go directly to your healthcare plan administrator each month on your behalf. This will lower the payments you are paying out of pocket for monthly insurance premium amounts.
If you decide not to request advance monthly payments, as mentioned above, you will be paying 100% of your health insurance premiums. However, provided you are eligible, you can claim the Health Coverage Tax Credit on your annual federal income tax return. This can increase your tax refund or lower your tax bill if you have one.
How does the tax credit work?
Once you are an enrolled participant, you may request reimbursement for 72.5% of payments you paid to vendors and providers for 2020 qualified health coverage. You do this by completing IRS Form 14095: HCTC Reimbursement Request after you’ve submitted payment through the program or claimed a reimbursement on your annual tax return using IRS Form 8885: Health Coverage Tax Credit.
If you decide you don’t want to enroll in the HCTC Advance Monthly Program or if you use vendors or providers who are not participants in the program, you can claim reimbursement for 72.5% of your payments in 2020 for qualified health coverage.
Do this on your annual federal tax return by filing IRS Form 8885: Health Coverage Tax Credit and attaching it to your annual tax return.
What else should I know about this tax credit?
A health plan offered through a Health Insurance Marketplace is not considered to be qualified coverage for the Health Coverage Tax Credit. However, if that’s what you need, you may want to check out information about the Premium Tax Credit.
Very similar to the Health Coverage Tax Credit, the Premium Tax Credit (PTC) is a refundable tax credit that helps eligible taxpayers and families pay for their health insurance premiums through the Health Insurance Marketplace.
To learn more about the IRS’s Premium Tax Credit, check out the IRS page on the topic of Premium Tax Credit or review the information on the Government’s Healthcare website. Don’t forget to reach out to us if you want more information about tax credits.
Conclusion
The Health Coverage Tax Credit was created to help eligible taxpayers and families pay for insurance premiums from qualified health insurance programs. With healthcare premiums on the rise, this tax credit is quite beneficial, especially since you have the option of getting payments sent to your insurance administrator on a monthly basis.
Are you looking to claim this tax credit or any other one? At Borshoff Consulting, we can help with that! We are more than qualified to assist you with tax consulting, tax preparation, and tax relief. Just contact us today to find out how we can help you with your tax needs.
Do you expect to be audited this year or next, or are you just wanting to be prepared in case that happens? We can be your representative during an audit. Completely qualified as a professional Enrolled Agent, you can expect the best at Borshoff Consulting. Check out our complete audit survival guide for more educational material on audits.
Did you know that Borshoff Consulting also does business consultations to help small businesses with matters or decisions they may be going through? We know the tax laws inside and out and can properly assist you with even more than taxes; we help non-profit organizations, small businesses, and more!
Just complete a contact form, give us a shout, or set up a free consultation today to learn more about how we can make your life easier. Our mission is to provide solutions to your problems or steer you in the right direction so that you can have the best answers to your questions. You can trust Indiana’s tax expert!
