25.17 Health Coverage Credit

A health insurance credit on Form 8885 may be available to displaced workers who have lost jobs due to foreign competition and are receiving Trade Adjustment Assistance (TAA) benefits, older workers receiving wage subsidies under an alternative trade adjustment assistance (ATAA) program established by the Department of Labor, and Pension Benefit Guaranty Corporation (PBGC) pension beneficiaries age 55 or older. The credit is 72.5% of the premiums paid for each month of eligible coverage for you, your spouse, and qualifying family members.

Premiums must be for unsubsidized COBRA continuing coverage, coverage under certain state-sponsored plans or coverage under a spouse’s employer-sponsored plan that meets certain tests. Premiums for individual health insurance may also qualify if the eligible individual was enrolled in the plan for at last 30 days before becoming unemployed and becoming eligible for TAA, ATAA or PBGC benefits.

Credit eligibility is determined on a month-by-month basis on Form 8885. The credit from Form 8885 is entered in the “Payments” section of Form 1040 as a refundable credit that is not limited by tax liability.

Claim the credit in advance.

Your state workforce agency or the PBGC can provide instructions for enrolling in the advanced tax credit plan. Once your eligibility and health coverage are confirmed, you only have to pay the portion of the premium not covered by your allowable credit; the Treasury Department will then pay the balance to your insurer. Advance payments made on your behalf will be reported to you on Form 1099-H. Advance payments for any month do not count as premiums paid in figuring the credit on Form 8885.