The Health Coverage Tax Credit (HCTC): In Brief

February 18, 2016 – January 5, 2021 R44392

The Health Coverage Tax Credit (HCTC):
In Brief
Updated January 5, 2021
Congressional Research Service
https://crsreports.congress.gov
R44392

The Health Coverage Tax Credit (HCTC): In Brief

Summary
The Health Coverage Tax Credit (HCTC) subsidizes most of the cost of qualified health insurance
for eligible taxpayers and their family members. Potential eligibility for the HCTC is limited to
two groups of taxpayers. One group is comprised of individuals eligible for Trade Adjustment
Assistance (TAA) al owances because they experienced qualifying job losses. The other group
consists of individuals whose defined-benefit pension plans were taken over by the Pension
Benefit Guaranty Corporation (PBGC) because of financial difficulties. HCTC-eligible
individuals are al owed to receive the tax credit only if they either could not enroll in certain other
health coverage (e.g., Medicaid) or are not eligible for other specified coverage (e.g., Medicare
Part A).
To claim the HCTC, eligible taxpayers must have qualified health insurance (specific categories
of coverage, as specified in statute). Several of those categories, known as state-qualified health
plans, are available only after being established by state action.
The HCTC is refundable, so eligible taxpayers may receive the full credit amount even if they
had little or no federal income tax liability. The credit is also advanceable, so taxpayers may
receive the credit on a monthly basis to coincide with the payment of premiums.
The HCTC has a sunset date of January 1, 2022.
Congressional Research Service

link to page 6 The Health Coverage Tax Credit (HCTC): In Brief

Introduction
Certain workers who have experienced job loss and retirees whose private pension plans were
taken over by the Pension Benefit Guaranty Corporation (PBGC) may be eligible for the Health
Coverage Tax Credit (HCTC).1 The tax credit’s purpose is to make the purchase of health
insurance more affordable for eligible individuals. The HCTC has a sunset date of January 1,
2022.
This report describes the eligibility criteria for the HCTC and the types of health insurance to
which the tax credit may be applied. It briefly describes the administration of the HCTC program
and receipt of the credit by eligible taxpayers. The report concludes with a summary of the
HCTC’s statutory history.
General Features of the HCTC
The HCTC covers 72.5% of the premium for certain types of health insurance purchased by an
eligible taxpayer. The taxpayer is responsible for covering the remaining 27.5% of the premium.
Eligible taxpayers are only al owed to use the HCTC toward the purchase of qualified health
insurance (described below in the “Qualified Health Insurance” section). The HCTC is
refundable, so taxpayers may claim the full credit amount even if they have little or no federal
income tax liability. The credit also is advanceable, so taxpayers may receive the credit on a
monthly basis to coincide with the payment of premiums.
Eligibility
To claim the HCTC, taxpayers must be in one of two eligibility groups and not enrolled in (or
sometimes even eligible for) certain types of health insurance. Other statutory limitations also
apply.
The two groups of taxpayers who are eligible to claim the HCTC are
 recipients of certain benefits under the Trade Adjustment Assistance (TAA)
program and
 individuals between the ages of 55 and 64 who receive payments from the
Pension Benefit Guaranty Corporation (PBGC).
Group One: Trade Adjustment Assistance Beneficiaries2
TAA is a program that provides assistance to workers who lose their jobs due to international
trade. To qualify for TAA, a group of workers must petition the U.S. Department of Labor (DOL)
to establish that their job loss was attributable to a qualified cause. If a DOL investigation
confirms the workers’ claim, the workers are certified as eligible for TAA benefits and services.

1 For background information about the Health Care T ax Credit (HCT C), see Internal Revenue Service (IRS), “Health
Coverage T ax Credit,” at https://www.irs.gov/credits-deductions/individuals/hctc.
2 For more information on the T rade Adjustment Assistance (T AA) program, including more det ailed discussion of
eligibility and benefits, see CRS Report R44153, Trade Adjustm ent Assistance for Workers and the TAA
Reauthorization Act of 2015.
Congressional Research Service
1

The Health Coverage Tax Credit (HCTC): In Brief

TAA-certified workers are eligible for the HCTC on the basis of receipt of certain TAA benefits.
Specifical y, workers are eligible for the HCTC if they receive any of the following:
 Trade Readjustment Allowance (TRA). TRA is a weekly cash payment for
workers who are enrolled in TAA-sponsored training and have exhausted their
eligibility for unemployment insurance (UI). TRA payments begin the week after
a worker exhausts eligibility for UI. Workers may collect a maximum of 130
weeks of UI and TRA combined. Workers are eligible for the HCTC if they are
collecting TRA or UI.3
 Reemployment Trade Adjustment Assistance (RTAA). RTAA is a wage
supplement for workers aged 50 and older who were certified for TAA and
subsequently secure qualified employment at a lower wage. RTAA pays 50% of
the difference in wages for up to two years, up to a maximum total benefit of
$10,000.
 Alternative Trade Adjustment Assistance (ATAA). ATAA is a wage-insurance
program similar to RTAA. ATAA existed prior to the most recent reauthorization
of TAA, and a smal number of workers may stil be receiving benefits under
ATAA.
A worker is eligible for the HCTC on the first day of a month if the worker received an eligible
TAA benefit “for any day in that month or the prior month.”4
Notably, eligibility for the HCTC is limited to individuals who receive TRA, RTAA, or ATAA
cash benefits. Workers who are certified as eligible for TAA but receive only other TAA benefits
(such as job-search assistance) are not eligible for the HCTC.
Group Two: Pension Benefit Guaranty Corporation
To receive a PBGC benefit, individuals must have worked for a firm whose defined-benefit
pension plan was insured and then taken over by the PBGC.5 The agency assumes control of
defined-benefit plans (pension plans that promise to pay a specific monthly benefit at retirement)
when it determines that the plans must be terminated to protect the interests of participants (e.g.,
if benefits that were due could not be paid) or when employers demonstrate that they could not
remain in business unless the plan were terminated. The PBGC uses plan assets and its own
insurance reserves to pay the pensions (up to a guaranteed amount) to the former workers and
their survivors. Individuals who receive PBGC-paid pensions are eligible for the HCTC, provided
they are at least 55 years of age but not yet entitled to Medicare (which usual y occurs at the age
of 65).
Limitations on Eligibility
The HCTC program places several limitations on eligibility, even for those individuals in the two
groups described above. Persons enrolled in the following are not eligible for the tax credit:

3 T he authorizing statute for the HCT C includes the time period prior to when workers receive T rade Readjustment
Allowance (T RA) for HCT C-eligibility purposes. See 26 U.S.C. §35(c)(2)(A).
4 See “Definition and Special Rules” section on page 1 of instruction for IRS Form 8885.
5 Background information on the Pension Benefit Guaranty Corporation is available through its website at
http://www.pbgc.gov.
Congressional Research Service
2

The Health Coverage Tax Credit (HCTC): In Brief

 a health plan maintained by the individual’s employer or former employer6 (or by
the employer or former employer of the individual’s spouse) that pays 50% or
more of the total premium;
 Medicare Part B;
 the Federal Employees Health Benefits (FEHB) Program;
 Medicaid; or
 the State Children’s Health Insurance Program (CHIP).
Similarly, to be eligible for the HCTC, individuals may not be eligible for the following:
 Medicare Part A; or
 coverage provided through the U.S. military health system (e.g., Tricare).
In addition, individuals are not eligible for the HCTC if they are incarcerated or if they may be
claimed as a dependent by another taxpayer.
Family Members
An eligible taxpayer may use the HCTC for health insurance that covers his or her spouse and
any dependents who may be claimed on his or her tax return. For this purpose, children of
divorced or separated parents are treated as dependents of the custodial parent.
Qualifying family members face the same eligibility limitations as eligible taxpayers (i.e., they
may not be enrolled in or eligible for the insurance described above). Family members may
continue to receive the HCTC for up to two years after any of the following events: the qualified
taxpayer becomes eligible for Medicare, the taxpayer and spouse divorce, or the taxpayer dies.
Qualified Health Insurance
An eligible taxpayer is only al owed to claim the HCTC to cover part of the premium for
qualified health insurance. Statute limits qualified health insurance to 11 categories of coverage,
identified as options (A) through (K). Individuals are not al owed to claim the tax credit for any
other type of coverage.
Four of the coverage categories are referred to as automatically qualified health plans.
Individuals may elect these options without state involvement. These options (identified by their
statutory letter designations) are as follows:
A. Coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA;
P.L. 99-272).
I. Coverage under a group health plan available through a spouse’s employer.
J. Coverage under individual health insurance,7

6 T his includes a plan provided by a former employer in compliance with continuation health coverage requirements
established under the Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272), or COBRA. For
background on COBRA, see U.S. Department of Labor, “Continuation of Health Coverage - COBRA,” at
https://www.dol.gov/general/topic/health-plans/cobra.
7 HCT C eligible individuals may amend filed tax returns in order to claim the HCT C for individual health insura nce
coverage. For tax years 2014 and 2015, the HCT C was allowed to be claimed for all individual insurance, including
coverage through a health insurance exchange. However, exchange coverage may not be used to claim the HCT C for
Congressional Research Service
3

The Health Coverage Tax Credit (HCTC): In Brief

K. Coverage funded by a voluntary employees’ beneficiary association (VEBA).8
The other seven categories of coverage are known as state-qualified health plans. Individuals
may choose these options only if their state has established these plans. These options (identified
by their statutory letter designations) are as follows:
B. State-based continuation coverage provided under a state law requiring such coverage.
C. Coverage offered through a state high-risk pool (HRP).9
D. Coverage under a plan offered for state employees.
E. Coverage under a state-based plan that is comparable to the plan offered to state
employees.
F. Coverage through an arrangement entered into by a state and a group health plan, an issuer
of health insurance, an administrator, or an employer.
G. Coverage through a state arrangement with a private-sector health care purchasing pool.
H. Coverage under a state-operated plan that does not receive any federal financing.
Coverage under state-qualified health plans is required to provide four consumer protections,
specified in statute, to al qualifying individuals. Qualifying individuals are defined as HCTC-
eligible individuals (as described above) who had three months of creditable coverage10 under
another health plan prior to applying for a state-qualified plan and did not have a significant break
in coverage (defined as 63 days or more without coverage). For such individuals, state-qualified
health plans must provide the following four protections:11
1. The plan must be guaranteed issue, meaning coverage may not be denied to any
qualifying applicant.
2. Coverage may not be denied based on preexisting health conditions.
3. Premiums (without regard to subsidies) may not be greater for qualifying
individuals than for other similar individuals.
4. Benefits for qualifying individuals must be the same as or substantial y similar to
benefits for others.
Certain types of coverage are not considered qualified health insurance, even if they otherwise
meet one of the categories listed above. Such coverage includes accident or disability income
insurance, liability insurance, workers’ compensation insurance, automobile medical payment
insurance, credit-only insurance, coverage for on-site medical clinics, limited-scope dental or
vision benefits, long-term care insurance, coverage for a specified disease or il ness, hospital and
other fixed indemnity insurance, and supplemental insurance.

2016 on. IRS, “Health Coverage T ax Credit,” at https://www.irs.gov/credits-deductions/individuals/hctc.
8 Voluntary employees’ beneficiary association (VEBA) plans provide life insurance, medical, disability, accident, and
other welfare benefits to employee members and their dependents. For background on VEBAs, see IRS, “ Voluntary
Employees’ Beneficiary Association - 501(c)(9),” at https://www.irs.gov/charities-non-profits/other-non-profits/
voluntary-employee-beneficiary-association-501c9.
9 For background on state high-risk pools, see National Association of State Comprehensive Health Insurance Plans,
“State Risk Pool Status Report,” at http://naschip.org/portal/.
10 See “creditable coverage” definition in U.S. Department of Health and Human Services glossary at
https://www.healthcare.gov/glossary/creditable-coverage/.
11 IRS, “Administrative, Procedural, and Miscellaneous, Section 35: Health Insurance Costs of Eligible Individuals,”
Revenue Procedure 2004-12, at https://www.irs.gov/pub/irs-drop/rp-04-12.pdf.
Congressional Research Service
4

The Health Coverage Tax Credit (HCTC): In Brief

Administration and Use of the HCTC
Although the Internal Revenue Service (IRS) administers the HCTC program, full
implementation entails the participation of several federal and state agencies. The Department of
the Treasury (Treasury) is primarily responsible for administering the advance payment system,
by providing the HCTC on a monthly basis to coincide with payment of insurance premiums. In
addition, the IRS reviews tax returns on which the credit is claimed. DOL and the PBGC are
responsible for helping Treasury identify who may be eligible for the credit. DOL also
coordinates the One-Stop Career Center system; these centers provide a wide range of services to
assist job seekers, including providing information about available benefits such as the HCTC.
State-level entities include state workforce agencies (SWAs)—DOL-funded agencies that
administer unemployment and TAA benefits. Other relevant state entities include the departments
of insurance and health agencies.
Notifying Eligible Taxpayers
DOL requests that SWAs mail HCTC information packets to al eligible TAA beneficiaries.
Included with the information packet is an HCTC eligibility certificate, a document that identifies
the individual as potentially eligible for the tax credit. Similarly, the PBGC identifies
beneficiaries who are potential y eligible for the HCTC and provides the beneficiaries’ relevant
personal information to the IRS.
The IRS mails program kits to persons whose names are included on the lists provided by the
SWAs and the PBGC.
Receiving the HCTC
Eligible taxpayers with qualified health insurance may claim the tax credit when they file their
tax returns for the year, or they may receive advance payments for the credit, on a monthly basis,
throughout the year. Some taxpayers may choose to receive a portion of the credit through
advance payments and the remainder after they file their returns. Because the HCTC is
refundable, taxpayers may receive the full amount for which they are eligible, even if they have
little or no tax liability.
Other tax credits for which individuals are eligible have no effect on their eligibility for the
HCTC, nor does the HCTC affect other credits, with one key exception: a taxpayer who chooses
to receive the HCTC is prohibited from being eligible for the premium tax credit established
under the Patient Protection and Affordable Care Act (P.L. 111-148, as amended).12
The IRS published relevant summary statistics in its 2018 “Statistics of Income” (SOI) report.13
For tax year 2018, 18,970 tax returns claimed the HCTC, totaling to approximately $16.4
mil ion.14

12 For background on the premium tax credit, see IRS, “Eligibility for the Premium T ax Credit,” at https://www.irs.gov/
Affordable-Care-Act/Individuals-and-Families/Eligibility-for-the-Premium-T ax-Credit.
13IRS, “Statistics of Income—2018 Individual Income T ax Returns Complete Report,” at https://www.irs.gov/statistics/
soi-tax-stats-individual-income-tax-returns-publication-1304-complete-report.
14 For additional HCT C data, see Government Accountability Office (GAO), Economic” Adjustment Assistance:
Federal Programs Intended to Help Beneficiaries Adjust to Economic Disruption ,” GAO-19-85, at
https://www.gao.gov/assets/700/697222.pdf.
Congressional Research Service
5

The Health Coverage Tax Credit (HCTC): In Brief

Receiving the HCTC After the End of the Tax Year
Taxpayers who choose to claim the HCTC after the tax year ends must complete Form 8885 and
attach it to their standard Form 1040. Taxpayers must include invoices and proof of payment for
qualified health insurance.
In this case, the credit amount would be used to reduce the amount of taxes owed for a given
taxpayer. Because the HCTC is refundable, if the credit amount exceeds the amount of taxes
owed, the excess amount is provided to the taxpayer in the form of a tax refund.
Receiving the HCTC During the Tax Year
To receive advance payments of the HCTC, individuals register with the HCTC program. They
must be enrolled in a qualified health insurance plan when they register. The program confirms an
applicant’s eligibility and sends him or her an invoice for the taxpayer’s share of the total
monthly premium (which is 27.5% because the HCTC’s subsidy rate is 72.5%). Individuals send
payments for their share plus additional premium amounts for non-qualified family members (if
applicable) to Treasury. Upon receipt of these premium payments, Treasury sends payment for
100% of the premium (comprised of 27.5% from the individual and 72.5% from Treasury) to the
individuals’ health insurance plans.
Congressional Research Service
6

The Health Coverage Tax Credit (HCTC): In Brief

Appendix. Legislative History
Table A-1. Health Coverage Tax Credit (HCTC) Legislative History
Date of
Name of Legislation (Public Law)
Enactment
Summary of Relevant Provisions
Trade Act of 2002 (P.L. 107-210)
August 6,
Amended the Internal Revenue Code (IRC) to authorize a new
2002
refundable, advanceable tax credit to cover 65% of the cost of qualified
health insurance for eligible taxpayers and their family members.
Working Families Tax Relief Act of
October 4,
Amended the Medicare Prescription Drug, Improvement, and
2004 (P.L. 108-311)
2004
Modernization Act of 2003 (P.L. 108-173), which amended the IRC to
exclude distributions from health savings accounts from the calculation
of the tax credit amount.
Tax Technical Corrections Act of
December
Amended the IRC to correct a citation to the IRC definition of a
2007 (P.L. 110-172)
29, 2007
custodial parent.
American Recovery and Reinvestment February 17,
Amended the IRC to enact the fol owing temporary changes that would
Act of 2009 (P.L. 111-5): Part VI cited
2009
have expired on January 1, 2011:
as the TAA Health Coverage

Increased the subsidy rate from 65% to 80%;
Improvement Act of 2009

Al owed one or more retroactive payments to be made;

Modified the definition of an “eligible TAA recipient” to include
persons who receive unemployment compensation but are not
enrol ed in training and individuals who would be eligible for a
trade readjustment al owance except that they are in a break in
training that exceeds a specified time period;

Al owed family members to continue to receive the HCTC for up
to two years after any of the fol owing events occur: the qualified
taxpayer becomes eligible for Medicare, the taxpayer and spouse
are divorced, or the taxpayer dies; and

Added a new option under “qualified health insurance”: health
plans funded by voluntary employees’ beneficiary associations.
Enacted the fol owing permanent changes:

Broadened eligibility criteria to include service sector and public
agency workers and

Added new study and reporting requirements for the Treasury
Secretary and the Comptrol er General.
Temporary Extension Act of 2010
March 2,
Amended the IRC to make a technical correction related to the
(P.L. 111-144)
2010
definition of an individual who receives COBRA premium assistance.
Omnibus Trade Act of 2010 (P.L.
December
Amended the IRC to extend the HCTC-related expiring provisions
111-344): Title I – Extension of Trade
29, 2010
with a new expiration date of February 13, 2011.
Adjustment Assistance and Health
Coverage Improvement
Trade Adjustment Assistance
October 21,
Amended the IRC to enact a number of changes to the HCTC
Extension Act of 2011 (P.L. 112-40)
2011
program, which affected the program’s duration, subsidy rate,
availability of payments, eligibility criteria, and definition of qualified
insurance, among other program components. Key changes included a
new subsidy rate of 72.5% and termination of the tax credit on January
1, 2014. The effective date for these changes was for coverage months
beginning after February 12, 2011.
Congressional Research Service
7

The Health Coverage Tax Credit (HCTC): In Brief

Trade Preferences Extension Act of
June 29, 2015 Amended the IRC to retroactively reauthorize the HCTC and establish
2015 (P.L. 114-27)
a new sunset date of January 1, 2020. Enacted a number of conforming
amendments, including interaction with the premium tax credit
established under the Patient Protection and Affordable Care Act (P.L.
111-148, as amended). The effective date for these changes was for
coverage months beginning after December 31, 2013. However, the
new prohibition against claiming the HCTC for individual health
insurance purchased through an ACA-established exchange applied to
coverage months beginning after December 31, 2015. Individuals were
al owed to claim the HCTC for insurance purchased through an
exchange during 2014 and 2015.
Further Consolidated Appropriations
December
Amended the IRC to establish a new sunset date of January 1, 2021.
Act, 2020 (P.L. 116-94)
20, 2019
Consolidated Appropriations Act,
December
Amended the IRC to establish a new sunset date of January 1, 2022.
2021 (P.L. 116-260)
27, 2020
Source: CRS analysis of amendments to Section 35 of the Internal Revenue Code.
a. COBRA refers to the Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272).

Author Information

Bernadette Fernandez

Specialist in Health Care Financing

Acknowledgments
Benjamin Collins, Analyst in Labor Policy, authored the section on Trade Adjustment Assistance
beneficiaries. Kate Costin, Research Librarian, contributed to the update of this report.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
R44392 · VERSION 7 · UPDATED
8

Download PDF

Download EPUB

Revision History

Jan. 5, 2021

HTML · PDF

Jan. 28, 2020

HTML · PDF

1% changed

Dec. 6, 2016

HTML · PDF

2% changed

Feb. 18, 2016

HTML · PDF

Metadata

Topic areas

Health Policy

Report Type: CRS Report

Source: CRSReports.Congress.gov, EveryCRSReport.com

Raw Metadata: JSON