369 / What is the Health Coverage Tax Credit?
The Trade Act of 2002 also made the tax credit advanceable and, under the Health Coverage Tax Credit (HCTC) program established by the Treasury Department, eligible individuals receive a qualified health insurance costs credit eligibility certificate.2 These individuals can pay 20 percent of a required premium to providers along with the certificate, and the government will pay the remaining 80 percent of the premium. The government may make advance payments of the credit for health insurance costs of eligible individuals, but the total amount of these payments made cannot exceed 72.5 (was 65 percent) percent of the amount paid by a taxpayer for a taxable year.3 Providers are required to file a prescribed information return identifying the individuals receiving subsidized coverage and the amount and timing of the payments. Providers must provide each covered individual with a statement of the information reported for that individual.4 The HCTC program was effective August 1, 2003.
TAARA 2015 reinstated the HCTC, but also provided new rules to coordinate the HCTC with the premium assistance tax credit. Generally, the rules provide that, beginning in 2016, insurance purchased on the health insurance exchanges does not qualify as coverage for which the HCTC may be claimed. Further, an eligible individual must make an election to have the HCTC apply and is not entitled to the premium assistance tax credit for any months during which an HCTC election is in effect.5
1. IRC § 35, as amended by ARRA 2009.
2. IRC § 7527, as amended by ARRA 2009.