Health Coverage Tax Credit (HCTC)

The HCTC is a program that helps make health insurance more affordable for retirees whose pensions are now paid by the Pension Benefit Guaranty Corporation (PBGC) by paying 80% of health insurance premiums for the retiree and his or her family.

The HCTC has been in effect since 2002 and has undergone some changes as a result of the American Recovery & Reinvestment Act (ARRA) of 2009. In May of 2009, the tax credit increased from 65% to 80%. Additionally, you can now be reimbursed for any full payments you made directly to your health plan while registering for the HCTC.

An individual may receive the tax credit each month or at the end of the year for as long as they continue to meet eligibility requirements.

Delphi retirees may qualify for the HCTC.

For questions regarding the Health Coverage Tax Credit or to discuss your personal situation, contact Mainstay Capital Management, toll-free at 1-866-444-6246.

HCTC Frequently Asked Questions

General

Q. What is the HCTC and who is eligible?
A. The Health Coverage Tax Credit (HCTC) is an important benefit that pays 80% of a qualified health plan premium for eligible individuals. The HCTC is a unique tax credit that individuals can receive either monthly as their health plan premium becomes due or yearly as a credit on their federal tax return. The Internal Revenue Service (IRS) administers the HCTC. The following individuals are potentially eligible for the tax credit:

1. Pension Benefit Guaranty Corporation (PBGC) pension recipients who are at least 55 years old,

2. Individuals receiving a Trade Readjustment Allowance (TRA) under the Trade Adjustment Assistance (TAA) program and attending TAA-approved training, and

3. Individuals receiving a wage subsidy under the Alternative TAA (ATAA)/Reemployment Trade Adjustment Assistance (RTAA) program for older workers.

People in these three groups must also meet some general requirements and have a qualified health plan to be eligible for the HCTC. If eligible, individuals can get the tax credit for their family members as well.

Q. What are the main reasons an individual would not be eligible for the HCTC?
A. Individuals are not eligible for the HCTC if they:

• are not receiving pension payments from the PBGC or benefits under the TAA or ATAA/RTAA programs

• are receiving Medicare benefits, or have another form of disqualifying health coverage

• are not enrolled in a qualified health plan

• are imprisoned by a federal, state, or local authority

• can be claimed as a dependent on another individual’s federal tax return

Q. If an individual received the HCTC last year, is he or she automatically eligible to receive it this year?
A. No. Eligibility for the HCTC is determined on a monthly basis. For each month an individual receives the credit, whether monthly or yearly, he or she must also be a TAA, ATAA, RTAA, or PBGC recipient and enrolled in a qualified health plan.

Q. What is the monthly HCTC?
A. Most tax credits are paid out when you file your federal taxes. However, health plan premiums can be expensive and some people need help to pay them each month as they become due instead of when they file their taxes. The monthly HCTC allows you to receive the HCTC in the form of a payment to your health plan on a monthly basis as your premium payments become due after you have paid your portions of the health insurance premiums to the HCTC Program.

Newly-enrolled monthly participants can request to receive reimbursement for health insurance payments they paid while eligible and enrolling in the monthly HCTC Program.

Q. What is the yearly HCTC?
A. The yearly HCTC is paid out when you file your federal taxes. You must complete and submit IRS Form 8885, Health Coverage Tax Credit, to claim the yearly HCTC on your federal tax return. The instructions on the form provide guidance on who may claim the HCTC and what documents you must provide with IRS Form 8885. If you do not have all the required documents, you may not receive the HCTC as a refund or a credit against any taxes you owe.

Q. What is a qualified health plan?
A. A qualified health plan is one that is allowable under the HCTC legislation. Only the following types of health plans qualify for the HCTC:

COBRA: Consolidated Omnibus Budget and Reconciliation Act (COBRA) is federal legislation that lets employees extend their job-based health coverage if they lose their job or run into other qualifying events that cause them to lose their health insurance. The HCTC can pay for COBRA health insurance expenses if the eligible person pays more than 50% of the cost of coverage. Please note that electing to receive the 65% COBRA Premium Reduction offered through your former employer will disqualify you from the HCTC. You may switch from the COBRA Premium Reduction to the HCTC.

State-qualified health plan: This coverage type consists of health plans that a state’s Department of Insurance approves as meeting the requirements of the Trade Act of 2002. Most states have a health plan that qualifies for the HCTC.

Spousal coverage: This is coverage under a group plan that is available through the employment of an eligible individual’s spouse. If an eligible individual’s spouse has employer-sponsored coverage, and the spouse pays more than 50% of the cost with after-tax dollars, it is considered one of the qualified health plans for the HCTC. If the spouse’s coverage is COBRA, the individual has the option to enroll in the monthly HCTC; if it is not COBRA, the individual can only claim the yearly HCTC when filing his or her federal tax return. Additional restrictions apply to ATAA/RTAA benefit recipients.

Non-group/individual health plan: This coverage type is an individual policy for a single person or family. It is usually provided under a contract purchased through an insurance company, agent, or broker. In order to have the HCTC cover this type of coverage, the non-group/individual health plan must have started at least 30 days before the person left the job that made him or her eligible for TAA, ATAA, RTAA, or PBGC benefits.

Q. How was the HCTC created?
A. The Trade Act of 2002, enacted by Congress in August 2002, created the Health Insurance Tax Credit (HITC) that is now referred to as the Health Coverage Tax Credit (HCTC).

Q. How long will the HCTC be in effect?
A. There is no end date or sunset provision in the Health Coverage Tax Credit (HCTC) legislation. However, payment for the tax credit for eligible individuals is contingent upon funding for the Trade Adjustment Assistance Program (TAA).


Individuals

Q. Can the HCTC pay for health coverage for my family members?
A. Yes. If you are enrolling in the monthly HCTC Program or if you are claiming the yearly HCTC, you may include your spouse's coverage if he or she meets all HCTC General Requirements (see the HCTC Program Kit) and is enrolled in a qualified health plan.

Other family members can also receive the HCTC if they:

• Are claimed as dependents on your federal tax return,

• Meet all HCTC General Requirements, and

• Are enrolled in a qualified health plan.

Q. How will I find out if I may be eligible for the HCTC?
A. You will be notified of your eligibility for the HCTC when you receive an HCTC Program Kit in the mail.

Q. How long can I receive the HCTC for?
A. You can receive the HCTC for as long as you continue to meet the eligibility requirements.

Q. If I am receiving Social Security Administration (SSA) benefits as a result of a disability am I still eligible for the HCTC?
A. The receipt of benefits due to a disability does not automatically disqualify you. However, if you are receiving Medicare or Medicaid benefits when you are disabled, then you are not eligible for the HCTC.

Q. If the PBGC pays me annually rather than monthly, am I still eligible for the HCTC?
A. Yes. You may be eligible for the HCTC if you receive your annuity from the PBGC annually and if you are 55 years old or older. However, please note that you must still meet all other eligibility requirements.

Q. If I become employed will I stop receiving the HCTC?
A. Going back to work does not prevent you from receiving the tax credit. However, you must continue to meet all eligibility requirements to continue receiving the HCTC.
 

Qualified Health Plans

Q. What are the types of qualifying health plans for the HCTC?

• COBRA: Extended job-based health coverage. You must pay more than 50% of your COBRA premium to receive the HCTC.

• State-Qualified Health Plan: Health plans approved by a State's Department of Insurance.

• Spousal coverage: Coverage under your spouse's health plan. Your spouse must pay more than 50% of the total monthly premium in order for the plan to qualify.

• Non-group/Individual Health Plan: An individual policy for a single person or family. You must have enrolled in this type of plan at least 30 days prior to your last day of paid work in order for this plan to qualify.

• VEBA: Only certain VEBA provided health plans are qualified for the HCTC.

Q. I do not currently have health insurance. Can I enroll in a qualified health plan?
A. Yes. However, if you have not had health coverage for more than 62 days, a health insurer can deny coverage or impose special restrictions. As a general rule, it is a good idea when you purchase a new health plan policy to make sure that its coverage starts as your current coverage ends so there is no lapse in coverage.

Q. Will the HCTC cover the premium for my vision and dental plans as well as my medical?
A. It depends. If you purchase dental or vision benefits separately - that is, in addition to your basic plan or without a comprehensive health benefit plan - then the HCTC will not apply to your premiums. If vision or dental benefits are a part of a comprehensive package, the benefit is covered by the HCTC because it is not considered a separate plan.
 

How the HCTC Works

Q. How can I receive the HCTC?
A. You can receive the HCTC one of two ways:

1. Register for the monthly HCTC and receive the tax credit each month to help pay for your health insurance as you go. You can start saving now, when you need it, not just at the end of the year.

2. Claim the yearly HCTC on your federal tax return. With the yearly option, you pay your health insurance premiums in full and then claim the credit on your tax return. The credit will be applied to your taxes due or, if it is more than the taxes you owe, will be issued as a refund.

The Monthly HCTC

Q. What is the monthly HCTC and how does it work?
A. The monthly HCTC allows you to receive monthly assistance in paying health insurance premiums.

To enroll in the monthly HCTC, you must first complete the registration form that is included with your Program Kit and then mail the form along with any required documentation back to the HCTC Program. Once the HCTC processes your registration form, they will send you your first invoice. This signals you are registered in the program.

Once registered, you'll pay 20% of your health insurance premium, HCTC will pay 80%, and then they will send the full 100% of the premium to your health plan for you.

Newly enrolled monthly participants can receive a credit on their HCTC accounts for qualified health insurance premiums they paid during enrollment in the monthly HCTC Program.

Please note that on time payments are a must. If the HCTC does not receive a payment by the due date on your invoice, the HCTC will return the payment and you will unfortunately have to pay 100% of your health plan premium for that month directly to your health plan.

Q. Can a participant reside in a foreign or U.S. territory and receive the monthly HCTC?
A. Beginning January 2010, individuals in U.S. territories will be able to participate in the monthly program as long as they meet all HCTC eligibility requirements and maintain qualified health coverage. U.S. citizens living in foreign territories may receive the yearly HCTC on their federal tax return provided they meet the eligibility requirements and maintain qualified health coverage.

Q. Can I receive both the monthly and yearly HCTC?
A. Yes. If you paid 100% of your health insurance premium and were eligible for the HCTC, you can claim 80% of this amount on your federal tax return. However, you cannot receive the yearly HCTC for any amount that was already covered by the monthly HCTC or reimbursement credit.

The Yearly HCTC

Q. What is the yearly HCTC and how does it work?
A. If you received the HCTC Program Kit and decided that you would prefer to pay your premium in full throughout the year, you can file for the tax credit on your annual tax return.

To claim the yearly HCTC, you must meet all eligibility requirements outlined in the Program Kit. You pay 100% of your premium each month to your health plan. Then, at the end of the year, you complete and submit your Federal tax return along with IRS Form 8885. You will receive the HCTC as either a refund or credit against taxes you owe for all months that you met eligibility.

Q. Do I need to register with the HCTC Program before I claim the HCTC on my tax return?
A. No, you do not need to register with the HCTC Program to receive the HCTC at the end of the year; just make sure you submit IRS Form 8885 and supporting documents with your Federal tax return. If you're the qualified family member of an HCTC-eligible individual who enrolled in Medicare, divorced, or passed away, you need to contact the HCTC Program before claiming the yearly HCTC.

Q. Do I have to itemize deductions in order to claim the HCTC?
A. No. The HCTC is claimed as a tax credit for full payments made towards qualified coverage.

Legislative Changes that Help

Q. What are some of the changes to the HCTC included in the 2009 American Recovery and Reinvestment Act (ARRA)?
A. The American Recovery and Reinvestment Act of 2009, also known as the Stimulus Bill, recently expanded the HCTC. The following are some of the key changes:

• The HCTC now pays for 80% of qualified health plan premiums.

• Participants can request reimbursement for qualified health insurance payments made while enrolling in the monthly program.

• If you are eligible for the HCTC and your health plan is COBRA, you are entitled to have your COBRA benefits extended. You should work with your former employer or COBRA administrator to have these benefits extended.

• If you are eligible for the HCTC but receive a 65% COBRA Premium Reduction through your former employer or COBRA administrator- a new program also established by the stimulus legislation - you are not eligible to receive the HCTC during that same month.

• Beginning in January 2010, qualified family members will be able to continue receiving the HCTC after the primary eligible individual’s enrollment in Medicare, divorce, or death.

HCTC vs. COBRA Premium Reduction

Q. Can I receive both the HCTC and the new 65% COBRA Premium Reduction?
A. No. You cannot receive both the 65% COBRA Premium Reduction and the 80% HCTC in the same month.

Q. If I become HCTC eligible, can I switch from the new 65% COBRA Premium Reduction to the HCTC?
A. Yes. Before you switch from the COBRA Premium Reduction to the HCTC, please review the HCTC Program Kit to confirm your eligibility. Please note that you can request reimbursement credit for any full payments you made to your health plan while switching from the COBRA Premium Reduction to the HCTC.