Frequently Asked Questions (FAQs)

1. What is the Health Coverage Tax Credit (HCTC)?

The HCTC is a refundable tax credit that covers 72.5% of eligible health insurance costs for eligible individuals. These individuals are usually recipients of trade readjustment allowances (which are given to workers who have been displaced due to trade acts) or those who receive pensions, at least in part, from the Pension Benefit Guaranty Corporation (PBGC). Residents of territories claim the HCTC on Form 1040-PR or Form 1040-SS.

Example: If you were a worker displaced due to a trade act and paid $500 a month for your eligible health insurance, the HCTC could cover $362.50 (72.5%) of that cost, reducing your out-of-pocket expense significantly.

2. Until when is the HCTC effective?

The HCTC is effective for tax years through December 31, 2021.

3. Does coverage through the Health Insurance Marketplace qualify for the HCTC?

No, for tax years 2016 through 2021, coverage through the Health Insurance Marketplace does not qualify for the HCTC.

4. Where can I find more information on the HCTC?

Detailed information about the HCTC is available in the Internal Revenue Manual (IRM) under section 21.6.3.4.2.9 titled “Health Coverage Tax Credit.”

5. Who is eligible for the HCTC?

Eligibility requirements for the HCTC can be found in the IRM under 21.6.3.4.2.9.1, “HCTC Eligibility.” It broadly covers individuals receiving trade readjustment allowances or those getting pensions, in part, from the Pension Benefit Guaranty Corporation (PBGC).

6. How can I adjust the HCTC portion on my Form 1040-PR or Form 1040-SS?

Procedures for adjusting the HCTC on these forms are available in the IRM under section 21.6.3.4.2.9.7, “Adjusting the Credit.”

For example, if Mary, a resident of Puerto Rico, claims the HCTC on her Form 1040-PR and later realizes she needs to adjust the amount of the credit due to changes in her eligible health insurance costs, she can follow the procedures outlined in IRM 21.6.3.4.2.9.7 to make this adjustment.

This FAQ guide is based on the information provided by the Internal Revenue Service (IRS) in IRM 21.8.1.5.6.1 (dated 10-01-2022). It is designed to help you understand the complexities of the Health Coverage Tax Credit and how it may apply to your personal tax situation. Remember that while the information is intended to be accurate and comprehensive, everyone’s situation is unique. When in doubt, consult with a local tax professional to understand the nuances related to your specific circumstances.