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Qualified pensioners: Seize the health-tax credit

by on
in Employment Law,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

Don’t assume that you’ll be cut off from tax breaks once you’ve retired. You can still do plenty to reduce your annual tax bill.

Alert: If you receive a pension from the Pension Benefit Guaranty Corporation (PBGC) or benefits under the Trade Adjustment Assistance (TAA) programs, you may be eligible for the Health Coverage Tax Credit (HCTC).

The little-known HCTC pays 65 percent of qualified health plan premiums for eligible individuals. You can apply the 65 percent credit either directly to your health plan monthly as premiums become due, or annually on your federal tax return as a refund or credit against taxes owed.

How do you qualify for the HCTC?

Individuals receiving pensions from the PBGC or workers laid off due to foreign trade are potentially eligible for the HCTC. While the HCTC program notifies individuals who are potentially eligible by mail, you can get a head start by answering the following questions:

  • Are you at least 55 years old and did you receive pension payments from the PBGC during any part of the tax year?
  • Did you receive benefits under the TAA program during any part of the tax year?
  • Did you receive benefits under the Alternative Trade Adjustment Assistance (ATAA) program during any part of the tax year?

If the answer to any of these questions is “yes,” and you are enrolled in a qualified health plan and cannot receive Medicare benefits, it will be worthwhile to review the HCTC Program Kit to determine if you can receive this valuable tax credit.

Helpful hints for claiming the HCTC

The following tips can help you avoid some of the common mistakes made when claiming the HCTC:

  • Any person who can receive Medicare benefits cannot receive the HCTC.
  • Any individual receiving Social Security disability benefits for two years or more automatically becomes enrolled in Medicare and therefore cannot receive the HCTC.
  • If a potentially eligible individual does not have qualified health coverage, or has coverage such as Medicare or Medicaid, then that individual cannot claim the HCTC.
  • Insurance providers may have non-HCTC products with the same or similar names as ones that are HCTC-qualified. The individual should make sure that the health plan is HCTC-qualified before enrolling.
  • A group health plan through the eligible individual’s employer (former employer or employees’ union) is not qualified health coverage unless it is provided under COBRA.
  • Dental and vision plans are not qualified health coverage for the HCTC, unless they are included as part of a qualified health plan’s coverage.
  • Payroll deductions for premiums cannot be claimed for the HCTC if the income is not included in box 1 of IRS Form W-2, Wage and Tax Statement. Premiums claimed on line 2 of IRS Form 8885, Health Coverage Tax Credit, may not be claimed elsewhere on the federal tax return (e.g., as Schedule A, itemized medical and dental expenses). Also, advance (monthly) payments from the HCTC program—which are listed on Form 1099-H—and amounts paid to “U.S. Treasury-HCTC” cannot be included on line 2.

Where can you turn?

The HCTC Program Kit contains steps for determining if a person is eligible for the HCTC. It also provides information on the ways to receive the tax credit. Since August 2003, the HCTC Program has notified potentially eligible individuals of the credit.

The mailed program kit includes the HCTC registration form.

Tip: Many retirees are ill-informed or confused about the HCTC. Make sure you’re not losing out on this potential tax break.

—Adapted from AccountingWeb, Inc., www.accountingweb.com. Information on the HCTC is also available on the IRS Web site, www.irs.gov.


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