Living with Diabetes

I recently lost my job. I heard there is a tax credit for health insurance for people like me. Is this true?

It depends. In 2002, Congress passed a law granting a federal income tax credit for health insurance to a small group of dislocated workers and early retirees. This health care tax credit (HCTC) is equal to 65 percent of the premium paid for "qualified" health coverage for people eligible for the credit and their dependents. The credit is also refundable -- you can claim it even if you do not make enough money to owe federal income taxes. And, the credit is advance-payable -- you do not have to wait until April 15th to claim it for last year's qualified health coverage expenses. Instead, you can apply to have the IRS pay this credit directly to your qualified health insurance coverage on a month-by-month basis as long as you are eligible to receive it.

For additional information about TAA tax credits within health care reform, please visit http://www.irs.gov/individuals/article/0,,id=185800,00.html.

Eligibility

Two kinds of people are eligible for the HCTC -- those receiving Trade Adjustment Assistance (TAA) benefits or Pension Benefit Guaranty Corporation (PBGC) benefits.

TAA is a federal program to help workers who lose their jobs or whose hours of work and wages are reduced as a result of increased imports. TAA offers a variety of benefits and reemployment services -- including training, job search and relocation allowances, income support and other services - to help unemployed workers prepare for and obtain suitable employment. The Employment and Training Administration of the U.S. Department of Labor administers the TAA program. States serve as agents to the Labor Department in administering the TAA program.

To be eligible for the HCTC as a TAA beneficiary in any month, you must be an eligible TAA recipient. This means you must be receiving a trade readjustment allowance under the Trade Act of 1974 at any time during the month. If you would be eligible for such a trade readjustment allowance except that you have not exhausted your regular unemployment insurance benefits, you can qualify for the health insurance tax credit. People receiving benefits under the Alternative Trade Adjustment Assistance Program (established under section 246 of the Trade Act of 1974) are also eligible for assistance. All TAA recipients remain eligible for the tax credit for one month after the end of the month that their eligibility for TAA status ceases.

People who are receiving retirement benefit payments from the Federal PBGC and who are 55 or older are also eligible to claim the HCTC.

In addition to receiving TAA or PBGC benefits, to be eligible for the HCTC, you must not be imprisoned, and you must not be covered under other health insurance, such as Medicare, Medicaid, or your spouse's employer-sponsored health plan. (However, if your spouse's employer pays less than half of your premium for group health coverage, you can claim the HCTC for your share of the employer-sponsored coverage.

Types of health insurance the HCTC can purchase

The HCTC can only be claimed for "qualified" health insurance expenses. Qualified coverage includes COBRA or your spouse's employer-sponsored health plan if the employer pays less than half of the premium.

States can also designate other qualified coverage options, though they are not required to do so. State-designated qualified coverage options can be private health insurance plans or the state high-risk pool. State-designated qualified coverage cannot turn you down if you are sick (that is, it must be offered on a "guaranteed issue" basis) and it cannot impose pre-existing condition exclusion periods. There may or may not be a limit on how much you pay for state qualified coverage based on your health status or age. As of October 2003, about half of the states had designated qualified coverage options for the HCTC.

More information on the HCTC

For more information about how to apply and qualify for the HCTC, call the Health Care Tax Credit Customer Service Center at 866-628-HCTC.