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January 5, 2011

Extension of Health Coverage Tax Credit Available for Certain Individuals

The Trade Act of 2002 established a premium assistance program to individuals whose jobs are lost due to foreign trade-related agreements, with the purchase of COBRA or other health coverage. The assistance is in the form of a refundable tax credit, equaling 65% of the health premium.  The American Recovery and Reinvestment Act of 2009 (ARRA) increased the tax credit from 65 to 80%, and provided an extension of the credit through December 31, 2010.  Two days before the credit would have expired, Congress passed and President Obama signed the Omnibus Trade Act of 2010 (H.R. 6517) extending the HCTC provision through February 13, 2011.

To be eligible for the assistance, the individual must be certified to receive Trade Adjustment Assistance (TAA). The Department of Labor and/or State labor agencies are the entities that determine eligibility for TAA. Generally, an individual is only eligible for TAA if his/her job is lost due to foreign trade agreements that move business outside of the United States, or import agreements that cause job loss. Also eligible for the HCTC are individuals who receive benefits from the Pension Benefit Guaranty Corporation (PBGC) and are 55 years old or older.

The tax credit is available to fund COBRA for the displaced worker, his/her spouse and children, but only children who can be claimed as dependents by the displaced worker.

As a condition to be eligible for this credit, individuals covered cannot receive premium subsidies from the former employer, nor can the individual be imprisoned. In addition, an individual cannot receive a HCTC plus a COBRA subsidy (as added by ARRA).

Additional Information.  Both the IRS and DOL’s Employment and Training Administration Department have additional information about the health coverage tax credit on their websites.

Background Benefit Beat articles:

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

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