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A Service of OnQue Technologies, Inc. |
Trade Act Advance Tax
Credit Procedures Published By IRS
Employers Off The Hook For
Advancing COBRA Premiums |
July 31, 2003
Santa Rosa,
CA |
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The Health Coverage Tax Credit (HCTC)
is a program that pays for nearly two-thirds of the amount of health plan
premiums, including COBRA coverage, for workers who are eligible for benefits
under the Trade Adjustment Assistance Reform Act of 2002. It was established to
assist workers who are adversely affected by competition from foreign trade or
the shift of production to other countries. The Internal Revenue Service
estimates that hundreds of thousands of people nationwide may be eligible for
this program.
Health Coverage Tax Credit
Options
The HCTC pays 65 percent of
the cost of premiums for qualified health plans, including COBRA coverage, for
eligible individuals and family members. Recipients may elect to receive their
benefits either in a lump sum declared on their federal tax returns, or in
advance to help pay monthly premiums as they come due.
The Lump Sum
Refundable Tax Credit
The year-end
tax credit has been available since December 2002. Recipients who choose this
option can declare 65 percent of the premiums paid for qualified health
coverage during the tax year as credit on their 1040 return. Because it is a
refundable tax credit, eligible workers may receive the credit even if
no federal income tax is owed.
The Advance Tax
Credit — For Recipients Who Need Assistance Now
Beginning August 1, 2003, the HCTC is available in
advance. If this option is chosen, the tax credit is paid on a monthly basis
toward the health plan premiums as they become due. Here's how it works: The
beneficiary pays 35 percent of the premium each month to a designated HCTC
payment center, not to the health plan administrator (HPA). The payment center
adds the remaining 65 percent to the payment and submits the full amount to the
HPA. For HPAs to be paid, they must first register as vendors with the
Department of Treasury by completing the Central Contractor Registration form
at Central Contractor Registration.
The Early Payment Process — For Recipients Already Enrolled in
COBRA
The HCTC "Early Payment"
process allows program recipients currently enrolled in COBRA coverage to
receive the advance pay option for the first month's COBRA premium. If the
Health Plan Administrator (HPA) and COBRA beneficiaries are registered with the
HCTC program at least 16 days before the grace period ends for the eligible
month's premium, the beneficiaries will receive initial invoices from the HCTC
payment center, which will bill them for two months' COBRA coverage. The
beneficiaries then make one payment equal to two 35 percent premium payments to
the HCTC program in the first month. The HCTC program adds the additional 65
percent to this payment and forwards the full premium amount for both months to
the HPA. (Persons who are about to enroll in COBRA coverage for the first time,
or after a lapse, are not eligible to receive the HCTC Early Payment for their
first month's health insurance premium.)
If the beneficiary fails to
register with the HCTC program prior to 16 days before the end of the COBRA
payment grace period, the program will not be able to send an invoice in time
to get the payment to the HPA within the grace period. In that case, the
beneficiary would have to make 100 percent of the premium payment directly to
the HPA within the grace period for the initial HCTC-eligible month. In this
case, the initial month's premium payment can be claimed as a tax credit on the
beneficiary's year-end tax return. The HCTC program will again double invoice
the beneficiary for the following two months' payments.
How the credit
is claimed in advance: The advance tax credit is claimed by first enrolling
in an HCTC-qualified health plan and then following a specific registration
process. Once the official HCTC registration form is returned to the proper
processing center, confirmation of registration is sent to the beneficiary with
an invoice and instructions as to where the payment is to be sent. After the
first payment is processed successfully, future payments are made directly to
the HCTC program and not to the health plan administrator. The HCTC may be
claimed in advance by contacting the HCTC Customer Contact Center at
866-628-4282.
Program Eligibility
The following groups of workers and former workers are
qualified to receive the HCTC:
- TRA recipients:
Workers who lose their jobs due to the effects of international trade and
receive a Trade Adjustment Allowance (TRA) under the Trade Adjustment
Assistance (TAA) program. This group includes those who are eligible for TRA
benefits, but who have not exhausted their unemployment
benefits;
- ATAA benefit
recipients: Workers who are at least 50 years old and who are deemed
eligible to receive a percentage of the difference between the wages of their
previous job and their new full-time employment;
- Pension Benefit
Recipients: Persons who receive benefits from the Pension Benefit Guaranty
Corporation and who are at least 55 years old; and
- Family members:
HCTC may apply to family members of eligible workers. The tax credit may be
used to help purchase qualified health coverage, including COBRA, for families
members who do not fall into one of the ineligible categories listed
below.
Persons who are
not eligible for HCTC are:
- enrolled in a health
plan maintained by a current or former employer that pays at least 50 percent
of the cost of coverage;
- entitled to Medicare
Part A or enrolled in Medicare Part B;
- enrolled in Medicaid,
the Federal Employees Health Benefits Program, or State Children's Health
Insurance Program;
- entitled to health
coverage through the U.S. military health system, not including health coverage
received as a Veterans Affairs benefit;
- imprisoned by a
federal, state, or local authority; or
- claimed as a dependent
on someone else's' federal tax return.
The Employer's
Role
When the IRS first announced the
advance tax credit, it was unclear how it would be implemented and what role
the employer would play in collecting premiums. Employers were concerned that
they would be faced with the burden of collecting the balance of the premiums
owed because TAA-eligible workers are responsible for paying only 35 percent of
the full premium amount. But it now appears
that employers are off the hook: They are not responsible for
determining TAA eligibility, nor are they expected to advance the portion of
the premium the worker is deducting as a tax credit.
For More Information
The IRS website now contains detailed information about
the HCTC, including instructions for implementation of the advance tax credit.
HCTC Overview: This is an excellent
source of information for health plan administrators and displaced workers
seeking information about the HCTC:
Health
Coverage Tax Credit Overview
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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