Washington, D. C. 20210






April 14, 2003




April 30, 2004











Office of Workforce Security




Implementation of the Advance Health Coverage Tax Credit (HCTC) for Eligible Trade Adjustment Assistance/Trade Readjustment Allowances (TAA/TRA) Recipients

  1. Purpose. To provide state workforce agencies (SWAs) with information about their responsibilities related to advance payments of health insurance premiums available to eligible TAA/TRA recipients as part of the HCTC program.

  2. References. The Trade Act of 1974, as amended (P.L. 93-618, as amended); the Trade Act of 2002 (P.L. 107-210); 20 CFR 617; 29 CFR 90; General Administration Letter 7-94 with Changes 1, 2, and 3; Unemployment Insurance Letter No. 02-03; Training and Employment Guidance Letter No. 10-02; and Training and Employment Guidance Letter No. 20-02. The amendments to the TAA program may also be referred to as the Trade Adjustment Assistance Reform Act of 2002.

  3. Background. The Trade Act of 2002 (the Act) created a federal tax credit which subsidizes private health insurance coverage for displaced workers certified to receive certain trade adjustment assistance (TAA) benefits and for individuals receiving benefits from the Pension Benefit Guaranty Corporation (PBGC). The tax credit covers 65 percent of the premium amount paid by eligible individuals for qualified health insurance coverage. This credit is referred to as the Health Coverage Tax Credit (HCTC), and the Internal Revenue Service (IRS) is responsible for administering the HCTC program.

    The Act provides two options for an eligible individual to receive the benefit. Taxpayers may elect to claim the credit on their federal tax return when filing at the end of the tax year, or beginning no later than August 2003, eligible individuals may request the 65 percent credit for qualified premiums be paid on their behalf on a monthly basis as they are due to their insurance providers. Taxpayers must pay the 35 percent premium difference if they choose the advance option.

    An HCTC office has been created within the IRS to design the infrastructure for the advance option that the IRS will operate. This HCTC office will be responsible for the collection and verification of information related to eligibility, such as whether the individual has qualified health coverage. The Financial Management Service of the Department of Treasury will certify funds to the IRS for payments to health insurance providers. The responsibility of SWAs is to identify eligible TAA recipients, as defined in the Act, and report those individuals to the HCTC office for its use in determining who qualifies for the credit. The SWAs will also be required to report the Alternate Trade Adjustment Assistance (ATAA) recipients when the ATAA program becomes operational later this year. The PBGC will submit its own list of potentially eligible PBGC recipients to the HCTC office.

    The HCTC was first available as an end-of-year tax credit for the month of December 2002. To provide for the end-of-year credit for 2002, SWAs provided information to the Internal Revenue Service (IRS) during November 2002 about eligible TAA recipients. SWAs also issued an IRS form 8887 in February 2003 to individuals who received TRA (or would have been eligible to receive TRA had their UI been exhausted) during December 2002. UIPL No. 02-03, which provided instructions to SWAs for this process, furnished a reporting format for the IRS form 8887; an amendment is forthcoming later this year to revise the IRS form 8887 to include a participant’s month(s) of eligibility for the credit. A UIPL will be issued to announce instructions for future issuances of the 8887s as soon as information is available from the IRS.

  4. Implementation Steps/ Requirements. In order for the IRS to make the monthly advance health coverage tax credit payments to insurance providers for qualified individuals, SWAs must report eligible TAA and ATAA recipients to the HCTC office as they become eligible. The Interstate Connection (ICON) network currently used by the SWAs for unemployment compensation purposes will be utilized as the communication vehicle for reporting the information to the HCTC office. To meet the mandated deadline for implementing the advance health coverage tax credit program by August 1, 2003, the SWAs must complete the following specific tasks:

  5. Administrative Costs. Funding from National Emergency Grants (NEG) is available to cover administrative costs for activities described in this advisory and other activities related to this HCTC. States need to submit requests for funding according to special application procedures for NEG funds as outlined in TEGL 10-02. States may request funding for pre-award costs for activities described above that were undertaken subsequent to the passage of the Act.

  6. Action Required. SWA Administrators are requested to provide this information to appropriate staff and insure that necessary efforts are completed in accordance with the following schedule:

  7. Inquiries. Please direct all inquiries to the appropriate regional office.

  8. Attachment.
    Attachment A- HCTC ICON System Overview & Documentation
    Attachment B - ICON Reporting Format for Reporting Data to the HCTC
    Attachment C -TAA Individuals Eligible for the HCTC
    Attachment D – HCTC Timeline for Implementation