What type of credit is the Health Coverage Tax Credit?

What type of credit is the Health Coverage Tax Credit?

• A. A fixed dollar amount credit
• B. A percentage of purchase price credit
• C. A tax credit for renewable energy purchases
• D. A non-refundable tax credit

Answer: (D)

The Health Coverage Tax Credit is classified as a non-refundable tax credit because it allows eligible individuals to reduce their tax liability, but it cannot result in a refund if the credit exceeds the amount of tax owed. In this context, "non-refundable" means that if the credit brings the tax liability to zero, any excess amount is not returned to the taxpayer as cash. The purpose of this credit is to assist certain individuals, such as those who are receiving trade adjustment assistance, by subsidizing their health insurance premiums, ensuring that they can afford necessary coverage. This structure encourages individuals to maintain their health insurance without granting a cash benefit beyond their tax liability.

The Health Coverage Tax Credit is classified as a non-refundable tax credit because it allows eligible individuals to reduce their tax liability, but it cannot result in a refund if the credit exceeds the amount of tax owed. In this context, "non-refundable" means that if the credit brings the tax liability to zero, any excess amount is not returned to the taxpayer as cash. The purpose of this credit is to assist certain individuals, such as those who are receiving trade adjustment assistance, by subsidizing their health insurance premiums, ensuring that they can afford necessary coverage. This structure encourages individuals to maintain their health insurance without granting a cash benefit beyond their tax liability.