Notice 2016-2

Part III. Administrative, Procedural, and Miscellaneous
Notice 2016 –1
2016 Standard Mileage Rates
SECTION 1. PURPOSE
This notice provides the optional 2016
standard mileage rates for taxpayers to use
in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. This notice also provides the
amount taxpayers must use in calculating
reductions to basis for depreciation taken
under the business standard mileage rate,
and the maximum standard automobile
cost that may be used in computing the
allowance under a fixed and variable rate
(FAVR) plan.
SECTION 2. BACKGROUND
Rev. Proc. 2010 –51, 2010 –51 I.R.B.
883, provides rules for computing the deductible costs of operating an automobile
for business, charitable, medical, or moving expense purposes, and for substantiating, under § 274(d) of the Internal Revenue Code and § 1.274 –5 of the Income
Tax Regulations, the amount of ordinary
and necessary business expenses of local
transportation or travel away from home.
Taxpayers using the standard mileage
rates must comply with Rev. Proc. 2010 –
51. However, a taxpayer is not required to
use the substantiation methods described
in Rev. Proc. 2010 –51, but instead may
substantiate using actual allowable expense amounts if the taxpayer maintains
adequate records or other sufficient evidence.
An independent contractor conducts an
annual study for the Internal Revenue Service of the fixed and variable costs of
operating an automobile to determine the
standard mileage rates for business, medical, and moving use reflected in this notice. The standard mileage rate for charitable use is set by § 170(i).

ness standard mileage rate). See section 4
of Rev. Proc. 2010 –51.
The standard mileage rate is 14 cents
per mile for use of an automobile in rendering gratuitous services to a charitable
organization under § 170. See section 5 of
Rev. Proc. 2010 –51.
The standard mileage rate is 19 cents
per mile for use of an automobile (1) for
medical care described in § 213, or (2) as
part of a move for which the expenses are
deductible under § 217. See section 5 of
Rev. Proc. 2010 –51.

Notice 2016 –2
Claiming the Health Coverage
Tax Credit for 2014 and
2015
SECTION 1. PURPOSE

For purposes of computing the allowance under a FAVR plan, the standard
automobile cost may not exceed $28,000
for automobiles (excluding trucks and
vans) or $31,000 for trucks and vans. See
section 6.02(6) of Rev. Proc. 2010 –51.

This notice provides guidance regarding the health coverage tax credit (HCTC)
under § 35 of the Internal Revenue Code,
as modified by the Trade Preferences Extension Act of 2015, Pub. L. 114 –27
(June 29, 2015) (Extension Act). This notice provides information on who may
claim the HCTC, the amount of the
HCTC, and the procedures to claim the
HCTC for tax years 2014 and 2015. This
notice also provides guidance for taxpayers eligible to claim the HCTC who enrolled in a qualified health plan (QHP)
offered through a Health Insurance Marketplace (Marketplace, also known as an
Exchange) in tax years 2014 or 2015, and
who claimed or are eligible to claim the
premium tax credit (PTC) under § 36B
(including taxpayers who received the
benefit of advance payments of the PTC
(APTC)).

SECTION 6. EFFECTIVE DATE

SECTION 2. BACKGROUND

SECTION 4. BASIS REDUCTION
AMOUNT
For automobiles a taxpayer uses for
business purposes, the portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2012,
23 cents per mile for 2013, 22 cents per
mile for 2014, 24 cents per mile for 2015,
and 24 cents per mile for 2016. See section 4.04 of Rev. Proc. 2010 –51.
SECTION 5. MAXIMUM STANDARD
AUTOMOBILE COST

This notice is effective for (1) deductible transportation expenses paid or incurred on or after January 1, 2016, and (2)
mileage allowances or reimbursements
paid to an employee or to a charitable
volunteer (a) on or after January 1, 2016,
and (b) for transportation expenses the
employee or charitable volunteer pays or
incurs on or after January 1, 2016.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Notice 2014 –79 is superseded.

SECTION 3. STANDARD MILEAGE
RATES

DRAFTING INFORMATION

The standard mileage rate for transportation or travel expenses is 54 cents per
mile for all miles of business use (busi-

The principal author of this notice is
Bernard P. Harvey of the Office of Associate Chief Counsel (Income Tax and Ac-

Bulletin No. 2016 –2

counting). For further information on this
notice contact Bernard P. Harvey on (202)
317-7005 (not a toll-free number).

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In General
Section 35 was originally enacted by
the Trade Act of 2002, Pub. L. 107–210
(August 6, 2002), was amended multiple
times, and expired at the end of 2013.
However, § 35 was reinstated, modified,
and extended through 2019 by the Extension Act.
Section 35(a) provides that the HCTC
is 72.5 percent of the amount paid by an
eligible individual for qualified health
coverage of the individual and qualifying
family members for eligible coverage
months.
Notice 2005–50, 2005–2 C.B. 14, provides guidance on various issues relating
to the HCTC, including information about
eligibility for the HCTC, qualifying health

January 11, 2016

coverage for purposes of the HCTC, and
computation of the HCTC. Taxpayers
may continue to rely on Notice 2005–50,
except as provided below.
Eligibility for the HCTC
Section 35(b) provides that an individual has an eligible coverage month if, as
of the first day of the month, the taxpayer:
(1) is an eligible individual, (2) is covered
by qualified health coverage, the premium
for which is paid by the taxpayer, (3) does
not have other specified coverage, and (4)
is not imprisoned under Federal, State, or
local authority. These rules are described
more fully below.
Eligible Individuals and Qualifying
Family Members. There are three categories of eligible individuals. Eligible individuals are: (1) eligible trade adjustment
assistance (TAA) recipients (individuals
eligible for trade adjustment assistance
under a program administered by the Employment and Training Administration of
the U.S. Department of Labor), (2) eligible alternative TAA (ATAA) recipients
and reemployment TAA (RTAA) recipients (individuals eligible for alternative or
reemployment trade adjustment assistance
under a program administered by the Employment and Training Administration of
the U.S. Department of Labor), and (3)
eligible Pension Benefit Guaranty Corporation (PBGC) pension recipients (individuals who are at least age 55 and who
are receiving a benefit any portion of
which is paid by the PBGC). Whether
someone is an eligible individual is determined on a month-by-month basis.
An eligible individual may claim the
HCTC for his or her qualifying family
members. Qualifying family members are
the eligible individual’s spouse and any
person the eligible individual can claim as
a dependent on the eligible individual’s
federal income tax return. Qualifying family members do not include an individual
with other specified coverage (described
below), or, in the case of divorced parents,
a child of a noncustodial parent.
In general, an individual is an eligible
individual for a month if the relevant benefit is received, or the individual is entitled
to the relevant benefit, in any day in that
month or in the prior month.
Qualified Health Coverage. Section
35(e) describes eleven categories of qual-

January 11, 2016

ified health coverage. Seven categories are
qualified coverage only if a state government elects for them to be qualified and
the coverage meets certain requirements.
The other four categories of qualified
health coverage are Consolidated Omnibus Budget Reconciliation Act (COBRA)
continuation coverage, coverage under a
group health plan that is available through
the eligible individual’s spouse, coverage
in the individual market, and coverage
under certain employee benefit plans
funded by a voluntary employees’ beneficiary association. Qualified health coverage does not include flexible spending or
similar arrangements, nor does it include
insurance if substantially all of its coverage is of excepted benefits described in
§ 9832(c).
The Extension Act did not eliminate
any coverage from the list of qualified
health coverage – all prior qualified health
coverage remains qualified. The Extension Act added individual health insurance through the Marketplace as qualified
health coverage for coverage months in
2014 and 2015 taxable years. However,
coverage through the Marketplace is not
qualified health coverage for months in
taxable years beginning after 2015. In addition, the Extension Act removed the requirement that applied for taxable years
before 2014 that individual market coverage must start at least 30 days before the
taxpayer becomes separated from employment to be qualified health coverage.
To learn more about qualifying coverage for the HCTC, go to www.irs.gov/
HCTC.
Other Specified Coverage. In general,
individuals otherwise eligible for the
HCTC cannot receive the HCTC if they
were enrolled in or had access to certain
government-provided health insurance
coverage, or were enrolled in or had access to health insurance coverage maintained by any employer (or former employer) of the taxpayer or the taxpayer’s
spouse and the employer subsidized 50
percent or more of the cost of coverage.
Eligibility for the HCTC is described
more fully in Notice 2005–50 and the
instructions for Form 8885, Health Coverage Tax Credit. The IRS has updated
Form 8885 and its instructions for tax year
2015. The rules described in the updated

266

instructions for tax year 2015 apply for
tax years 2014 and 2015.
Electing the HCTC
Under § 35(g)(11), for coverage months
in taxable years beginning after December
31, 2013, an eligible individual must
make an election to claim the HCTC. The
election must be made annually, applies to
all subsequent coverage months in the taxable year for which the taxpayer is eligible
to take the HCTC, and is irrevocable for
all such coverage months. In general, the
election must be made by the due date of
the tax return (including extensions) for
the applicable taxable year. However, an
HCTC election may be made within the
3-year period of limitation prescribed in
§ 6511(a) (generally 3 years from the date
a return is filed) for a taxable year beginning after December 31, 2013 and before
June 29, 2015. Thus, for example, a calendar year taxpayer who filed his 2014
return on April 15, 2015, must claim the
HCTC for 2014 by filing an amended
2014 return by April 17, 2018 (an extended date because April 15, 2018, will
fall on a weekend).
Advance Payment of the HCTC
The Extension Act reauthorized
monthly advance payments of the HCTC
as provided under § 7527. Section 7527(a)
provides that the Secretary shall establish
the HCTC advance payment system not
later than 1 year from the date of enactment of the Extension Act (which was
June 29, 2015).
SECTION 3. ELIGIBLE
INDIVIDUALS ENROLLED IN A QHP
THROUGH THE MARKETPLACE
The Premium Tax Credit (PTC)
Section 36B allows a PTC to applicable taxpayers to help individuals and families afford the cost of premiums for QHPs
purchased through the Marketplace. In
general, an individual is an applicable taxpayer if the individual’s household income is at least 100% but not more than
400% of the Federal poverty line for the
individual’s family size, no one can claim
the individual as a dependent, and if married, the individual files a joint return.

Bulletin No. 2016 –2

Individuals who receive the benefit of
APTC, and individuals who do not receive
the benefit of APTC but who wish to
claim the PTC, are required to file Form
8962, Premium Tax Credit (PTC), and
attach it to their tax return (Form 1040,
1040A, or 1040NR).
Interaction of the HCTC and the PTC
A QHP offered through the Marketplace is qualified health coverage for the
HCTC for months in taxable years beginning in 2014 or 2015. Therefore, an individual enrolled in a QHP who is both an
eligible individual for purposes of the
HCTC and eligible for the PTC in a month
may claim either the HCTC or the PTC
for the month.
Once the HCTC election is made for an
eligible coverage month, the individual is
ineligible to claim the PTC for the same
coverage in that coverage month and for
all subsequent months in the taxable year
for which the individual is eligible for the
HCTC. Thus, for example, if for every
month of 2014 a taxpayer was enrolled in
coverage through the Marketplace and
was HCTC-eligible, the taxpayer could
elect the HCTC beginning in July. The
election would apply to coverage for July
through December, and the taxpayer could
claim the PTC for coverage for January
through June. If the taxpayer’s HCTC eligibility instead ended in August, the election would apply for coverage for July and
August only, and the taxpayer could claim
the PTC for coverage for September
through December.
The HCTC election prevents a taxpayer from claiming both the PTC and the
HCTC for the same month for the same
coverage. However, a taxpayer may claim
the PTC and the HCTC in the same month
for different coverage. For example, if a
taxpayer elects the HCTC for self-only
coverage for a month, the taxpayer may
claim the PTC for Marketplace coverage
of the taxpayer’s family members for that
same month, if otherwise eligible to claim
the PTC.
A unique situation arises if qualifying
health coverage covers individuals eligible for the HCTC in addition to other
individuals for whom the HCTC is not
elected. Q&A3 of Notice 2005–50 provides that if qualifying health coverage
covers eligible individuals, qualifying

Bulletin No. 2016 –2

family members, and individuals who are
neither eligible individuals nor qualifying
family members (nonqualifying beneficiaries), then qualifying health coverage premiums are allocated on an incremental
basis, attributing amounts first to the eligible individuals and qualifying family
members before allocating amounts to
nonqualifying beneficiaries. Section 36B
and its accompanying regulations, issued
after Notice 2005–50, include special
rules for allocating premium amounts
when a QHP covers individuals in more
than one tax family. See § 1.36B–3(h).
For simplicity, to determine the allowable
HCTC, taxpayers should apply the rules
under § 36B to allocate premium amounts
and APTC among tax families instead of
the rule described in Q&A3 of Notice
2005–50. Accordingly, if the individuals
enrolled in a QHP belong to different tax
families, one family may claim the HCTC
for the HCTC-eligible individuals in the
plan, and the other family may claim the
PTC for the other individuals enrolled in
the plan, and each family determines their
portion of the enrollment premiums and
APTC using the allocation rules provided
under § 36B. Notice 2005–50 is modified
to the extent its rules are inconsistent with
this paragraph. See Q&A9, below.
In general, a taxpayer with APTC in
excess of allowable PTC must repay the
difference as additional tax. Although the
amount of additional tax that must be repaid may be limited by § 36B(f)(2), the
repayment limitations in § 36B(f)(2) do
not apply to coverage for 2014 or 2015 if
the taxpayer elects the HCTC for any
month in that year for that coverage.
Therefore, a taxpayer who elects the
HCTC for coverage in 2014 or 2015 and
who received the benefit of APTC for that
coverage must repay all APTC in excess
of allowable PTC.
SECTION 4. FREQUENTLY ASKED
QUESTIONS
Q1. I already filed my tax year 2014
return. I was eligible for and wish to
claim the HCTC for coverage in 2014.
May I amend my return and retroactively claim the HCTC for coverage for
2014?
Yes. File Form 1040X, Amended U.S.
Individual Income Tax Return, to make
the election and claim the HCTC. You

267

generally have 3 years after you timely
file your original return to make the election on an amended return. See “Health
coverage tax credit (HCTC) for 2014” in
the instructions for Form 1040X for information on how to claim the HCTC on
Form 1040X, including special instructions for completing Form 8885.
Q2. I have not yet filed my tax year
2014 return. I was eligible for and wish
to claim the HCTC for coverage in
2014. May I claim the HCTC on an
original tax year 2014 return?
No. File your original tax year 2014
return first without claiming the HCTC
and then file an amended 2014 return to
claim the HCTC. See “Health coverage
tax credit (HCTC) for 2014” in the instructions for Form 1040X for information on how to claim the HCTC on Form
1040X, including special instructions for
completing Form 8885.
Q3. I was eligible for and wish to
claim the HCTC for coverage in 2015.
How will I claim the HCTC for tax year
2015?
You will be able to claim the HCTC on
your original 2015 return by filing the
2015 Form 8885 with your return.
Make the HCTC election on line 1 of
Form 8885 for the first coverage month
you are electing to take the HCTC. Once
you elect to take the HCTC for a month in
a taxable year, the election to take the
HCTC applies to all subsequent coverage
months in that taxable year for which you
are eligible to take the HCTC, and you
should check the box for each such month.
For example, the election would not apply
to your September coverage if your last
month of being a qualified individual is
August (because, for example, your trade
adjustment allowance ended on July 13).
Thus, even if you had elected the HCTC
for your January coverage, although your
election applies to January through August, your election would not apply to
your coverage for September and any later
months in which you are not eligible for
the HCTC.
The IRS has updated Form 8885 and
its instructions for tax year 2015. The
rules described in the updated instructions
for tax year 2015 apply for tax years 2014
and 2015.
Q4. I am enrolled in a QHP through
the Marketplace and am eligible for

January 11, 2016

both the HCTC and the PTC. May I
claim both the PTC and the HCTC in
one taxable year? What about for the
same coverage month?
A QHP offered through the Marketplace is qualified health coverage for both
the PTC and the HCTC for coverage
months in taxable years beginning in 2014
or 2015. For coverage in those months for
which you are eligible for both the HCTC
and the PTC, you may choose to claim
either the PTC or the HCTC for your
Marketplace coverage. Therefore, you
may be able to claim both the PTC and the
HCTC in the same year. However, an
election to claim the HCTC for coverage
in a month applies to all subsequent coverage months in your taxable year that you
are eligible for the HCTC.
In addition, you cannot claim both the
PTC and the HCTC for the same coverage
for the same month. For example, if you
elected to claim the HCTC for your coverage for June to December, you cannot
claim the PTC for the same coverage for
June through December.
If you claim the HCTC for some
months of a taxable year and the PTC for
other months of the taxable year, you will
need to file both a Form 8962 and a Form
8885 with your return.
For coverage months in taxable years
beginning after 2015, individual health insurance coverage through the Marketplace
is not qualified health coverage for purposes of the HCTC.
Q5. My spouse enrolled in a QHP
through the Marketplace for the entire
year, and I enrolled in COBRA for the
entire year. I am eligible for the HCTC
for every month of the year and wish to
claim the HCTC for each month of the
year. My spouse wishes to claim the
PTC for each month of the year. May
we claim the HCTC for the COBRA
coverage and the PTC for the Marketplace coverage in the same month on a
joint tax return?
Yes. On the same joint return, you can
make an HCTC election that applies only
to your coverage, and your spouse also
may claim the PTC for your spouse’s coverage. You must complete and file both
Form 8885 and Form 8962 when you file
your tax return. Although for 2014 and
2015 the APTC repayment limitation does
not apply to coverage for which you elect

January 11, 2016

the HCTC, your spouse may apply the
repayment limitation in § 36B(f)(2), if
applicable, for your spouse’s coverage for
which the HCTC is not elected by following the instructions for Form 8962, line
28.
Q6. I was enrolled in a QHP through
the Marketplace for all of 2014 and
claimed the PTC when I filed my tax
return. I meet the requirements to
claim the HCTC in every month of
2014. How should I compare the PTC
and the HCTC to determine whether to
amend my tax year 2014 return to
claim the HCTC instead of the PTC? If
I decide to claim the HCTC for 2014,
how do I do that?
In general, if you and your family were
enrolled in a QHP through the Marketplace for the entire year, the HCTC will
provide you with a larger subsidy than the
PTC if the amount of the HCTC is greater
than the sum of: (1) your PTC without
reduction for any APTC paid (this is the
amount on line 24 of the Form 8962) and
(2) any APTC that you were not required
to repay due to the repayment limitation
because your household income was below 400 percent of the Federal poverty
line (this is the amount, if any, by which
line 27 exceeds line 28 of Form 8962).
As explained in the Background, the
amount of the HCTC is 72.5 percent of the
amount paid by eligible individuals for
qualified health coverage of the individual
and qualifying family members for eligible coverage months.
If you wish to amend your 2014 return
to claim the HCTC for the entire year, you
must file Form 1040X and attach both
Form 8885 to claim the HCTC and Form
8962 to correct your net PTC to $0 (line
26) and report the repayment of any excess APTC. If you are electing the HCTC
for all coverage months of the year and
you had received the benefit of APTC, all
of the APTC (line 25) will be excess
APTC (line 27).
Q7. I was enrolled in a QHP through
the Marketplace in 2014 and some payments were made by the APTC. I was
not eligible for the HCTC for the first
six months of the year (January
through June); I was eligible for and
am electing the HCTC for the last six
months of the year (July through December). How do I treat the APTC?

268

The APTC repayment limitation that
applies to a taxpayer with household income below 400% of the Federal poverty
line does not apply to coverage for 2014
or 2015 if the taxpayer elects the HCTC
for any month in that year for that coverage. Because you are claiming the HCTC
but you received the benefit of the APTC,
you will need to file with your amended
return a Form 8885 to claim the HCTC
and a Form 8962 to reconcile and, to the
extent applicable, repay the APTC for the
months for which you are electing HCTC.
On Form 8962, enter the amount of APTC
in column (f) of line 11 or lines 12
through 23, as applicable, for all months
APTC was paid, even those coverage
months checked on Form 8885. If you are
instructed, in the Form 8962 instructions,
to complete Form 8962, Part III, enter the
amount from line 27 (excess APTC) on
line 29 (excess APTC repayment). Leave
line 28 (repayment limitation) blank.
Taxpayers who receive the benefit of
monthly advance payments of the HCTC
may be eligible to apply a repayment limitation in certain circumstances in 2016
and thereafter. The IRS anticipates additional guidance to address the application
of the repayment limitation for taxable
years beginning after 2015.
Q8. I was enrolled in a QHP through
the Marketplace in 2014 or 2015, and
APTC was provided for some or all of
the payments. I understand that the
amount of the HCTC is 72.5 percent of
the amount paid by an eligible individual for qualified health coverage. How
do I determine the amount paid for
coverage for purposes of the HCTC,
considering that some or all of the coverage was paid for by the APTC?
APTC payments are treated as amounts
paid by you for purposes of the HCTC.
Thus, you can determine the amount paid
for coverage for purposes of the HCTC as
the sum of (1) the amount you paid to
your insurance provider for all coverage
months for which you are claiming the
HCTC (that is, for all coverage months
checked on Form 8885) and (2) the
amount of the monthly APTC shown on
Form 1095–A, lines 21–32, column C, for
all coverage months for which you are
claiming the HCTC (that is, for all coverage months checked on Form 8885).

Bulletin No. 2016 –2

Q9. I was enrolled in a QHP through
the Marketplace in 2015, and APTC
was provided for some of the payments.
The QHP covered me, my son, and my
daughter. Both children lived with me
in 2015, and, when we all enrolled, I
expected to claim both of my children
as my dependents. However, I claimed
only my son as a dependent for 2015.
My ex-spouse claimed my daughter as a
dependent. I am eligible for and am
electing the HCTC for the entire year. I
understand that my son and daughter
are both treated as my qualifying children for the HCTC, but that I cannot
claim the PTC for my daughter’s cov-

Bulletin No. 2016 –2

erage because she was not my tax dependent. Can I claim the HCTC on the
entire amount of my 2015 QHP premiums?
No. You may only claim the HCTC for
the portion of the premiums that are allocated to you under § 36B. Check “Yes” on
line 9 of Form 8962 and follow the instructions for Part IV to allocate the
shared policy amounts for your daughter
to your ex-spouse. Report the APTC allocated to you on Form 8962 line 11, column (f), and on lines 25, 27, and 29. Then,
to compute your HCTC, report on Form
8885, line 2, the enrollment premiums allocated to you.

269

SECTION 5. EFFECT ON OTHER
DOCUMENTS
Notice 2005–50 is modified.
SECTION 6. DRAFTING
INFORMATION
The principal author of this notice is
Shareen Pflanz of the Office of the Associate Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Ms. Pflanz at (202)
317-7006 (not a toll-free number). For
further information about the HCTC, go to
www.irs.gov/HCTC.

January 11, 2016