Am I In Trouble If I Don’t Carry Obamacare?

Yes, under certain circumstances
BY: ORLANDO GOTAY

As is often the case, much of the general information available out there applies to the regular, U.S. resident.  Special rules, often hard to find, apply to expats. Sometimes the regular rule has pitfalls that exist solely because the person no longer lives in the U.S.

Do-you-not_0.jpgThe Affordable Care Act requires individuals to have qualifying health care coverage for each month of the year, or qualify for a coverage exemption, or you need to make a shared responsibility payment when filing their federal income tax returns.

General lore leads folks to believe that individuals living abroad are not subject to these rules.  Well, you are. An important exception exists, but it may not apply to the recent expat.  This may come as a surprise, come tax return time, or in the form of a notice from the IRS later on.

There is an exemption for U.S. citizens who are not physically present in the United States for at least 330 full days within a 12 month period. Those people are treated as having minimum essential coverage for that entire 12 month period regardless of whether they enroll in any health care coverage.

Also, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year and are not required to have Obamacare coverage or make the shared responsibility payment.

As you can see, there may be a gap between the time you move to Mexico and the time you qualify for one of the exemptions above.  It is important to keep that in mind to avoid an unpleasant surprise later on.

If these conditions sound familiar, it’s because they are borrowed from the part of the IRS code that deals with foreign exclusions of foreign income, and the tests to qualify for it, the physical presence and bona fide residence tests. But one does not need to claim foreign income exclusion to qualify for the Obamacare shared responsibility payment exemption. Compliance is reported with the federal income tax return on IRS form 8965.

When you move overseas, consider keeping your existing coverage or take the payment due into account until you qualify for the overseas resident exception.

 Forewarned is forearmed!

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.  His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com.