Should Expats Care About Obamacare?

Guest author:  ZM Ishmurzina, MBA, CPA
Artio Partners

In June 2012 the Supreme Court upheld the US Patient Protection and Affordable Care Act (PPACA) or so-called “Obamacare”. Beginning January 1, 2014 U.S. citizens will be required to carry affordable healthcare coverage or pay a penalty tax. The annual penalty tax will be $95 on individuals who do not have an acceptable insurance coverage. The penalty tax is scheduled to increase to $695 by 2016.

So, how does it affect American expatriates living abroad?

At Artio Partners we come across two key questions from our clients.

  • Will an American living abroad be able to purchase this healthcare coverage?
  • Also, will an American expat be required to pay a penalty tax?

The answer to both questions is “no” for now.

For now American expats living abroad are ineligible to buy healthcare coverage through any individual plan under the PPACA because the PPACA is focused on domestic insurance plans and is available only to residents of the U.S. states. One note is important to mention in this regard. One of the provisions of Obamacare fully prohibits insurers from discriminating against individual adults with pre-existing conditions. Since Americans living abroad with pre-existing or chronic health conditions are left out of the opportunity to buy such a coverage under the PPACA, they should review their current health policy and follow future law developments in regards to this issue.

The PPACA exempts American expats living abroad from the penalty tax. Americans living abroad who qualify for the Foreign Earned Income Exclusion are considered to have the required amount of health insurance. If an American expat doesn’t have a health insurance but qualifies for the foreign earned income exclusion, s/he is still exempt from the penalty tax. The IRS will definitely pay more attention to a US expat tax return in the future to identify people who wrongfully claimed the FEIE.

Although American expats are exempt from the penalty tax, starting in 2013 some high-income earners will have to pay an additional 3.8% tax on net investment income (including capital gains, dividends, interest, royalties, rents, and annuities). The following categories of American expats will be subject to this tax:

1.    Single filer with AGI (adjusted gross income) over $200,000
2.    Married filing jointly with AGI over $250,000
3.    Married filing separately with AGI over $125,000

Additionally, if an American living abroad belongs to one of the above categories and pays Medicare payroll taxes, s/he may be subject to an additional Medicare 0.9% tax on wages and self-employment income. However, since the US has a totalization agreement with 24 countries that prevents a dual Social Security coverage, American expats living abroad might be relieved from paying an additional 0.9% Medicare tax.

It is important for American expats living abroad to follow future developments and consult an expat CPA to discuss your individual situation.

About the Author

Artio Partners is a boutique CPA firm that specializes in international tax planning and US expat tax preparation for Americans living abroad and non-residents.
We are trusted advisers, not simply tax return preparers. By staying current with the latest developments in international tax planning and compliance issues, we are committed to providing exceptional service, expert advice and comprehensive tax consulting services.
We invite you to visit our website http://www.artiopartners.com/ to learn more.

Comments

  1. says

    How can any body, expat or not, not care ? I am not even American and am hoping and hoping that Obama gets back in. I have a lot of American expat friends living inBelize and I will forward this to them.
    Catherine Broughton (English novelist living in either France or Belize or UK ….)

  2. Liz Davis says

    What about retirees living abroad or “permanent nomads”? We’re planning on retiring onto our sailboat and spending a decade sailing slowly around the world. We won’t really have foreign earned income, (just our IRAs), but why should I buy expensive USA health insurance if I’m not going to be in the USA and can buy health insurance less expensively out of the country?

    Is there some way to avoid the individual mandate or its penalty for those of us not residing in the USA, but not earning foreign income?

    Thanks

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