Income Tax Issues Related to Medical Insurance Coverage

Issues that affect US Expatriates living and working overseas. Foreign Nationals working or living within the United States.

Most people find the U.S. income tax system very complicated. With the addition of the requirements for individual medical insurance coverage (Obamacare or ACA also known as the Patient Protection & Affordable Care Act), the complexity increased significantly. While this law was passed on March 23, 2010, most of its requirements and penalties became effective on January 1, 2014.

What Do You Need to Know?

The “general rule” is that individuals must maintain health insurance coverage or face a tax penalty. This penalty is calculated on their U.S. income tax returns. But how does this apply to those who are not U.S. residents or citizens?

Foreign Nationals Working in the United States

First, the ACA rules apply to U.S. citizens and resident aliens. It does NOT apply to individuals who are nonresident aliens [NRA]. But the definition of an NRA can be complicated. U.S. residency may be determined based upon the number of days you spend within U.S. borders. So many NRAs on assignment in the U.S. become U.S. residents as defined in our tax law. If that is the situation, those NRA’s then are affected by the ACA unless an exemption applies.

The key point is that certain exemptions may apply. So if you are facing this issue yourself or you are employer that is sending employees into the U.S. for extended periods, now is the time to address this issue.

U.S. Citizens and Resident Aliens Living and Working Abroad

The general rule applies to those U.S. citizens and residents living abroad. The exception may apply to those that have established a “tax home” outsie the U.S. and is a bona fide resident of a foreign country or countries. Those that meet the “physical presence test” of spending 330 or more days outside of the U.S. typically qualify for exemption from ACA mandates.

U.S. Health Insurance Requirements Foreign Nationals & US Expatriates 

Foreign Employer Issues Under ACA

One danger applies to employers with at least 50 “full time equivalent” [FTE] employees working in the U.S. The calculation of FTE employees is complex. The fundamental point to keep in mind is the penalties for failing to provide adequate medical insurance coverage could result in very significant penalties.

If you are employing a number of workers within the U.S., we recommend you address this issue without delay.

Summary

In a world filled with globally mobile employees, you need to be aware whether you could fall victim to penalties and other significant issues presented by the ACA – Affordable Care Act. If you are required to file a U.S. income tax return or expect that you will be required to file soon, address this question now rather than waiting until it is too late to avoid the penalties.