Obamacare and US Expats Abroad

 



IJ ZemelmanJul-10-2012


Last week the US Supreme Court made a ruling which upholds most aspects of the US PPACA (Patient Protection and Affordable Care Act) – otherwise referred to as ‘Obamacare’ – which includes individual taxation as a mandatory measure to ensure citizens acquire insurance. All citizens will be required to carry affordable healthcare coverage by 2014, and the individual mandatory tax liability for failure to seek coverage is said to be $695.

 

These new changes have many American Expats living abroad wondering how they will be impacted. Will they be granted the opportunity to purchase an affordable healthcare coverage policy from one of the stateside exchanges which will be created under the Act? Will they be required to pay penalty taxes if they choose not to or are unable to participate?

 

We have conducted some of our own research to get answers on some questions such as these, and after speaking with lawmakers and underwriters we found out that – for now – the PPACA is only focused on domestic health care coverage. Ergo, only those who are technically residing in a state within the United States will be authorized to acquire an insurance policy from a PPACA facility. While some American Expats may be overjoyed to hear this news, others may not be as excited – particularly if they suffer from a chronic or pre-existing medical condition or have an illness which is traditionally hard to insure.

 

Not only will American Expats not be able to purchase insurance provided by the PPACA (at least in the beginning) they will also not be required to pay penalty taxes for not gaining coverage. The PPACA individual mandatory tax is not applicable to expatriates. As a matter of fact, the IRS views expats who qualify for the FEIE (Foreign Earned Income Exclusion) as possessing an adequate amount of healthcare coverage (whether or not they’re actually covered) and qualifying expats are exempt from penalties. Those who do not meet the qualifications for FEIE, however, might still be required to secure a PPACA individual health insurance policy.

 

Even though the majority of expats will not be subject to penalty taxes, American Expats who earn sizable salaries should familiarize themselves with a series of other tax liabilities which may be associated with Obamacare. For instance if you are either: 1. Single with an AGI (Adjusted Gross Income) higher than $200k, 2. Married filing jointly with an AGI higher than $250K, or 3. Married filing separately with an AGI over $125K; you will be liable for an extra 3.8% tax on all passive income in 2013 including annuities, capital gains, dividends, interest, rental earnings, royalties, and more). Additionally, if your earned income (salary) exceeds the same thresholds and you are liable for Medicare taxes you will be required to contribute an additional 0.9% of the total amount you earn in excess of the threshold.

 

If you’re a full time expatriate and you’re earning a moderate salary you may not be affected by the new PPACA regulations which are coming into effect – at least in the beginning. The fact still remains, however, that adequate healthcare coverage remains a necessity. Make sure to go over your expat healthcare policy to see what is covered. Is there sufficient coverage to prevent you from experiencing financial catastrophe in the event of a serious illness or do you need to revise the coverage details?

 

Try to plan and budget for higher premiums in the future, and take into account what options you would have if your health insurance coverage were to be terminated because of a change in employment or a discontinuation by the provider. Having an affordable and comprehensive healthcare plan not only helps to keep you physically healthy, but also helps to keep your financial situation healthy.

Zemelman I.J. Zemelman, EA is the founder of Taxes for Expats
She may be reached at: +1-646-397-2887
Email: questions@taxesforexpats.com
Web site: www.taxesforexpats.com