Planning for the Affordable Care Act
By Orlando Gotay
Few items generate confusion as the ACA does. Expats are being affected by the lack of information specifically for them. This is just a highlight and does not cover all situations.
ACA requires individuals to have healthcare coverage, qualify for exemptions, or pay a penalty come tax time. Knowing the rules is essential.
Are you covered? Employer provided health plans, COBRA, catastrophic coverage, Medicare Part A, Medicare Advantage, along with most veterans’ healthcare, qualify. You have to be covered (or exempt) for each of the 12 months in a year. An important detail―you are considered covered for a month if you are covered for at least one day of that month.
You can also be exempt … among other exemptions, if for example, you are not required to file a federal income tax return. Another exemption, the “short term coverage gap” is available if you went without coverage for less than 3 consecutive months during the year. Combining the one day rule and the “short term gap” rule can help account for coverage or exemption for a meaningful part of the 12 months … think how you will cover the year you move to/from Mexico.
Other exclusions: A US citizen or a resident alien who was physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. The 330 days need not be consecutive nor in a particular calendar year. (This is the “physical presence test,” borrowed from another tax provision, the Foreign Earned Income Exclusion). Special extensions of time to file a tax return (beyond the normal ones) are available if you need extra time to qualify for this test.
Another: A US citizen who was a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year. The “bona fide residence test” was also borrowed from the tax code. The more your stay in Mexico appears to be permanent or indefinite, the more likely it is you will meet this test. Remember that “residence” needs to be for the entire tax year.
If you do not have either coverage or exclusions for the entire year, you will have to pay the penalty for “missing” months.
When you move overseas, consider keeping your existing coverage, look for exemptions, or take the payment due into account until you qualify for the exemptions. 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 US 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 US expats in Mexico. He can be reached at email@example.com. This is just information; consult your tax advisor or attorney.