Expats and Obamacare for los Idiotas

“Everyone should have health insurance? I say everyone should have health care. I’m not selling insurance.” ― Dennis Kucinich

A blogging friend from Ecuador recently wrote a post asking many questions about expats and Obamacare.  The second phase of the Affordable Health Care Act will start on January 1, 2014 requiring all USA citizens to buy health insurance. But, how will this effect expats living abroad?

Did you ever try to decipher the IRS tax code? The statute states that there’s an exemption for USA citizens living overseas tied to Section 911. The Secretary of Health and Human Services cannot override it, though the Treasury Department can issue regulations interpreting it.

“Any applicable individual shall be treated as having minimum essential coverage for any month . . . if such month occurs during any period described in subparagraph (A) or ( B ) of section 911(d)(1) which is applicable to the individual.” IRC Sec. 5000A(f)(4)(A).

HUH???  Or this….

“The term “tax home” means, with respect to any individual, such individual’s home for purposes of section 162 (a)(2) (relating to traveling expenses while away from home). An individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States.”

So, for expats, like us, I have written an idiot’s guide ( mainly for me..a dummy when it comes to legal terms) for expats and Obamacare. Of course, it’s all based on my interpretation of the law, which really means..it’s a jungle of legal jargon in section 911 open to anyone’s interpretation.

Who has to buy the mandated insurance?

In the new Internal Revenue Service (IRS) tax code, expats are treated as if they have health insurance regardless of whether they do or not. So, it looks like expats don’t have to buy insurance or pay a penalty for not purchasing insurance.  But there’s a catch…there’s always a catch.

What is the IRS foreign earned income exclusion?

How does the IRS decide if USA expats (I refuse to use the word “American’ because everyone living in North or South America is an American) are exempt from the insurance mandate? Enter the IRS’ definition for foreign earned income exclusion.

In order for USA expats to be exempt from the insurance mandate, they must already be eligible for the IRS’ foreign earned income exclusion. Now, I know why we were asked 4 questions on our income tax return about how long we have lived abroad ( I’ll come back to this later, because it is a touchy subject for some expats).

In order to meet the criteria for the exclusion that allows U.S. expats to avoid paying U.S. taxes on their first U.S. $91,500 worth of income, the expatriate must have a tax home (the general area of your main place of business or employment where you happen to be permanently or indefinitely engaged) in a foreign country, as well as be either a legitimate resident in that country, or spend at least 330 days a year outside the United States.

Since we are legal residents of Nicaragua and spend at least 330 days a year outside of the USA, we are eligible for the IRS’ foreign earned income exclusion. If we are asked to prove it, we can simply scan a copy of our residency ID cards and send the IRS a fax.

What is a tax home?

When it comes to the tax penalty for not having health insurance, the legislation borrowed the test from the Section 911 Earned Income Exclusion: tax home overseas, plus either 330 out of 365 days overseas presence or legal foreign residency. Thus, if one qualifies for the earned income exclusion one doesn’t have to worry about having U.S. health insurance.  “Tax home” is a concept that applies awkwardly to retirees, since it’s a requirement intended for those who are working and earning income.

Because we are retired, we may have to use our Nicaraguan address on our income tax forms. That should be a good for a couple of laughs: 300 meters south of Puesta del Sol, on the beach in La Paloma, across from where the giant Ceiba tree fell down 3 years ago, but is no longer visible, 2 kilometers from the port town of Moyogalpa, on the island of Ometepe, in Nicaragua.

What about Medicare? Does that count for insurance?

For USA expats 65 and over, Medicare qualifies as required insurance coverage. Although, medicare coverage can ONLY be used within the U.S. boundaries. It cannot be used abroad.   Retired U.S. Military have TRICARE which qualifies as the required insurance coverage. Other retired expats may have insurance plans included in their retirement plans that qualify. They are insured. The law goes after the uninsured residing in the USA.

Problems expats may encounter

1. What if I don’t want the U.S. government to know I’m living abroad?
From my understanding of the law and in filing an income tax return, you will be faced with a difficult decision. Either you tell the IRS you are living abroad for at least 330 days,  pay the $95 penalty (which will increase every year), or don’t file an income tax return.
I’m not aware of any other choices.

2. What if I live abroad less than 330 days?
This is a problem, and I’m not sure what the IRS will do about this. If you split your time abroad and in the states, you will either have to buy health insurance or pay the penalty. The problem is that health insurers will continue to offer insurance only to residents of a particular state, since rates will vary geographically. If you’re not a resident of a U.S. state within the meaning of an insurance policy, you’re not going to be able to get insurance. And if you do claim residency on a questionable basis, the insurer can deny your claims. There is no meshing between the tax penalty and the insurance policy requirements. It’s impossible to get health insurance for a 2 or 3 month visit back to the states.

If there’s any message in the health care act — and in the legislative process that produced the act — it’s that the insurance companies are in control.

Now more than ever.

Other resources:

1. Nancy’s blog post that started me on my quest. Obamacare and the Expat

2. U.S. Tax Code, section 911 document

3. Obamacare and Americans Living Abroad





24 thoughts on “Expats and Obamacare for los Idiotas

  1. Great job, Debbie, trying to make sense out of so much confusion. Understanding the healthcare system, either as a recipient or as a provider, can be challenging and frustrating. Throw in living abroad and all the new regulations that try to penalize tax evasion by expats, and you have a legalese soup that needs savvy translators.
    BTW, love your address 🙂

  2. What about Obamacare and Expats with no earned income? I have investment income only, so I cannot claim the exclusion since it is not earned. But I am a bonafide resident of a foreign country.

  3. I read something about the income limit of 100K, but understood it to be for U.S. based income (ie. taxable income), not foreign income. Could you clarify? Also, I was wondering whether it is income before or after exemptions (we have 8 kids).

    • Andrea, I wish I knew, but I don’t. I contacted the Healthcare.gov and chatted with a representative. She said the income is the adjusted income after exemptions. But, I don’t know whether the income is U.S. based income, or foreign income. We aren’t able to work here because we have pensionado visas, so that area didn’t affect us. Sorry.

  4. Thank you! As an USA citizen living in Austria, and married to an Austrian, I am very curious about how the entire expat tax thing works, and the Obamacare twist had added to my confusion. I have wonderful healthcare here, through my husband, and am also a legal resident, spending about 20 days/year in the US. I do maintain a US “permanent address” for banking and other purposes. Also, I am the sole employee/owner of a US-based LLC, in a consulting business that only collects funds in USD. If I’m understanding your research correctly, I do qualify for the FEIE. I’ll check this out with a tax attorney, of course, but appreciate the lead!!! You’ve answered more questions than any other post I’ve read.

  5. I just think I am in a Massive state of total confusion with everything…I don’t understand what is happening. Trying to live on a fixed income just to pay the bills…..

  6. I enjoyed Greg’s residency experiences. Imagine being expelled from Kansas! Oh, the humanity! Recently my friend in San Carlos had a similar experience with Canada. He tried to renew his passport in Managua and took a lot of grief because of not going to Canada for 5 years. It took him the better part of a year to get his passport and then paying a month of fines on his expired visa.
    During my previous life as a merchant seaman I used Nevada as a residence as there were no state taxes and exempted cars I had in California from smog checks. I took the train to Reno, stayed at Harrahs, opened a bank account and paid for a mail forwarding service. My one day there was good for 13 years of legal residency.
    I now plan to be a resident of California for the first time since 1973 as I really like their Obamacare options. As much as I’d like to avoid the cost I worked very hard for the passage and actually (gasp) believe in it. And with my limited income the premium will be $50/mo which will be good in case of Big Things® I wouldn’t have the cash to pay for at Vivian Pellas.
    Speaking of which, I’m going there for the super duper exam in October, my first real physical since childhood. Arlen couldn’t believe this. Actually I just want their free breakfast… and then dinner at Los Ranchos.

    • Hmmm… much food for thought here, Brian. I agree with you about the passage of ObamaCare. I never thought about checking into the options in TN for the health insurance. I think I’ll look into that since we still own a house there and file our income tax with that address. TN is a good state to be a resident because there are no state income taxes. The sales tax is high to make up the difference, but that doesn’t concern us because we don’t buy anything there. It’s definitely worth investigating our options. Thanks for all the information. I’ll let you know how our super duper exams go next week. 🙂

  7. Here’s a real life scenario that you may have overlooked. I live in Panama and hold permanent residency, I do not spend more than 35 day a year in the USA in fact it’s been years since I’ve been back (I get hassled by immigration as to why I have been overseas so long). I no longer have a state of residency since my last state of residence in Kansas decided that I no longer qualified for residency and dropped me and refused to renew my driver’s license. So I don’t have a US state to claim as my state of residency and with that no state taxes any more, darn!!

    I do however file a federal tax return every year (just for CYA) although I am technically not required to based on the IRS requirements for minimum income levels which I fall below. I e-file my federal tax return each year with all zeros, that is to say no taxable income to report as I have no taxable revenue streams to declare. So I have no state or federal tax liability, I am only 50 years old and don’t receive SS or Medicare, have no qualifying address (mailing or physical in Panama) to provide SS/IRS/VA/DMV/NSA/CIA/whoever and have never registered with any federal agency as an expat living overseas. I am aware that the SS administration requires a qualifying address however I do not receive any benefits for now and wont for at least 15 more years so they can hold their breath until then.

    Here’s what I do. I send in a federal tax return each years with no income to declare and no taxes due, I use a general delivery address on the tax return which is all that I actually have and I provide GPS coordinates ( just to be arrogant) as my physical location. I don’t have to buy into the ACA trap nor do I have to deal with any tax penalty as I not only exceed the 330 day foreign residency requirement coupled with the fact that I have a nonexistent tax base but choose to file anyway so as to start the 3 years statute of limitations for IRS audits.

    I fly largely under the radar although the Feds are aware that I am an expat and they track my passport movements every time I make land fall in the states and process through immigration. You don’t need to camouflage yourself rather just operate with transparency so much so that you become so transparent and hardly visible.

    • This is my favorite part of your detailed description…” You don’t need to camouflage yourself rather just operate with transparency so much so that you become so transparent and hardly visible.” So true, Greg. Thanks for your valuable experiences. I can’t fly under the radar anymore because I will receive my first SS check at the end of this month. Woopie!!!

    • I’ve been living in Thailand for 3 years.I don’t file tax forms cause
      I have nothing to report.Do I now need to file an E-file form with
      zero’s on it to show a foreign address or is there a better way?

      Thank you

  8. Pingback: Obamacare – Another Worthwhile Read | Chiriquí Chatter

  9. Interesting points. Since this particular situation doesn’t apply to me it’s not one I’ve thought about very often, but just reading this post makes me realize just how complicated it could be for expats. Great food for thought…

  10. great informational blog, answered some questions that we had. Guess we better get our ducks in a row. I think we’re visiting the US starting second week in April., didn’t want cold weather and not during the luggage embargo. Have to be out of EC for 30 days, their law since we don’t have our cedulas yet, need more paperwork. We also have our pensioner resident visas so that should help. If you plan to visit down our way hope its before hand, we’d love to meet you.

    • Thanks John and Mary. I wrote this in response to Nancy’s blog post because I certainly don’t want to pay a penalty or have to buy worthless insurance. So, until you get your cedulas, you have to be out of the country for 30 days in one year? In Nicaragua, we had to cross into Costa Rica every 90 days to renew our visas. Technically, we were supposed to be out of Nicaragua for at least 72 hours, but most of the time we’d cross into CR, eat lunch, then cross into Nicaragua 2 hours later. I’m sure glad we got our cedulas because they are starting to hassle people who do the one day turn-around. I hope we can see you before you leave. We don’t have our plans solidified, yet.

      • No, its a law I really don’t understand. You don’t have to leave .You are allowed to leave the country but when you do ( no cedula) you can’t return until after 30 days. Makes no sense to us at all but it is what it is. Which is not a problem when we go back to visit. Our family is spread from PA to (possibly)Hawaii. One son may be relocating there before our return. This will be our first trip back since our move in Dec 2011 so it’s a must to visit everyone 🙂 Our resident visas are permanent so no need to renew but the tourista was the same way, 90 days then an extension. Glad that part’s over with.

  11. But I’m assuming that Vivian Pellas coverage is – not – included as eligible health insurance under provisions of Obamacare. But I’m curious to learn more on the $91,500 exception on U.S. income tax (and Obamacare requirements). I wasn’t aware of that and not doubting you – but are you certain you’re entirely exempt if you simply declare up to that amount of overseas income? If so, that is a rather amazing loophole from my perspective.

    • Jon, you assume correctly. First, Vivan Pellas health plans are not considered health insurance, only discount programs. Second, the U.S. doesn’t care if you are insured or not, if you’re living abroad for more than 330 days per year. If you meet the eligibility requirements, then you are exempt from the mandate.
      My understanding..and I’m certainly no expert…is that a U.S. expat has to meet two requirements to be exempt from the mandate: 1) If the expat is working abroad, their foreign income cannot exceed $91,500. This is only for foreign income, not pensions, or SS, or any income received from the U.S. 2) The expat is either a legal resident of a foreign country, or spends at least 330 days per year abroad. I’m not sure how an expat would prove he/she lives at least 330 days per year in another country without a legal residency card. I’m thinking that if an expat makes a foreign income of over $91,500 and they are taxed by the IRS on the excess, then they would have to buy insurance or pay the penalty probably because they could afford to pay. Fortunately, we are retired and we are not permitted to work in Nicaragua with our pensionado visas, so we meet the 1st requirement. But,that requirement is confusing for retired expats and it doesn’t really apply to us. Does that make sense? It’s all so confusing.

    • Dean, we have the Silver discount plan for Vivian Pellas hospital in Managua. Together it costs us $425 a year. We’re going to Managua next week for our super duper exams..they run tests on us for everything, and I’ll write a post about our experiences.

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