What is the Individual Shared Responsibility Provision of the Affordable Care Act?

Under the Affordable Care Act (Obamacare), the Federal government, State governments, insurers, employers, and individuals share responsibility for reforming and improving the availability, quality and affordability of health insurance coverage in the United States. Below we address how this may affect US persons abroad.

The individual shared responsibility provision requires you and each member of your family to do one of the following:

• Have qualifying health coverage called minimum essential coverage;
• Qualify for a health coverage exemption, or
• Make a shared responsibility payment when you file your 2014 federal income tax return in 2015

How does the Affordable Care Act affect your US tax return for tax year 2014?

For 2014, there are two important federal income-tax changes for individual taxpayers due the Affordable Care Act:

1. Penalty for failure to have Minimum essential coverage
2. Premium Assistance tax credit.

What is Minimum Essential Coverage?

You are considered to have minimum essential coverage for the entire month as long as you are enrolled in and entitled to receive benefits under a plan or program that is minimum essential coverage for at least one day during that month. Similarly, if you are eligible for a coverage exemption for any one day of a month, you are treated as exempt for the entire month. For any month that you do not have minimum essential coverage you will need to qualify for an exemption or make a shared responsibility payment.

Minimum essential coverage includes:

• Most health insurance coverage provided by your employer,
• Health insurance purchased through the Health Insurance Marketplace in the area where you live, where you may qualify for financial assistance,
• Coverage provided under a government-sponsored program for which you are eligible (including Medicare, Medicaid, and health care programs for veterans),
• Health insurance purchased directly from an insurance company, and
• Other health insurance coverage that is recognized by the Department of Health & Human Services as minimum essential coverage.

Are there any health coverage exemptions?

If you meet certain criteria, you may be exempt from the requirement to have qualifying health coverage. You get a coverage exemption depending upon the type of exemption for which you are eligible. You can obtain some exemptions only from the Marketplace while others may be claimed when you file your tax return. Currently, there are 19 coverage exemptions available for 2014. A detailed chart of the exemption can be found here.

If you are exempt, you will not have to make a shared responsibility payment when you file your 2014 federal income tax return in 2015. For any month that you do not qualify for a coverage exemption, you will need to have minimum essential coverage or make a shared responsibility payment.

Is there a coverage exemption for US citizens living abroad?

If you are a US citizen living abroad, you are still subject to the individual shared responsibility provision. However, a US citizen who was not physically present in the United States for at least 330 full days within any 12-month period are treated as having minimum essential coverage for that 12-month period regardless of whether they enrol in any health care coverage.

Additionally, a US citizen who is a bona fide resident of a foreign country (or countries) for an entire taxable year, is treated as having minimum essential coverage for that year.

US citizens that qualify for this rule need take no further action to comply with the individual shared responsibility provision during the months when they qualify. You will report your status with your federal income tax return on Form 8965.

To summarize, as long as you qualify for the foreign earned income exclusion under section 911, you have a coverage exemption for that period even if you choose not to or are not able to claim the section 911 exclusion for all of their foreign earned income.

Is there a coverage exemption for non US citizens?

Yes, you have a coverage exemption as a non US citizen if you meet either of the two following criteria:

• A resident alien who was a citizen of a foreign country with which the US has an income tax treaty with a non-discrimination clause, and you were a bona fide resident of a foreign country for the tax year; or
• Not a US citizen, not a US national, and not an individual lawfully present in the US

What does “lawfully present” mean?

The term “lawfully present” includes immigrants who have:

•  “Qualified non-citizen” immigration status without a waiting period (see details below)
• Humanitarian statuses or circumstances (including Temporary Protected Status, Special Juvenile Status, asylum applicants, Convention Against Torture, victims of trafficking)
• Valid non-immigrant visas
• Legal status conferred by other laws (temporary resident status, LIFE Act, Family Unity individuals)

What is the penalty for failure to have Minimum Essential Coverage?

You will be assessed a “penalty payment” on your 2014 US tax return for failure to have minimum essential coverage if you do not fall under one of the exemptions.

The penalty is the greater of $95 per person or 1 per cent of household income. In 2015 the penalty increases to $325 per person or 2 per cent of household income, and in 2016 it jumps to $695 per person or 2.5 per cent of household income, whichever is greater.

How can I claim the Premium assistance tax credit?

For 2014, Premium assistance tax credit is available to eligible individuals and families who obtain health coverage in a qualifying plan by enrolling through a state-run insurance exchange or through the federal exchange.

You can take the PTC for 2014 if you meet all of the following requirements.

• At some time during the year, one or more individuals in your tax household:

a)    Were enrolled in one or more qualified health plans offered through the Marketplace; and

b)    For the same months, were not eligible for minimum essential health coverage (other than coverage in the individual market)

• You are an applicable taxpayer. To be an applicable taxpayer, you must meet all of the following:

a)     Your household income is at least 100% but no more than 400% of the Federal poverty line for your family size for 2014.

b)    No one can claim you as a dependent on their tax return for 2014.

c)    If you were married at the end of 2014, you must generally file a joint return. However, filing a separate return from your spouse will not disqualify you from being an applicable taxpayer if you meet certain requirements.

If you meet the above requirements, you must file form 8962 to claim the tax credit.

If you have any questions about your taxes, contact us.