When you move abroad – whether for work, retirement or just adventure – the last thing that you are probably thinking about is paying to maintain expensive health care coverage in the United States. After all, you have expenses in your new country – and that often includes health insurance.
Most expats don’t think about the individual mandate under the Affordable Care Act (Obamacare) until tax time rolls around and the IRS charges them a fee for not maintaining minimum essential health coverage in the U.S. The penalties are expensive and have been increasing every year.
The law requires you and each member of your family to either have qualifying health care coverage, qualify for a coverage exemption, or make an “individual shared responsibility payment” (nice way to say pay a fine) when you file your federal income tax return. Qualifying health care coverage is also called minimum essential coverage.
Minimum Essential Coverage
You may already have some type of coverage that qualifies as minimum essential coverage. To see what qualifies and what doesn’t, you can check out the IRS guidelines HERE.
The good news for expats is that some – but certainly not all – expatriate insurance plans will qualify. To see the most recent list of approved providers, click HERE and scroll down to “approved plans”. I would have liked to link directly to the document; however, they update the information regularly and change the file name each time.
You can avoid paying the fine if you qualify for an exemption. There are numerous exemptions, click HERE to review them all in detail.
There are two in particular that are important to expats:
- A U.S. 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 – You can easily qualify for this one just by limiting your visits back to the U.S.
- A U.S. citizen who was a bona fide resident of a foreign country for an uninterrupted period which includes an entire tax year – To review the requirements to qualify as a bona fide foreign resident, click HERE.
How Penalties Are Calculated
The fees are calculated in two ways: 1) as a percentage of your household income or 2) per person — whichever is higher.
For 2016, the percentage of income is 2.5% and per person fee is $695 per adult. You can get additional information about how the fine is calculated HERE.
Let’s Wrap This Up
The high cost of health insurance back in the U.S. is one of the reasons that we decided to move to Mexico. If we had stayed there, at least one of us would have continued to work just to keep insurance.
Now that we live in Mexico, we no longer have that problem. Quality health care and health insurance are both very affordable; however, we still have to make sure that we aren’t subject to losing money under the Affordable Care Act. Every penny counts when you live on a fixed income.
If you have any questions related to your possible obligations under the Affordable Care Act, you should direct them to the IRS or consult with a tax professional.