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Blog
As you know, the Affordable Care Act (ACA) was enacted under the leadership of former President Obama. It was put into place as a tax provision that was meant to provide affordable healthcare to all Americans, and applied to all US persons (yes, even US expat taxpayers!).
The ACA required that you have health insurance that meets the “minimum essential coverage” requirements, or qualify for an exemption from the requirement in order to avoid paying an “individual shared responsibility payment.” This was essentially a tax you paid based on a per person basis or a percentage of family income, whichever is greater.
The ACA has created a slippery slope for the US expat, as most don’t carry US health insurance and many foreign health care plans don’t qualify as “minimum essential coverage.” However, there are certain exemptions that help expats. One in particular relates to the Foreign Earned Income Exclusion (FEIE). If you qualify for the FEIE for your US expat tax, you’re exempt from needing minimum essential coverage. In order to qualify for the FEIE, you must pass one of two residency tests:
Learn more about the FEIE and the two residency tests in this article. Just because you qualify for the FEIE, does not mean that you must take it – you can still be exempt from holding the ACA’s minimum essential coverage so long as you’re qualified for the FEIE. There are also certain foreign health insurance plans that cover expats inside and outside the US, qualifying them as having minimum essential coverage.
The big change coming down the pipeline that directly affects expats is in regards to the repeal of the current 3.8% surtax on net investment income (NIIT). American Citizens Abroad has insisted that this surtax on Americans living and working overseas who were unable to apply for take advantage of the Health Care Exchanges, represents unfair double taxation since foreign tax credits couldn’t be used to offset this on your US Tax Return. This change would take effect in 2018.
Fortunately, due to ACA reform presented by new US leadership, the NIIT issue would no longer be an issue for Americans working and living overseas. This certainly won’t be the only change for US citizens as the ACA reform continues to take shape, so be sure to stay tuned to our blog for the latest expatriate tax news affecting Americans living abroad.
If you’re not sure how changes to the ACA could affect your expat tax situation, contact us today to be connected with one of our expat-expert accountants. We can help you better understand and prepare for filing your US expat tax return, so you’ll stay compliant with the IRS!