How to Complete Form 8965 to Report Obamacare Exemption

It’s time for another Q&A with David McKeegan, Co-Founder of Greenback Expat Tax Services. Today David takes a closer look at the Obamacare filing requirements for Americans living abroad. Please feel free to comment below to ask a question or click here to submit your question from our website!

Obamacare and Your US Expat Tax Return

Question: Hi David! I appreciate you answering questions about expat taxes so clearly! I wanted to ask you about the new filing requirements for Obamacare (the Affordable Care Act). I’ve been living abroad for 2 years—what do I need to do?

-Carl D., Sydney, Australia

Answer: Hi Carl! Thanks for writing—I’m glad you are finding my answers helpful! As for the new Obamacare filing requirements, it’s actually pretty simple this year. If you are a US citizen who holds the minimum essential coverage, you just check a box on your Federal Tax Return to certify that you do. From what I understand, there is no system of ‘checks and balances’ in place so this may be sort of an honor system. But if you are an expat, it is important to clearly understand whether or not you are exempt from the requirements. Here are the guidelines from the IRS for those who are exempt:

Citizens living abroad and certain noncitizens

  • You were: A U.S. citizen or resident who spent at least 330 full days outside of the U.S. during a 12– month period
  • A U.S. citizen who was a bona fide resident of a foreign country or U.S. territory
  • A resident alien who was a citizen of a foreign country with which the U.S. has an income tax treaty with a nondiscrimination clause, and you were a bona fide resident of a foreign country for the tax year
  • Not a U.S. citizen, not a U.S. national, and not an individual lawfully present in the U.S.

To simplify this a bit, if you qualify for the Foreign Earned Income Exclusion (via the Physical Presence test or the Bona Fide Residence test) you are exempt. To claim your exemption, you must file Form 8965 along with your Federal Tax Return. On Form 8965, you will complete section III for each member of your household, and in Column C, you would use Exemption Code C.

If you were abroad the entire year, check the box in Column D that states ‘Full Year’. And that’s it!

If you aren’t overseas long enough to qualify for the exemption (i.e. you moved overseas during the 2014 tax year or spent more than 34 full days in the US), you will be assessed a penalty. This year the penalties are relatively minimal:

  • 1% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
  • $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

However, these penalties rise in 2015 and beyond.

I hope this is helpful. If you need more information about filing Form 8965, you can visit the IRS website.

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