Many expats have been discussing the likely impacts of the recently passed US health-care legislation on people who live and work outside the USA. The law now requires that US Citizens meet several requirements to be exempt from getting health insurance or paying penalties: a foreign “tax home” and foreign residency.
Background: Under the new health care bill, Section 401 of Subtitle A requires all US citizens to obtain health care coverage. The penalties for failing to buy insurance are steep, up to 2.5% of AGI, capped at a threshold equal to the average premiums for health care available. Applicable penalties will be collected on the individual’s future tax returns.
Expats are required to be covered unless they can meet several tests. Section 501 of the bill describes the requirements for “Individuals Residing Outside the United States”. It states “…any qualified individual (as defined in Section 911(d) and any qualifying child residing with such individual shall be treated for purposes of this section as covered by acceptable coverage during the period described in subparagraph (A) or (B) of Section 911(d)(1), whichever is applicable. …”
Further reading of Section 911(d)(1) describes how expats will not be required to pay the penalty if they meet the following tests:
1. The expat must have a “tax home” outside the United States.
2. They must meet the special requirements of a Residency Test: Requirements (A) or (B) rating their residency status outside the US.
1. Tax Home Requirement: (cont.)
Our Tax Home is usually our place of residence. In effect, your Tax Home is where you actually live, where you receive mail, where you sleep and pay bills: paying rent, mortgage, utilities, etc.
Specifically, IRS courts rulings have determined: IRS Rev. Rul. 73-529 “Generally, a taxpayer’s ‘home’ for purposes of section 162(a)(2) of the Code is considered to be located at (1) his regular or principal (if more than one regular) place of business, or (2) if he has no regular or principal place of business because of the nature of his trade or business, then at his regular place of abode in a real and substantial sense.”
If you do not meet these requirements, also see Rev. Rul. 60-189, 1960-1 C.B. 60, and Rev. Rul. 71-247, 1971-1 C.B. 54: “If a taxpayer comes within neither category (1) nor category (2), he is considered to be an itinerant who has his ‘home’ wherever he happens to work, and thus is not ‘away from home’ for traveling expense deduction purposes.”
2. The Residency Test:
A. You have been a bona fide resident of a foreign country for an uninterrupted period that includes a full “tax year” (for the year in question); or
b. You must stay outside the United Sates for 330 days out of a year.
This means that you can spend , a maximum of 35 days of a year in the US without losing the special exemption for health care insurance coverage, and avoid paying the penalties under the bill. The 330 days do not have to be consecutive.
One final question remains:
Why is this article listed under Science & Health vs. Pesos, Politics & Propaganda?
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Disclaimer: This information is not meant as legal advice. It is for educational and informational purposes only. Government policies vary between States and offices, and Mexican Government officials have broad discretion in how they individually enforce policies, so, your personal experiences may vary. See a professional for advice on important issues.
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© Steven M. Fry
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