Do U.S. expats have to enroll in ObamaCare to avoid penalties?

April 2nd, 2014 (InsideCostaRica.com) With the 2014 deadline for ObamaCare (officially, the “Affordable Care Act,”) enrollment at hand, some U.S. citizens living abroad are confused as to whether or not they must enroll in the Marketplace to avoid tax penalties known as the “Individual Mandate.”

 

According to information provided by Evelyn Ardon, Information Specialist at the US Embassy in San José, “U.S. citizens living in a foreign country for at least 330 days of a 12-month period are not required to get health insurance coverage under the Affordable Care Act for that 12-month period.”

 

Further information obtained from the Internal Revenue Service (IRS) would indicate that those who can claim “bona fide foreign residence” as explained in IRS Publication 54 (PDF) are also not required to obtain coverage.

 

Essentially, anyone who qualifies for the “physical residency test” or “bona fide residency test” that is also used for the Foreign Earned Income Exclusion (IRS Form 2555) – a tax form filed by thousands of U.S. citizens who work abroad, are excluded from the Individual Mandate.

 

Of course, you probably have to file a tax return to claim the exemption.

 

The penalties:

 

The penalties of failing to comply with the Individual Mandate are as follows:

 

2014 = $95 per person per year or 1% of your Income
2015 = $325 per person per year or 2% of your Income
2016 = $695 per person per year or 2.5% of your Income
2017 = Tax Penalty will increase by the rate of inflation going forward, or 2.5% of your Income

 

Notes:

 

• If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured.

 

• The penalty is based on modified adjusted gross income and is paid on your federal income taxes.

 

• The total penalty for the taxable year cannot exceed the national average of the annual premiums of a bronze-level health insurance plan offered through the health insurance marketplaces.

 

• The maximum penalty per family is capped at no more than 300% of the minimum penalty (e.g. $695 x 300% = $2,085).

 

• Children under 18 are assessed at 50% of the minimum penalty.

 

• The penalty is pro-rated for the number of months you are without health insurance, though there is no penalty for a single gap in coverage of less than 3 months in a year.

 

Further reading: http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision

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