Tax Effects of the Affordable Care Act


The Affordable Care Act of 2010 has made significant changes to American health care law. Most provisions went into effect on 1 January of 2014. Although the new administration in Washington has pledged to repeal Obama Care, it was still in effect for all of 2016. The primary taxpayer and all individuals listed on a tax return must still have had health insurance known as Minimum Essential Coverage (MEC) for each month of last year. Those not having required coverage must pay a penalty on their tax return known as a “shared responsibility payment”.

The good news is that the law makes it easy for U.S. citizens living overseas to meet this requirement. If you are a legal resident of a foreign country for the entire year, you are considered to have MEC. This is true even if you visit the United States during the year. If you are a retiree living overseas receiving Medicare or Tricare benefits you will receive a Form 1095 from your provider as proof of coverage, but just the fact that you live outside the United States is enough for you to meet the criteria for Minimum Essential Coverage.

If you are overseas and covered by a status of forces agreement as a member of the military, a government employee, or you work for a government contractor, you are not automatically considered to have MEC, You must furnish us proof of insurance with an IRS Form 1095 supplied by your employer or health insurance provider. This form does not need to be submitted with your tax return unless there was a lack of coverage during any part of the year. The IRS has given employers and health insurance providers until 2 March 2017, to send these forms to taxpayers. If you have not yet received your Form 1095, it should not delay filing of your 2016 tax return. An end-of-year earnings statement showing coverage will suffice.

The Affordable Care Act has a provision to help low income individuals pay for required health coverage. This credit is called the Premium Tax Credit, but it is only available for those who purchased health insurance through a federal or state run Marketplace or Exchange. Taxpayers overseas will not receive this credit.