As the tax season approaches we are receiving an influx of questions about how the Affordable Care Act, or Obamacare, as most people call it will affect Americans living abroad.  Of course, this is a concern as for most Americans, there will be changes in how we procure and pay for our Insurance and medical care.  I still have not heard of anyone who has read through the entire act and all related regulations, and I am not one of them.  (Hint: precursor to a disclaimer) I am not a lawyer and am not claiming that my research is entirely accurate.  However, this is a representation of my research and is true to the best of my knowledge.

Ok with that out of the way let’s get to the question you are all asking, “If I reside outside the USA do I need to have USA approved health insurance?” 

I know that many of you will just stop reading after the short answer, but I do encourage you to read through the information here to understand how this can and will affect you. I will also let you know of an exemption that will allow you to maintain the same coverage when you are abroad or living and working in the USA.

The short answer: NO

The long answer: US citizens that reside in other countries do not need to have US health insurance.  On your 2014 taxes you will begin to pay a fee for not maintaining health insurance. This is the fee we were promised was not a tax but only was approved as constitutional by the Supreme Court because it is a tax. Confusing? I know.  That’s government for you. 

That would include those who are outside the US for 330 days of any 365 day period (Physical presence test of the form 2555) Paragraph 12 here confirms this.  This is like an automatic exemption which does not require you to apply for an exemption and is taken care of at tax time.  There are however other exemptions that are of interest to the missionary.

Follow this link to find out more about how to qualify for other exemptions. 

There are a few exemptions that can be of interest to missionaries. Missionaries go back and forth between their home country and their resident country.  So while we know that while you are living as an expat in another country you will not be subject to the ACA, what about when you come back to the USA for an extended period? 

One exemption is that of having a lapse of coverage for three months or less.  Because we know that residing abroad is considered to meet the requirements of having coverage, it would appear that coming to the USA for a period of three months or less you will not be subject to any penalty.  This could be ideal for missionaries serving overseas at a school.  Many of these teachers and other school staff members return to the USA during the summer break.  In this case no other insurance would need to be purchased from the state exchanges. 

While you might be complying with the law, we all need insurance that does cover us.  Most insurance purchased in the USA, including any you will be able to get through the Health Insurance Marketplace, does  not cover the insured outside of the USA.  And many times insurance purchased to cover a missionary in a foreign country does not cover them when they are in their country of citizenship. (The fine print on those insurance forms must be read). So I this case a missionary who has coverage in a foreign country returns to the USA for less than 3 months complies with US law but ends up uninsured during those months.  Not a very attractive position considering health issues can pop up at any time.

Is there an option that will satisfy the individual mandate when in the USA and still give coverage to a missionary living as an expat overseas?

 Yes there is and it is a very good option for missionaries.  Listed in the exemptions  from individual shared responsibility payment there is one exemption for being “a member of a recognized health care sharing ministry.”  Sharing ministries are usually Christian organizations where the members help each other share healthcare costs.  These are generally significantly less expensive than traditional health insurance and have the added benefit of providing coverage anywhere in the world.

My personal experience has been with Samaritan Ministries. My family and I have been members for over 5 years now and have been very happy with them.  There are of course other healthcare sharing ministries that qualify for the exemptions; I just don’t have personal experience with them.

So in summary residing in another country automatically exempts a person from the individual requirement to carry health insurance.  While this is a relief for many, the reality of missionary life usually includes travel back and forth between the country of service and the home country.  There will likely be times when the missionary does need to carry health insurance while in the USA.  The exception of health sharing ministries can work for a missionary both while they are abroad and when in the USA.

So you heard the call and are heading out to be a missionary? After your education and training the time has come to leave overseas and go to a foreign country. The airline tickets are purchased. Contributions and pledges are coming in. 

Now, before leaving, is the time to make sure that your financial situation is in order and that you understand what you will need to  have prepared come tax time. 

The following tips should give you some things to consider and help you prepare your finances before leaving for a foreign country.

1. As a missionary you are not exempt from US taxes. You must understand that US citizens need to file an annual tax return even when residing in a foreign country.

U. S. citizens are taxed on worldwide income. Don’t believe other missionaries who tell you that you are exempt from taxes.  This is only partially true and depends on how much you earn during the year and whether or not you file the foreign earned income exemption on IRS form 2555. Regardless of whether or not you file the exemption, the majority of the missionaries must pay social security or self-employment tax on their net earnings. Improper planning in this area alone has caused many missionaries to return to the US and look for regular employment so that they can pay their accumulated tax debt.

2.  Missionaries need to track their income and expenses for proper tax reporting.

As a missionary, you are basically operating a business, and as all businesses must keep track of how much they make and spend on the business, so must you. This made even more complicated because the expenditures are usually in a foreign currency and must be converted into US dollars for tax reporting.

3. Before packing up and moving overseas it is wise to line up financial and legal counsel

It is much more difficult to find good competent financial and legal help after you have moved to the middle of nowhere. You should seek counsel from the legal profession in areas such as setting up a will or living trust.  What should be done if you are killed or injured in the foreign country? From a tax perspective you should find a tax preparer who understands the foreign earned income credit (form 2555) and the foreign tax credit (form 1116). If you are an ordained member of the clergy you may want to explore opting out of Social Security or receiving a housing allowance.   

If you are not ordained you may want to consider becoming so before leaving for the field.  If you are an independent missionary and not part of a large sending organization you may need to consider setting up a non-profit entity before you leave.  This will allow contributors to receive tax deductions on their donations, resulting in a higher likelihood that you receive higher support for your mission endeavors.