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.

For 2009 and 2010 the making work pay credit was applied to the majority of American's tax returns. This was a refundable credit worth up to $400 per individual or $800 for those filing "Married Filing Jointly (MFJ)." For the 2011 tax year this credit has gone away.

When we see clients year after year, they often wonder why their refund or amount owed fluctuates. They do not understand how it can be different from prior the prior year. The disappearance of the Making Work Pay credit is a good example of why a refund or amount owed can be different. Take as an example a married couple who made $45,000 in 2010. On their 2010 tax return they received a refund of $650. In 2011 they made the same amount of money and expect to receive a similar refund. However, when their taxes are filed they owe nearly $150. What happened? Why is there such a big difference?

The difference is that in 2010 they received a refundable credit of $800 (MFJ) from the Making Work Pay credit  that was applied to their tax liability. In 2011 that credit has gone away and now they owe instead of get a refund.

Many people who saw that they were getting a refund the last couple of years went to their employers and changed the amount of their paycheck withholding.  If you did that, beware as you may have an even bigger tax liability in 2011. In the above example, the couple saw that they were getting refunds of $650 so they decided they would rather have the money during the year instead of sending it to the IRS. Because of this, they reduced their annual withholding  by $650. When they file their taxes in 2011 they are surprised that instead of breaking even they now owe $1,300.  This is a result of the Making Work Pay credit going away.  They suddenly owe $650 more and they reduced their withholding by $650.  This can come as quite a shock to the taxpayer.

Don't be angry at your tax preparer for not "getting you the same refund" as the previous year. There are many factors that come into play in calculating your taxes. The best thing to do is find out what changes are coming for the current tax year before you make any withholding changes with your employer.  Don't be afraid to communicate with your tax preparer throughout the year.