Affordable Care Act (ACA) Health Coverage
Adapted from 4th edition, 1040NR? or 1040? U.S. Income Tax Returns for Visa Holders + International Organization and Foreign Embassy Employees., by Jean Mammen. Fourth edition, dated February 6, 2015. Yes, the 4th edition is now available!
Penalty Exemptions
Form 1040 and ACA:
Individuals filing a 2014 U.S. tax return on form 1040 will need either to have minimum essential coverage (MEC) for health care or to show they qualify for an exemption to avoid paying a penalty (shared responsibility payment).
2015 ACA Open Enrollment Extension to April 30: taxpayers who only became aware of the penalty charged for not having 2014 MEC (minimum essential coverage) for health care when they filed their 2014 income tax return have a special enrollment period from March 15 through April 30 to purchase such coverage through a ‘federally-facilitated marketplace’. The benefits: taxpayer would have health coverage; taxpayer’s potential 2015 penalty would be greatly reduced. Note that coverage purchased by the 15th of the month goes into effect the first of the next month. It is not now known if state marketplaces may or will follow suit.
Many 2014 filers will claim exemption C using form 8965, Health Coverage Exemptions.
Exemption C may apply for one or more months to:
- a US citizen or resident living outside the US,
- an individual who is not lawfully present in the US and not a US citizen or national,
- a green card holder who is a citizen of a country with which the US has an income tax treaty and who was a bona fide of another country for all twelve months.
U.S. citizens and residents living outside the U.S.: Exemption C on form 8965 applies if an individual meets either the physical presence test or the bona fide residence test that are prescribed for individuals using IRS form 2555 to claim a Foreign Earned Income Exclusion (FEIE). A retiree or person with no earned income will use this exemption, as well as those with earned income, for the months in the calendar year for which they meet one of the two tests.
Taxpayers and tax household members who are not lawfully present in the US: Exemption C on Form 8965 also applies to individuals not lawfully present in the US. The tax household includes everyone listed on the income tax return, as well as dependents who could be listed, whether or not they are actually claimed. Taxpayers in mixed status households will need to show which household members are covered by minimum essential coverage, for which individuals exemption C applies, or if another exemption, such as a hardship exemption, applies to the household.
Form 1040NR and ACA – no penalty
No one who files on Form 1040NR is required to have minimum essential health coverage. Thus, no ACA penalty applies to a 1040NR filer without health coverage.
Non-filers – no penalty
No one who is not required to file a US income tax return is required to have minimum essential health coverage. Thus, no ACA tax penalty applies in this situation.
ACA, Health Coverage, and Non-Citizens
Non-U.S. citizens, whether considered non-resident aliens or tax residents, who have documented lawful presence in the U.S., perhaps by holding a visa, may purchase health insurance through the marketplaces set up by the Affordable Care Act, ACA.
Anyone may purchase insurance on the private market, or might have it available through an employer-sponsored plan.
See www.healthcare.gov pages linked to the term ‘immigrants’ for details of who qualifies to purchase coverage in the healthcare market place, and the documentation they will need.
Undocumented immigrants (not lawfully present) may not purchase coverage through the marketplace. The penalty calculation accommodates families that have mixed immigration status within the family. See the www.healthcare.gov pages on immigrants for various facts and circumstances that affect applying for marketplace coverage and the MEC, minimum essential coverage, requirements for qualifying family members, as well as how to file the tax return.
Form 1040NR filers:
Non-resident aliens filing on form 1040NR may qualify to purchase health coverage through the marketplace. They may also qualify for the Premium Tax Credit, calculated on form 8962. They are taxpayers, after all, or they would not be filing a tax return.
Form 1040NR includes lines for repayment or refund of the Premium Tax Credit. On line 44, the taxpayer repays any excess advance premium tax credit payment that may have been obtained to help pay for health coverage. On line 65, any net premium tax credit is entered. The amounts are calculated on form 8962, Premium Tax Credit.
Of course, there is no line for a penalty, since 1040NR filers are not required to have MEC (minimum essential coverage).
1040NR filers include:
A and G visa holders, unless they are married to a US citizen or resident and have made the 6013(g) election to file jointly on Form 1040
All who have not yet met the substantial presence test. F, J, M, and Q visa holders, (students and exchange visitors) may still be within the period of exemption from counting days, or may have left the US before achieving 183 days of presence in the US.
IRC 6013(g) Form 1040 filers
A non-resident alien spouse and a US spouse may elect to file jointly on Form 1040 by IRC 6013(g). The NRA spouse election affects only income taxes. It affects withholding rates on wages. The election may, or may not, affect the possibility of a penalty for a non-resident alien spouse without minimum essential coverage. The guidance on www.healthcare.gov is not clear on all situations for non-citizens.
Claiming Exemption C
Attach form 8965, Health Coverage Exemptions, to the tax return.
See Part III of form 8965 to enter the code and the months for the exemption for each individual in the tax household, that is, individuals who are listed on the return or could be a dependent on the tax return.
U.S. citizens living outside the U.S., and certain non-citizens, will enter exemption code ‘C’ in column 3 for each individual to whom it applies, and check the months for which this applies in Calendar Months, columns d-p.
Individuals who would meet the tests for the Foreign Earned Income Exclusion (FEIE) use those form 2555 qualification tests as a guide to determining for which months they may claim the health coverage exemption. . See the instructions for ‘Foreign Earned Income and Housing Exclusions – Form 2555’ on the IRS website, www.irs.gov.
If an individual would meet the bona fide presence test, then all the months in that period qualify for the exemption.
If an individual would meet the physical presence test, then the months in the qualifying period that are also in the tax year qualify for the exemption.
A U.S. resident alien who is a citizen of a country with which the U.S. has a tax treaty and meets the bona fide residence test in a foreign country also may claim exemption ’C’ for all applicable months.
An individual who is not lawfully present in the U.S. also claims exemption C.