Welcome Home? (photo credit)
US citizens living abroad are not required to purchase health insurance as outlined in the Affordable Care Act, often affectionately referred to as Obamacare.
The definition of “living abroad” is clear; nomads such as ourselves are limited to visiting the US for no more than 35 days every 12-months, else we are required to purchase minimum essential care insurance policies on a Health Exchange.
Were we actually in the US, we would do just that. But these policies provide no coverage for routine care Internationally, let alone across multiple States, which makes them effectively useless for our lifestyle. Thus the purpose of an exemption.
But limiting visits to the US to 35 days every 12 months seems awfully restrictive. If I wanted limitations in life, I would just get a job. So what is going to happen when we visit the US later this year for 2 to 3 months?
Qualifying for the Living Abroad Exemption
To qualify for the living abroad exemption we must pass either the Bona Fide Residency Test or the Physical Presence Test. (These are the same tests that are used for the Foreign Earned Income Exclusion (FEIE), a nifty option that also allows expats to pay zero income tax.)
Bona Fide Residency Test – this requires establishing permanent residency in another country, accomplished by legally moving to a new country for an extended period. If you are a Bona Fide Resident of a foreign country for a whole tax year (January 1st to December 31st) then you are exempt from the ACA.
Anybody who is truly a Bona Fide Resident of another country has a lot of flexibility when visiting the US. The Bona Fide Resident Test is highly nuanced / subject to interpretation, but if you live and work in another country, pay taxes, own a house, your kids go to school… nobody is going to blink an eye if you spend 3 months visiting Grandma every summer. Clearly you have established permanent roots in your new home.
Those of us without residency must instead pass the Physical Presence Test.
Physical Presence Test – If you are present in a foreign country (or countries) for at least 330 days in a consecutive 12-month period, you are considered to live abroad. Sailors and Explorers take note: International Waters and Antarctica don’t count.
If neither of these conditions apply, we must purchase minimum essential coverage through a Health Exchange (and will be unable to claim the FEIE.)
Nomadic Expats
Since nomads don’t have a permanent tax home, we must pass the Physical Presence Test.
Unlike the Bona Fide Residency Test, we aren’t required to use the calendar or tax year. Any consecutive 12-month period can be used, and we can choose the dates that are most advantageous. Our 35 days of presence in the US can occur anytime within those 12 months… including the last 35 days.
If we happen to arrive in the United States in August of 2016 (for example), assuming no prior visits in the previous year, it will be the end of September before we approach 35 days. We may even get a free day since it is a leap year.
Stacking 12-month Periods
At the end of September, we will have been in the US 36 days. And then 37, 38, …
Or as I prefer to think of them, Day 1, 2, 3… of the next 12-month period.
By stacking two 12-month periods together, we can remain in the US up to 70 days in 2016.
However, it won’t be clear that we have two valid sequential 12-month periods until September of 2017. This can be resolved with a simple extension of our tax filing until after this date.
Please Sir, I Want Some More
70 days is a long time. But what if we want more?
Technically speaking we are required to purchase health insurance effective the 1st day we are not covered by the living abroad exemption. If we don’t, the individual mandate penalty will be assessed. Additionally, we would not be able to claim the FEIE during the non-exempt time frame. (We won’t claim the FEIE anyway. Stay tuned for another exciting tax post.)
In 2016, the individual mandate penalty is fairly steep at $695 per adult (children get in for half price) or 2.5% of household income, whichever is higher. Fortunately this is prorated on a monthly basis, so ~$58/month/adult or ~0.2% of household income/month (equal penalty at $55,600 annual income for MFJ.)
So in theory, we could stay an extra 30 days for the price of a nice dinner.
But I’d rather have a nice dinner.
The “Short Gap” Exemption
For whatever reason, the ACA has a specific exemption from the Individual Mandate penalty as long as a gap in health coverage is less than 3 months in duration. This is known as the “short gap” exemption.
The phrase “less than 3 months” is a little misleading. Essentially it means that you can have no coverage for two full months but not three, and still pay no penalty. But even a single day of coverage in any given month qualifies as having minimum essential coverage for the whole month, so having no coverage from September 2nd to Dec 30th still counts as less than 3 months even though it is closer to 4.
For nomads, citizens who pass the Physical Presence Test are treated as having minimum essential coverage for the 12-month period whether they have health insurance or not. Or at least that is how I read it.
Since we control our schedule… day 2 of a given month seems like a good terminal date for a 12-month living abroad exemption, and day 31 seems like a good time to start the next one.
But…
By combining two non-overlapping 12-month living abroad exemptions and a short gap exemption, it should be possible for us to remain in the US for more than 6 months every two years without minimal essential coverage and without penalty.
While that sounds nice, I don’t think it wise to be self-insured in a country with a health system with zero price transparency and disproportionate fees.
If we were visiting only one location in the US, signing up for an ACA compliant health plan would be one option for coverage (it might even be free.) This policy would then be cancelled when leaving the US.
Since we plan to visit multiple States, a travel insurance policy will be a better fit. As one example, World Nomads offers policies with $5 million in coverage for serious illness or injury for a low fee.
Conclusions
With some advance planning, every two years the living abroad exemptions and short gap exemption should allow nomads to stretch visits to the US to 70 days for those who claim the FEIE and to over 6 months for those who don’t.
I don’t see many future visits that extend beyond two months, but I find that a lot easier to work with than a hard 35 day limit. We’ll test these limits later this year. Enjoy.
So, reading all this, my question is: are you covered if you actually do need healthcare while you are visiting the US?
We use a travel insurance policy when traveling to the US. So yes.
Most recently we purchased this from World Nomads.
WOW WOW WOW WOW….the most expensive travel insurance possible.
Yeah? Last few times I looked several options cost about the same. What provider would you recommend…
Nothing like some top quality knowledge to start the day. Great post and safe, happy travels!
Happy travels! Thanks John!
Wow, interesting analysis GCC. I had always assumed the 35 day limit was a pretty fixed thing. Thanks for proving me wrong! At some point in our future we may establish residency outside the States, it’s good to know there’s options beyond 35 days!
I was under the impression that the 35 day limit was etched in stone as well.
The only reason I looked deeper is because that was going to be a problem for us this year.
I’m working on my first time qualifying using the PPT; it’s actually really hard to do. At least, for me: just a couple business trips back to the States eats that up pretty quickly. Forget about visiting family…even though nobody could reasonably look at our lives and argue that we DON’T live abroad.
It’s down to making sure that each flight out of the US passes over Canada before 11:59pm on the day of departure…
You don’t have residency in one country?
The rules for what counts as a day in a foreign country are a bit ugly and in the US Government’s favor (naturally.) International airspace over the Atlantic doesn’t count, you need to physically be in a country, and it has to be for a full 24 hours. So Day 1 is basically the day after you arrive…
Because we’re abroad on official US government orders, we can’t be bona fide residents where we are. So I (who work private sector, and so qualify for FEIE) have to qualify by the PPT.
And the nice trick about travel is that while international airspace doesn’t count, *foreign national* airspace does…which is why I make sure that my flight routes take me over Canada before midnight on the day I leave. Then the whole next day counts. (Thank you, Nova Scotia, for sticking out so far east!)
Very cool. Thank you Canada! No shortage of nuances, red tape, and exceptions to keep us all entertained.
Very cool! I’m still mentally digesting the original Obamacare article!! So if your child is attending school out of the country then this is not an issue? That’s due to the BFRT? If so you would recommend self insure and/or travel insurance. Does travel insurance have restrictions for extended stays? Also if there is no waiting period for care, no pre existing condition rules and the premium is independent of your current medical status worst case scenario is that you return to the US for treatment and just sign up(that’s assuming that the US care is better which is debatable)?
You could just move back to the US permanently, which is a qualifying event that allows immediate sign up.
I wouldn’t self insure in the US. You never know if a paper cut is going to cost you a few hundred K.
The BFR test is nuanced… a reasonable person needs to look at your life and know without question that you have moved to a new country. Part of that is paying taxes. Another part is living a normal life in said country, of which kids in school could be one part.
When you come to the US at the end of the year for 2-3 months, simply go to the border, i.e. Canada or Mexico for 2-3 days to visit, so your passport shows that you have indeed exited the country briefly and then return and therefore your staying in the country’s clock re-starts again.
That is a way to reset a visa. It doesn’t work for being exempt from Obamacare or being able to claim the FEIE
So the 35 days is the total number of days in the country for the year whether consecutively or not, that’s what you are saying?
Yes.
My partner is from Australia, so we’ve dealt with the 90-day tourist visa for years. We’ve always read that visiting a bordering country (Mexico/Canada) does not count as leaving the country and therefore will not “reset” a visa. Is there an exemption to this rule that you know of?
I don’t. I also wasn’t aware that Mex/Canada were exceptions
Have you done an article on paying taxes while traveling abroad?
https://gocurrycracker.com/never-pay-taxes-by-moving-abroad/
I never would have thought Oliver could be incorporated into a post about Obamacare and Expats, but you’ve done it seamlessly!
It’s a consequence of my days as a thespian.
Once you use a 365-day year, are you obliged to not overlap them going forward? In other words, do your years have to be consistent (or at least non-overlapping) historically? By way of your example, you have two residency years (roughly) from 9/25/2015 to 9/24/2016 and 9/25/2016 to 9/24/2017. If you were to want to visit again in 2018 using this same logic, could you have the trip earlier in the year so that the 2 years were from 4/1/17-3/31/18 and 4/1/18 – 3/31/19, or is that illegal since you’ve already “used” the time between 4/1/17 and 9/24/17? Also, can you do it later in the year (Sept – Dec) or do the years have to match to the ones used in previous filings?
I think you have to be consistent and not overlap.
What travel insurance do you recommend when traveling to US
In the past I’ve used World Nomads.
Did you get assurances from World Nomad that you will be covered if you don’t have PR in a second country? They seem to be very particular about that point.
They cover US citizens traveling in the US. The specific language they use is there is no coverage within 100 miles of home. Makes sense; It’s travel insurance, not stay at home insurance.
In practical terms, claiming an exemption from the ACA penalty for lack of coverage seems to be on the honor system 99% of the time, and only causes a problem if you get audited 1% of the time, right? In which case, maybe oops you messed up, get slapped on the wrist and you owe a small penalty of $58 per adult per month plus an underpayment penalty.
Don’t you love the incredible complexity of rules governing what should be common sense? If only there were a more sensible system… :)
I think our laws are written for entertainment purposes.
Hi. I spent 2012 in SEA (based out of Chiang Mai) before the ACA requirement. I had a travel insurance policy through IMG that also covered me for visits to US as long as I was out of the USA for at least 6 months of the year. The cost was less than $1500 for the whole year. I’m now in the US and paying over $5000 a year for basic coverage. I’m planning on escaping the US again and hadn’t given this any thought. Any idea if the IMG travel policy would be acceptable coverage to avoid the penalty, even though it wasn’t purchased through a healthcare exchange?
Travel policies don’t meet the Minimum Essential Coverage requirements of the ACA.
Interesting stuff, makes sense to look into this and self insure to make sure you’re covered. :)
We’re booking tickets to Taiwan leaving July 19th and returning March of next year. I was told by the ACA call center that I call to cancel before leaving and call to turn it back on when I get back in the states. She said there wouldn’t be a penalty since it qualifies as a life event. Sounds like she may not be correct after all? Thanks
Usually if you are leaving for a definite period of less than a year, you are still considered a US resident for the duration of your trip. If you planned on being abroad for a year or more, or for an indefinite period (unknown return date), then you are a non-resident for that time.
So yeah, what the ACA rep said doesn’t seem correct. But there may be more to it than I am aware of.
Hmmm, interesting.
If I’m not a US resident nor a US citizen, then I assume that limit goes above that (180 days?) and depends more on how often the US are willing to let me in
If you are not a US citizen or resident, what or why do you care about Obamacare???
Once you hit 183 days, the US will consider you a resident with all of the benefits that entails… taxes, ACA mandate, etc…
Great blog post! I am from a different generation (nearly age 80), so have different experiences about working abroad. I’ll share a few things of what it’s like to be on Medicare in contrast with Obamacare.
When on U.S. Medicare and Social Security, I taught for five years in the Middle East (ages 65-70). It was a great experience for my wife and I, enriching in every aspect. Fortunately, we were able to save all of our social security income plus one person’s salary teaching ESL at the college level full time (ten months a year). That made up for the loss of an annuity from an American company that went bankrupt and caused us to lose about 30% of our planned retirement income. (C’est la vie, as the French say.)
Fortunately, we didn’t have any major medical emergencies abroad. If we did, Medicare would have paid enough to get us back home for continued treatment and reimbursed us for emergency treatment overseas (30 days leeway). We did, however, experience several minor things along the way. In every instance of seeing a doctor, nurse or hospital abroad in Jordan, Turkey, New Zealand, England, Australia, and Canada, treatment and care were outstanding. And, in most cases the costs were so low that we never used our insurance (Trimet). Paid everything by cash because of deductables. Normally, costs were about 5% of the US price. I remember paying $5 for antibiotics from American drug companies that were priced 10 to 20 times more in the USA. Same medications exactly. One hospital stay for five days in England due to kidney stones cost $240, which included ambulance service for 150 miles to the nearest hospital while hiking in Cornwall.
When it came to dentistry, we had procedures that cost $400 that would have cost $5,000 in the USA. I know…it sounds crazy doesn’t it, but it’s true. And the dentists often had been trained in Switzerland. Today, we get any expensive dentistry done just over the border in Mexico from those who have been trained in the USA.
The world of America is a bit nuts these days IMHO. And, expensive for most of us. Life used to be so simple, seemingly secure, and relatively affordable in the 1950-1980s. Then, Reagan stepped in with a new vision for the USA. Don’t mean to bring in politics, but changing political systems can make a vast difference in how the Middle Class fares. In this election year, it seems we have another change coming …Trump vs. Berni Sanders. Whatever the outcome, it seems we are in for another big shift in the fortunes of the majority of Americans. Interesting times to say the least!
Thanks for sharing! Great stories!
We too have found that care outside the US is both inexpensive and high quality. There are many very broken aspects of the US medical system.
I enjoyed reading this comment! It’s nice to hear about plan B should something go wrong.
Fascinating post. I’d never thought about the impact of ACA on American expats who visit the U.S. periodically.
Does this problem go away at the age of 65 when Americans sign up for Medicare? I’m not 65 or retired abroad yet, but I assumed that at 65 I’d sign up for at least Medicare part A (because it’s free) and probably part B too so that I’d be covered on trips back to the U.S. and not have to pay penalties in the form of higher Medicare premiums if I moved back to the U.S. at some point.
Once you are on Medicare, you don’t need to worry about the ACA anymore
Such an interesting article! Thanks for clarifying the qualifications Obamacare and how US citizens living abroad need not to purchase it. A lot people living abroad but still paying tax in the US will definitely find this article really useful especially since you provided exemptions and eligibility for them.
I just ran into an article that is written by a retired lawyer who lives in San Miguel de Allende Mexico. http://seniorplanet.org/aging-out-of-place-in-san-miguel-mexico/. Obviously not the ER crowd but she referenced a blog that gave more specifics on the nuts and bolts of/or how to guide to qualify for the tax free income generated by phone or computer as long as the money is sent in non-pesos from an employer outside Mexico to a Mexican bank. It looked like there were many nuances but overall not too bad. http://yucalandia.com/living-in-yucatan-mexico/income-tax-liabilities-in-mexico/. This will relate more to this https://gocurrycracker.com/never-pay-taxes-by-moving-abroad/. I’m definitely not trying to steal ur thunder by linking all these but I’m starting to imagine a tax free life while having some small income stream in addition to my nest egg. 47 months and counting thanks in large part to ur site!!
Hey so after rereading the article I linked to I may be off on a few things in my comments and I’m not as clear if their article relates exactly to the discussion of the avoiding taxes by moving abroad. I saw one reference in the comments about still filing in the us(and I’m assuming they were talking about Phone/internet income). So I apologize if it’s out of date or not helpful.
Back on the subject of this post, in the first link, she talks about having having major health issues while living in Mexico and even though they had emergency evacuation insurance and Medicare in the us they chose to pay out of pocket and it was less then 20% of US costs and they felt the care was excellent. It’s interesting reading about how older expats feel. Just FYI I’m in the medical field and I see some pretty crappy work come back from Mexico but I also have seen equally crappy work from people that move from New York and San Diego to my town in the Midwest. In general beware of anyone who tries to sell you treatment and remember just because it’s new doesn’t make it better especially in the medical field. Find a good person and you’ll find a good doctor regardless of the country your in. Obviously training/experience is important too so make sure they went to an accredited university because the requirements are more similar to the US/Canada and you’ll end up with more scientific based care(rather then treatments that are promoted by companies that offer greater financial incentives to the doctor/hospital)–or at least the doctor should know better.
Wow, I didn’t have this big issue on my radar for a trip we’re planning to Argentina next year. We are leaving in January of 2017, and we plan to stay until late December of 2017. Our kids will be enrolled in school, my wife will probably be teaching English, and we’ll rent an apartment.
Does that sound like a scenario that passes the Physical Presence Test? I wasn’t counting on paying my Obama Care premium next year, but this has me wondering.
If needed, I guess we could extend our trip longer, but we were hoping to visit family for the holidays.
How does the math work out on days? Seems like you are over 330 days outside the US, and would meet the PPT
Yes, we can make sure we’re over 330. Just making sure there weren’t any other considerations.
If you pass the PPT you should be good to go. Then travel insurance or alternative for Argentina.
330 days will be bright-lined in the calendar:) And yeah – still digging into health insurance for Argentina. I assume the basic care is pretty good and local insurance is affordable, but we’ll see.
“If I wanted limitations in life, I would just get a job.”
You are the best kind of hilarious. Mostly serious, but throwing in gems like that on occasion.
All comedy is based on truth ;)
I’ve yet to do our taxes but I’m curious how it will pan out for us. We became legal residents of Spain in June and plan to stay through the end of my daughter’s school year this coming June. When I file taxes were won’t have lived abroad for a year… yet. And we dove have plane tickets home… yet. Looks like the residency test requires us to look at calendar year. Interesting. I’ll have to do a bit more research.
One of the joys of being a legal resident of Spain is you get to pay impuestos.
I’d file an extension with the IRS to a date when you’ll pass the PPT, file your Spanish taxes, calculate your partial year US taxes based on the FEIE and FTC (Foreign Tax Credit), and then file US taxes using whichever of those results in the lowest tax bill.
Quick question… just discovered your blog and I’m rummaging around the posts and comments and having a fine old time… however I don’t understand the acronym FIRE…
Is it ‘Financially Independent Retiring Early’?
Just want to make sure I’m reading it correctly.
:)
Welcome. You are reading it correctly.
Interesting post. We would have to figure this out in 4-5 years, when we plan to retire and spend most of our time in S.E.A!
Wow, that is amazing. In the way that I had no clue about this but now I feel like I could use this. I hope to one day spend a whole year living abroad but if we ever became nomads which also appeals to me this is such useful information.
Thanks so much for sharing .
Also I was wondering… Are you vaccinatimg Jr? If so how does that work while you travel and if not curious why?
We vaccinate. Because science.
All vaccines on the CDC schedule through 1 yr have been/will be done in Taiwan. After that… TBD. But I don’t foresee any problem with just popping into a clinic anywhere in the world.
Interesting. So do you know what your standing might be as an expat if you were to try to collect from the National Vaccine Injury Compensation Program in the unlikely event that your faith in authority/science were to cause illness or disability?
Sorry, I think you meant to post this on Jenny McCarthy’s blog
Great confirmation of our past research. Thanks. Also like the FIRE reference, Financially Independant Retired Early. I’ve been calling us Obamacare Escapees after our annual ‘Affordable Care Act’ health premiums increased to $18,000 for a $12,000 deductible policy. We begin our 330 days+ starting this April. I analyzed Obamacare on my travel photography site (no competition with your informative site) here:
http://www.haroldhallphotography.com/affordable-care-act-not/#more-3192
Great information. I do dream of traveling some day and was curious about how the ACA would affect us. Thanks for the info!
Be careful to pay attention to your State taxes as well when moving overseas…depending on your facts and circumstances, you may still owe the State as well as the IRS.
I’m so glad I found your blog! We just moved abroad at the beginning of the year. We were planning a trip back home that would’ve lasted about 6 weeks, but now feel like we need to reduce to stay under 35 days. We both (me & my husband) work from home independently, and our son does homeschooling based on public school curriculum in the states. However, he is part-time enrolled in an international school to participate in their extra curricular activities and will be taking language classes in the fall. We have leased an apartment for 1 year. We have no return date. Other than the insurance part (which if I read right, we can just get World Nomads), is it safer to assume that we won’t qualify BFRT? Or does leading an apartment + part time enrollment make us eligible? I don’t really want to do back-to-back years as I want to be free to go to the states next year as well. We officially left the USA on Dec. 31st and started 2016 in foreign territory, if that helps!
Being a Bonafide Resident means you do things like have a residency visa, get resident alien government IDs, have health insurance in country, pay taxes in your host country, open a bank account, etc… To a rational observer it should be obvious that you’ve moved and setup your life outside the US.
https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion—Bona-Fide-Residence-Test
World Nomads would cover you while you are traveling, but as a US citizen they don’t provide coverage within 100 miles of your home base. Presumably that could complicate your visit back to the US. Or if you do pass the BFRT, it may not provide coverage in your new host country.
Thanks for the reply! OK, so we have already opened up a bank account and are currently in the VISA process… which to what we were told, having a trade license for the type of VISA we would need, means we have to pay taxes each month here. To get our VISA we will also be required to purchase 1 yr of health insurance here, so we will also be doing that soon. I guess it would be safe to assume that we appear to be moved out of the country (as this is what has happened anyways).
That does appear to be the case. Based on my opinion as a random guy on the Internet:
– you could pass the BFRT, which means you have a lot of flexibility on return trips to the US; you aren’t limited to 35 days per year.
– you could use World Nomads or other travel insurance for visits to the US, since you would be a permanent resident elsewhere.
Since you are paying foreign taxes, you would calculate your US taxes based on the FEIE and the Foreign Tax Credit, and use whichever gives you the best overall outcome.
New to your herd here…was referred by a good friend of yours….like your site very much! Regarding health insurance, does it satisfy the Physical Presence Test if during your visit to the USA you go spend a night or even a lunch in Canada or Mexico or across some other border, thus qualifying that day as a day on foreign soil? Depending on where in the USA you were visiting, this could help, couldn’t it? Obviously not from Ohio or Nebraska, as it would be a day-by-day subtraction, but from Buffalo or San Diego or Bellingham or other places…? And what about taking a small boat out to do some fishing and venturing into international waters? Just thinking outside the box here….
Welcome, Michael.
I think some people at the IRS came across a few out of box thinkers in the past, and have prepared some rules to go by.
They define a day as a 24-hour period starting at midnight. So you can’t just go to Mexico for the lunch special, you would have to leave by 11:59 pm on a Thursday and not return before Saturday morning. International waters also don’t count… nor does the moon or Antarctica. You have to be physically present in a foreign territory, so even if you spent a year at sea you wouldn’t pass the PPT.
Well that settles that…since there’s no value in it I won’t be sleeping in my rowboat twelve miles offshore anytime soon. : ) Tnx.
I have been searching articles like this all day trying to find out if I will have issues with my visit to the US after I realized this morning this could be an issue. My situation is I have been living in the Philippines for 8 years 7 straight without leaving. I have married here and have 3 children. We own a small piece of bare land and a building on land we don’t own but lease. I have permanent residency status here and have for nearly 7 years. Our children are US citizens also of course though they have never been there.
I live on disability income so I pay no taxes and haven’t filed in many years. I understand it isn’t required buy the US unless your combined income is over 36k and the Philippines doesent tax out of country income. My wife has a internet cafe business here but even gross income doesent approach that.
We plan a trip to the US we have tickets for May 27th. We were planing to stay about 100+ days. But wouldn’t have much of an issue with leaving in 90 if we need to as we haven’t bought onward tickets yet. We are planing to go to Costa Rica and or Ecuador form there for a permanent move as we need a change and have at least one business offer in Costa Rica. Do you think we will have issues? I would be really annoyed if I had to leave in 34 days. Will we really have to leave in 90 days?
If I could just pay for insurance for the months we will be their it would be an annoyance but doable but I cant fathom paying for the rest of the year. Would rather stay off their radar entirely if possible.
Hi John. Sorry, I’m not completely sure what the answer is.
As a bona fide resident of a foreign country, you are considered to have minimum essential coverage for the months that you are a foreign resident. Visits to the US don’t change your residency, as long as they are sufficiently short and temporary (maybe less than 6 months.) Because you are moving from one country to another, you are in a bit of a gray area.
You aren’t required to file taxes in the US as long as income is less than the filing requirement, equal to the standard deduction and personal exemption. In 2015, that is about $32k for a family of 5 ($12,600 standard deduction plus 5 personal exemptions.) But it is still a good idea to file anyway, as not filing leaves you open to audits for any and all years you don’t file. If you file, you start the clock on statute of limitations.
This is an amazing post, and demystifies lots of issues.
Just wanted to clarify, though, that the 330-day physical presence exemption to the ACA minimum coverage requirements is predicated upon being ELIGIBLE to claim the Foreign Earned Income Exclusion (FEIE) (whether you ACTUALLY claim it or not is immaterial). See, Section 26 U.S.C. s. 5000A(f)(4)(A) and the attendant IRS tax regulations and comments. As such, a global nomad seeking to qualify for the FEIE would have to be able to demonstrate a “foreign tax home” PLUS meet the 330 day physical presence test (PPT).
While this is not a problem for anyone like yourself generating foreign earned income by blogging, it looks like it could be a bit of a problem for folks like my wife and I looking to retire early as global nomads but NOT work AT ALL. How would you establish a “foreign tax home?”
As I’m sure you know, the IRS Tax Home guidance in Pub 54 for purposes of the FEIE states:
“If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and YOUR TAX HOME IS WHEREVER YOU WORK.
You are not considered to have a tax home in a foreign country for any period in which your
abode is in the United States. However, your abode is not necessarily in the United States
while you are temporarily in the United States.”
So, it would seem that the best strategy for a “pure” retiree looking to qualify for the FEIE (and the ACA exemption) might be to generate at least SOME TOKEN income outside the US (from freelancing, blogging, etc) and claim the country they’re in at the time as their “foreign tax home” for US tax purposes. Right?
Also, under this scenario, you wouldn’t have to file foreign taxes in the country you’re claiming as your “foreign tax home” for US tax purposes unless you were a tax resident of that foreign county (i.e., spent more than 183 days there or otherwise were required to file under the foreign tax code). Right?
Passing the Physical Presence Test is sufficient.
I may be wrong, but from what I’ve read of the policy it seems that Blue Cross Blue Shield members are covered in all states and in 200+ countries when they travel via the Blue Card program which is included at no extra charge, though I’m not currently with them as I have insurance via my employer. I’ve seen international coverage mentioned in their plan description for North Carolina via healthcare dot gov and also at http://www.bcbsnc.com/content/employers/bluecard/index.htm
Just blew my mind on the “Stacking 12-month Periods” section…
If I understand that section correctly, you could live outside the country for 6 years (never entering the US), come back on the 7th year to stay in the US for 183 days, and file your Form 2555 passing the Physical Presence Test for all 7 years?
I’m sure there’s a reasonable limit but I’m just trying to wrap my mind around the stacking concept.
No. If you are in the US for 183 days, you won’t pass the PPT.
You can pass it for the previous and following 12 month periods. And for the middle you can avoid an ACA penalty due to the Short Gap exemption.
Thanks for the reply.
I was trying to follow the logic and build it out to an extreme.
Does that mean stacking can’t be used retroactively (as per my last example) but can only allowed to be pushed into the future (as per your example via filing an extension up to the point where you would know if you have passed the PPT)?
Expats already have an automatic 6-month extension and could file another one to stack two years. Do you know of any limits on the number of 6-month extensions (i.e. 3 extensions to stack 3 years)?
Just curious about the hypothetical gymnastics as it reveals how the US tax system works ;)
I’m new to your blog and already my husband and I are enthralled! We will be moving overseas for the rest of the year at the end of March, (were in US from Jan 2015-March 2017). If we have full coverage insurance from January-March of this year before leaving, and are out of the country the rest of the year, is there an exemption for that? Or no, because we exceeded the 35 days? Just curious to see if there is some way we can combine the exemptions to our benefit.
It doesn’t need to be a calendar year. You could pass the physical presence test by being outside the US until at least end of February 2018.
I’m new to this. I’m a US citizen but living in the UK and have been here for 6 years. I don’t work and am not a resident. If I want to come back to the USA what do I need to Do?
If you are moving back to the US there are no limitations. Just move back and signup for health insurance on the exchange in your State.
Wait a sec. When I was looking into this before I recall reading that you are not subject to ACA requirements if your income is sufficiently low that you are not required to file taxes. So if you’re not earning any money, then what is the issue?
I’m earning money, e.g. dividends