On November 6, 2012, Barack Obama was re-elected president of the U.S. and the democrats recaptured the Senate. The election results effectively ensure that the Affordable Care Act (“ACC”) will be implemented. The ACC imposes obligations that most individuals maintain health care coverage. Individuals who fail to comply with the law are subjected to penalties in the form of excise taxes. For permanent residents who may maintain coverage provided by a foreign company or government and for expatriates living abroad, the individual mandate creates a number of potential issues and concerns.
The ACC was drafted in broad terms and many of the issues affecting permanent residents and expatriates have not been addressed. What can be determined from the current regulations is limited. With regard to U.S. citizens living and working full-time abroad, the individual mandate probably does not apply. Citizens living abroad will not have access to state-based insurance marketplaces and the ACC seems to imply that employers will not be penalized for having employees working and living abroad.
The individual mandate does likely apply to foreign citizens who are living and working within the U.S. The individual mandate within the ACC states that it applies to U.S. citizens, nationals (territories) and to “an alien lawfully present in the U.S.” The test for application of the individual mandate appears to turn on residency and not on the citizenship of the individual. Thus, if a foreign citizen holds residency status in the U.S. and lives in the U.S., the individual mandate will likely apply. While the rationale behind such an application is unknown, it appears to be based on the theory that the individual who resides in the U.S. will receive medical treatment in the U.S.
For foreign individuals residing in the U.S. who are subject to the individual mandate it is unclear whether coverage from a non-U.S. issuer will satisfy the mandate. Further, it is unclear whether the ACC’s regulations apply to non-U.S. issuers who are covering non-U.S. citizens working and/or living in the U.S. The extra-territorial application of ACC would be controversial and will need to be addressed before ACC is implemented in 2014.
The implementation of the ACC will also impact expatriates’ tax liability and reporting. For example, employees subject to U.S. tax law may need their employers to report the cost of their health care. Such a requirement may be confusing and cause frustration in countries with government sponsored health care systems. For expatriates, reporting issues associated with the ACC will add to myriad of regulations flowing from the U.S.’ application of its tax laws to worldwide income of its citizens and residents.
Now that the ACC will be implemented, tax advisors and attorneys will have to closely monitor the implementation of new regulations. As seen above, a failure to enact guiding regulations could cause significant issues for permanent residents and expatriates.
For further information regarding U.S. tax planning, please contact one of our tax and estate planning specialists.
