What the “padiddley” is that? Off the medications again, Paul? You’re writing gobbledygook – what are you trying to say?
Well, dear readers, that’s shorthand for our topic today. Many a question has been asked regarding this topic, so I guess it’s time to remove the mirrors and clear the smoke. Here’s the key to the cryptic title:
- ACA = Affordable Care Act.
- 12MO = Twelve (12) months.
- MEC = Minimum Essential Coverage
Decrypted, the “unabridged” title would read something like, “The Affordable Care Act requires all U.S. Income Taxpayers to have twelve (12) full months Minimum Essential Coverage of health care, less they be assessed the healthcare tax.” That’s simply too long for a title; thus, the shorthand.
OMG! — ANOTHER TAX?
As you may be aware: yes, there is another tax that’s been around for a couple of years, now. For this tax season – covering tax year 2015 – things are a little different, and the IRS is getting serious.
Since it’s inception, the healthcare tax and the ways to avoid being liable for it, has been pretty haphazard in the reporting department. Delays for some entities to report, not-so-strict requirements for others – the IRS, more or less, turned a blind eye to inaccurate and erroneous reporting of healthcare coverage by taxpayers in the past.
This tax season, the IRS believes that it has the administration of the healthcare coverage requirements and the assessment of the healthcare tax all in order, and it’s shifting from the “blind eye” to two, very observant, audit-quality eyes. For tax year 2015, “they mean business.”
Now, if it took the government agency, that’s in charge of administering the tax laws regarding healthcare, a couple of years to “get it all together,” how much longer would be needed for taxpayers to “come up to speed”? According to the IRS, taxpayers should already be up to speed, and should be providing it with complete, accurate reporting of their healthcare situation. (Gee, thanks, Sam.)
THE NUTS & BOLTS, EXPAT-STYLE
The information that I’ll present here is directed, primarily, to the U.S. taxpayer living in the Philippines (or any other country outside of the U.S.). While our Stateside audience will find the information presented here useful, they’ll also find it to be incomplete. This article doesn’t delve into the complexities of health insurance purchased at the marketplace or state-run sources, and the possible credits that may be available as a result of participation in certain methods of obtaining healthcare coverage.
Here’s the basic “fact of life”: A U.S. taxpayer must have one of the following items in order to be considered as compliant with healthcare requirements:
- Twelve (12) full months of healthcare coverage that meets or exceeds the required, government defined Minimum Essential Coverage (MEC);
- The equivalent of twelve (12) full months of MEC; or
- An IRS-approved exemption from having twelve (12) full months of MEC.
Notice the words, “twelve (12) full months.” It means what it says – each and every month of the tax year being reported must be a full, complete month. Partial months (e.g., 30 days of a 31-day month) do not “cut the mustard” when tallying one’s healthcare coverage to determine compliance.
Also notable, is the inference as to who must have the coverage. In this instance, the word, “taxpayer” is a generalization which really means, “the taxpayer and all members of the taxpayer’s “tax family,” who are included in the tax return as either a spouse, a tax dependent, and/or a tax beneficiary or person enabling tax benefits for the taxpayer.
ENTER, THE TAX FORMS
A new tax form is appearing in many mailboxes this year – those of many taxpayers and that of the IRS. It’s the Form 1095-(series).
The letter in the series, either “A,” “B,” or “C,” indicates the type of coverage provider:
- Form 1095-A, Health Insurance Marketplace Statement, is generally provided to individuals enrolled in health insurance coverage through the Marketplace;
- Form 1095-B, Health Coverage, is generally provided to individuals enrolled in a government-sponsored health program or in other types of coverage, and may be provided to individuals enrolled in certain types of health insurance provided by their employer; and
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, may be provided to individuals enrolled in certain types of health insurance coverage provided by their employer.
This is a FYI” form only, and does not have to be filed with an income tax return. While a recipient of this form must retain it just in case the IRS requests to see it at some point in the future, the recipient simply uses the information on the Form 1095-(series) to complete the healthcare section/form that is part of an income tax return. “Copy/Paste” – it’s that simple.
Form 1095-(series) will provide the recipient with the following information, along with identifying the recipient (called the “Responsible Individual”) by name, address, and taxpayer identification number (SSAN):
- A letter code that identifies the type of coverage in which “covered individuals” were enrolled (e.g., “D”=Individual Market Insurance);
- If healthcare coverage is “Employer Sponsored Coverage,” it will provide the employer’s name, address, and taxpayer identification number (EIN);
- If healthcare coverage is from an “Insurer or Other Coverage Provider,” it will provide the provider’s name, address, telephone number, and taxpayer identification number (EIN);
- The names and SSNs for each “covered individual” – each member of the recipient’s “tax family” whose healthcare is covered by the provider;
- The dates of birth for each “covered individual,” if that individual’s SSN is not available;
- Whether the “covered individual” was covered for the twelve (12) full months of the tax year (via check-the-box); and
- If not covered for the twelve (12) full months of the tax year, the identification of each full month during which the “covered individual” had coverage (via check-the-box).
The Form 1095-(series) looks extremely similar to the Form 1040 Health Insurance Worksheet, and to Form 8965, Part III Coverage Exemptions Claimed on Your Return for Individuals, and guess what? Those locations are where the Form 1095-(series) information is entered by individuals who do not have twelve (12) full months of coverage.
Individuals, whose Form 1095-(series) indicates that all members of his/her “tax family” were “covered individuals” with twelve (12) full months of coverage, need not worry about extra forms or worksheets. Those individuals only need to “check the box” on the appropriate line of their tax return (e.g., line 61 for Form 1040) to indicate “Full-year coverage” of health care (“SALY” – “Same As Last Year”).
I’M HERE & NO FORM 1095-WHATEVER
Living overseas can have a number of benefits when it comes to income tax returns. One of them is the Foreign Earned Income Exclusion (being able to exclude earned income received by a taxpayer residing and/or working overseas from being taxed). Another just happens to deal with the topic du jour. Coincidently, both of these two are related, as you will see.
The benefit? Citizens living abroad and certain noncitizens are exempt from the twelve (12) full months of Minimum Essential Coverage requirements. For eligibility to claim this exemption from “12MO MEC,” the individual must meet the same “living abroad” criteria as those claiming the Foreign Earned Income Exclusion (ah, the relationship!) That means an individual must either:
- Be a “bona fide resident” of the country in which he/she resides for the entire twelve (12) months of the tax year, and have their “tax home” located in a country outside of the U.S.; or
- Be “physically present” in a country (or countries) outside of the U.S. for at least 330 days of a twelve (12) consecutive month period within a 15 month time frame that encompasses part or all of the tax year.
If you meet either of those two prerequisites, you are eligible to claim Exemption Code “C” – U.S. Citizens living abroad and certain noncitizens.
Claiming this exemption (or any other valid exemption) occurs in Form 8965, Part III (mentioned above), where the name and SSN of the “exempt” individual is entered, along with the Exemption Type code “C.” For each of the “exempt” individuals so identified, the term of the exemption – whether for the full year or for certain months of the year – are entered via “check the box.”
THAT’S ALL THERE IS, EXPATS!
Not really that difficult; the process can be confusing, however. This is especially true if you learn about it through the rumor mill or the bamboo grapevine. I’ve seen expat bloggers build beautiful mountain ranges out of this little molehill, with about 90% of their consternation being derived from “what if’s” that would never happen.
To think: All of the weeping and gnashing of teeth caused by immaterial and moot “what if’s” could have been prevented had someone sought an authoritative source, such as a tax form instruction pamphlet, and discovering exactly what they needed to know. Oh well, I’ll hear from them when their tax returns are due. Then, they’ll want some advice on how to pull their fat from the fire.