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ACA sez, “12MO MEC”

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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:

Get Relocation Consulting and Coaching from Live in the Philippines
  • 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 – Hurtthings 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 refundobservant, 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. nuts and boltstaxpayer 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:

  1. Twelve (12) full months of healthcare coverage that meets or exceeds the required, government defined Minimum Essential Coverage (MEC);
  2. The equivalent of twelve (12) full months of MEC; or
  3. An IRS-approved exemption from having twelve (12) full months of MEC.

2015 calendarNotice 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 1095individuals 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 fyisimply 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):

  1. A letter code that identifies the type of coverage in which “covered individuals” were enrolled (e.g., “D”=Individual Market Insurance);
  2. If healthcare coverage is “Employer Sponsored Coverage,” it will provide the employer’s name, address, and taxpayer identification number (EIN);
  3. 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);
  4. The names and SSNs for each “covered individual” – each member of the recipient’s “tax family” whose healthcare is covered by the provider;
  5. The dates of birth for each “covered individual,” if that individual’s SSN is not available;
  6. Whether the “covered individual” was covered for the twelve (12) full months of the tax year (via check-the-box); and
  7. 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).

8965The 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.

ex or notThe 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.

exIf 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.

sallTo 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.

 

 

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PaulK

Paul is a CPA and a retired tax accountant, having served companies and corporations of all sizes, as well as individuals, in public accounting practices. Prior to what he refers to as his "real job," he served a 24-year career in the U.S. Navy, retiring as a Master Chief Petty Officer. It was during this career that he met and married his OFW spouse of 40+ years, Emy, while stationed in London, UK. (Though he pleaded for the assignment, Paul never received orders to the Philippines.) A "Phil-phile" from an early age, Paul remembers his first introduction to the Philippines in the primary grades of a parochial elementary school where, one week each year, children donated their pennies to purchase school supplies, food and other necessities for Filipino children in need. That love for Filipinos continues to this day. Calling Pasuquin, Ilocos Norte--in the far northwestern part of Luzon--home (just about as far away from Davao as one can be while still being on one of the major islands) Paul prefers a more relaxed provincial life style, and willingly shares a different view of the Philippines from "up north"!

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Todd F
Todd F
5 years ago

Now the million (or at least many thousands) dollar question.

One retires and bugs out of the US in May or June. Must they carry a crappy American policy because they’ll only be out of the country 7 or 8 months, that particular year, if they’re fully covered up until the time they leave?

Paul
5 years ago
Reply to  Todd F

Hi Todd – I don’t know what dollar value can be ascribed to the question, but here are my couple of centavos (centimos) worth in reply ?: “It all depends ….” As I’m oft to repeat: “When it comes to taxes, there are no simple, easy answers to questions!” That being said, we’ll take a look at a few possible scenarios that address your question. Remember, the “goal” for avoiding the healthcare tax is having twelve (12) full months of Minimum Essential Coverage (MEC). Scenario #1. Taxpayer with MEC while residing in the U.S. leaves and begins life in the… Read more »

Todd F
Todd F
5 years ago
Reply to  Paul

Scenario one pretty much covers my question, as I intend to make the Big Move in May(ish). Stay a few months in the Philippines before moving on elsewhere. Then visiting the US the following October (in 2017, for not more than 35 days).

Thanks. That’s the best writeup I’ve seen that addresses what no one else has done with regards to the partial year thing.

Paul
Paul
5 years ago
Reply to  Todd F

Hi Todd – Remember that if you can establish your “tax home” outside of the U.S. (as long as it is outside of the U.S., it doesn’t matter if it is in one place permanently or travels along with you as you seek greener pastures), you can attempt to acquire “bona fide resident” status for the purposes of the ACA exemption. Just like in Scenario #1, you could achieve “bona fide resident” status as early as 2017 and reap its benefits in 2017. Unlike achieving the ACA exemption via “physical presence,” the “bona fide resident” status would allow you to… Read more »

Wally Barr
5 years ago

So if you go home for more then a month you need to have health insurance or pay the penalties? If you had Medicare could you even use it in the Philippines?

Paul
5 years ago
Reply to  Wally Barr

Hi Wally – Again, “It depends ….” If you are considered to be a “bona fide resident” of a country outside of the U.S., you are exempt from the MEC requirements regardless of how many times you visit the U.S. so long as you retain your “bona fide resident” status. If you are considered to meet the “physical presence” test requirements, you can visit the U.S. for up to 35 days within the test’s twelve (12) consecutive month period and retain your exemption from MEC requirements. Otherwise, you would be liable for the healthcare tax based on the number of… Read more »

Cornell
Cornell
5 years ago

Where does medicare comes into play on this state of quandary.

Paul
5 years ago
Reply to  Cornell

Hi Cornell – By itself, Medicare, outside of the U.S., doesn’t count as MEC.

In some situations, such as for those taxpayers living abroad who are enrolled in a healthcare plan sponsored by the U.S. Government that requires enrollment in Medicare Part B, Medicare plays an indirect role. (I.e., you drop your Medicare Part B and you lose your government-sponsored healthcare.)

Rusty Bowers
Rusty Bowers
5 years ago
Reply to  Paul

Unbelievable. Not ACA as Roberts made it the law. All politics aside. It is fact. The law.

Be exact. You say it then back track into wordy land. Resident (13 A) outside US for X amount of time= No need for other coverage.

Paul
Paul
5 years ago
Reply to  Rusty Bowers

It’s not that automatic, Rusty. You have to pass one of the two tests, and document it. Most important, your “tax home” has to be located overseas. Some series 13 visa holders retain a stateside tax residence and file state income tax returns. They don’t qualify for “bona fide resident” status, and must rely on meeting the “physical presence” requirements, otherwise they are liable for the healthcare tax.

Rusty Bowers
Rusty Bowers
5 years ago
Reply to  Paul

Thanks Paul. Now that’s what I wanted to hear. A short concise explanation for my pea brain.

According to one IRS article doesn’t everyone have a stateside residence? The article said one’s state residence is where they: 1. Have a bank account. 2. Are registered to vote.

Please don’t write Moby dick when answering. Again my pea brain can only accept one paragraph.

Paul
Paul
5 years ago
Reply to  Rusty Bowers

No. All the IRS requires is that you provide them with a current address to which they can send correspondence, and that you file your tax return (if required to do so) and pay any taxes that you may owe.

Cornell
Cornell
5 years ago

I am asking since I am bound to go home once I reached the magic number. I am a retired U.S. Marine, has a retireeTricare insurance coverage. I know medicare does not cover outside the U.S., does Tricare in the same category also? Thanks.

OB
OB
5 years ago
Reply to  Cornell

Tricare Standard (or Tricare Overseas if living/visiting outside the US) meets the MEC. I asked this question before I left the US. Also, you can download the form from the MyPay website. I have already done so. OB

Paul
Paul
5 years ago
Reply to  OB

Thanks, OB!

Paul
5 years ago
Reply to  Cornell

Hi again, Cornell – What OB writes is correct. So long as you maintain your Medicare Part B, TRICARE For Life (TFL) enrollment isn’t terminated and you continue to be considered as having the required MEC for each full month that you are enrolled in TFL.

As a retired Marine (“once a Marine, always a Marine” Oorah!), DFAS will provide you with a 2015 Form 1095-B that provides evidence of your having MEC for the twelve (12) full months of 2015 provided by TRICARE.

Luke Tynan
5 years ago

Thanks Paul Keating great article.

Paul
5 years ago
Reply to  Luke Tynan

Thanks, Luke! We aim to please! 😆

william c borkowski
william c borkowski
5 years ago

i find your articles to be very disturbing because of how you substitute platitudes and party propaganda for truth. Let us start here: it is true that the Democrats tax and spend. But this is also true: Republicans borrow and spend, and defer payments on that debt to future taxes. Two examples, which are widely known and thus must be addressed by any writer on the subject are: Ronald Reagan, the first president to go over 1 trillion dollars in debt. Much of our tax money is going to pay his debt. Then there is Bush. For invading the wrong… Read more »

MindanaoBob
5 years ago

Funny, I never saw any political party mentioned in the article until your comment.

Jay
Jay
5 years ago
Reply to  MindanaoBob

I didn’t either. I think there was a cartoon that made fun of President Obama, but this was pretty much a fact based article and a good one!

william c borkowski
william c borkowski
5 years ago
Reply to  MindanaoBob

to express the philosophy of a political party, even without naming it, is to categorize one self as an apologist for that party. it is just an example of refusing to take responsibility for not thinking through on the real issues.

PalawanBob
PalawanBob
5 years ago

Let me clarify this;
“Bush invaded the wrong country”…
Then Obama invaded 6 more “wrong countries”…
Kennedy failed to free Cuba.
Nixon lost the war in Vietnam.
Jimmy Carter lost face in Iran and so on.
Are you trying to say that the US has only morons for presidents?
If there is any doubt of who the moron is, that is certainly you!
Wake up and smell the coffee, it’s very late in the morning.

william c borkowski
william c borkowski
5 years ago
Reply to  PalawanBob

no i do not say the USA only has morons for presidents. but when people start blaming others for problems, they must ensure they are blaming the right people. if you want to see a real moron, moron, look in the mirror.

MindanaoBob
5 years ago

William – I try to operate a site that is welcoming and fosters a good discussion. You don’t want to play within the rules, though. Because of that, your further comments will be by moderation only. You disagree with Paul, but isn’t it possible to disagree without calling names?

Paul
Paul
5 years ago
Reply to  MindanaoBob

Water off a duck’s back, Bob, water off a duck’s back. (And the skin on that back is exceptionally thick, thanks to the scarring from earlier placed knives! :lol; )

PalawanBob
PalawanBob
5 years ago

Sorry for using the word moron, I really didn’t mean to offend anyone. This said, when there is a CONSISTENT SUCCESSION of “failed or wrong” political decisions as well as financial decisions, don’t you think that it was meant to be this way?! That in reality all our recent history was a succession of extremely well planned events, be it “wrong or fails”. All of them or at least most of them… counter-intuitive! In politics, there are no failures. If the public perceived an event as a failure, you can be certain that it was planned ahead to be that… Read more »

Rusty Bowers
Rusty Bowers
5 years ago

Please remember presidents have to make deals to get anything done. Raegan had to make deals with Tip O Neal. Obama has raised the debt a lot right? Didn’t he have to for whatever reason?

It doesn’t matter what party they are from. Deals must be made.

Paul
Paul
5 years ago
Reply to  PalawanBob

Just a small correction, Bob. The Vietnam situation was going well with the Vietnamization of the RVN defense. Things were on the offensive when the last U.S. forces left, and the great push south and east by NVA forces was repelled and turned around. All was going well until Congress passed a resolution that basically forbade sending money, medicine, arms, ammunition, or any kind of aid that could be used by military forces to all countries in Southeast Asia. With their supplies of everything dwindling, and no relief that had been promised by President Nixon was allowed to flow to… Read more »

PalawanBob
PalawanBob
5 years ago
Reply to  Paul

Paul, the US never had the intention to win the war in Vietnam.

Paul
Paul
5 years ago
Reply to  PalawanBob

I beg to differ, Bob. We won the war on the ground. The war was lost at the bargaining table. This member of the US and his brethren in the armed forces had every intention of winning.

The Jane Fondas and John Kerrys of the US had no intention of winning the war.

PalawanBob
PalawanBob
5 years ago
Reply to  Paul

It was a drug war, notice that I didn’t say a ‘war on drugs’. Communists took over and Vietnam was eliminated in a drug war.
The US won big time!

Paul
Paul
5 years ago
Reply to  PalawanBob

Oh yeah; and the Middle East is all about oil.

Was told all that stuff in the 70’s, when the “poor, damaged veterans” were coming back and were deemed unable to readjust to society because of their mental problems caused by the “wide-spread” use of drugs; and were refused any assistance. At best, we were to be pitied, because we was damaged.

No progress here. Take your medicine, Bob, and G’nite.

Rusty Bowers
Rusty Bowers
5 years ago
Reply to  Paul

I didn’t know that about Congress and medicine, etc. Thanks Paul.

I think Bushes big mistake was removing Saddam. Saddam kept a lid on what is now Isis. We/I just didn’t know about it. But I guess he was told to do it.

Paul
Paul
5 years ago
Reply to  Rusty Bowers

We’ll never really know, Rusty.

Rusty Bowers
Rusty Bowers
5 years ago
Reply to  Paul

Your right we’ll never know. However, Trump (no matter what people think of him) has exposed all that goes on in making political decisions.

One political pundit said Trump didn’t just talk about a wall. He built it and pulled the whole dirty political process over it.

He was saying shame on Trump. I said Good. We’ve know this but now everyone else should too.

Paul
Paul
5 years ago

Hi William – “I am not a typical Republican bigot.” There, are you satisfied? (I think not.) Unlike some commentators to these articles, I don’t spew political rhetoric or label anyone who disagrees with my words with a pejorative term. Try this on for size: 1) Pay your own way, William, and I’ll pay my own way. 2) Let’s get our government to stop its excessive spending, so that the debt won’t increase as we try to pay it down. 3) Stop looking for handouts, and accept the “hand ups” that are offered to you. 4) Let’s look to the… Read more »

Mike Mcgeshick Bottea
5 years ago

Explain this bob plz

Bob Martin
5 years ago

Hi Mike – I did not write this article, so I am not the guy who can explain. It was written by Paul Keating. Sorry I can’t help you on this.

Paul
5 years ago

Hi Mike – I can explain. Just let me know what “this” is. ?

Mike Mcgeshick Bottea
5 years ago

Then what do u make of it

Bob Martin
5 years ago

It has no affect on me, Mike, so I don’t care. I have lived outside the USA for so long that I am not part of it.

Paul
Paul
5 years ago

Soup. Have a bowl, and a free slice of bread.

GaryM
GaryM
5 years ago

I have my 1095C for part of the year and a 1095B for the rest of the year. We will will also to check the box of the bonafide resident/ 330 day out of 365 category. I think that we are covered.

Paul
Paul
5 years ago
Reply to  GaryM

Hi Gary – If your Form 1095-C and Form 1095-B provide evidence of your having MEC for the full twelve (12) months of 2015, then you only need to check the box on Form 1040, line 61 (or the appropriate line of Form 1040A) to indicate that you have the required MEC. If less than 12 full months of MEC is indicated in your Forms 1095-(series) combined, then you’ll have to assess your situation and determine whether you are a “bona fide resident” or if you meet the “physical presence” test requirements. With that information, you would then complete a… Read more »

Derek
5 years ago

Hi Paul, very entertaining article this week everybody arguing love it
Keep them coming I’m glad I’m British ,
Derek in pasig

Paul
Paul
5 years ago
Reply to  Derek

Hi Derek – comments and arguments are an article author’s bread and butter. I’ve struck gold on this one! 😆

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