Tax Law (Questions About Taxes)/Obamacare Tax
QUESTION: IJ Zemelman, I really need help. Please! Thank you so very much in advance. I originally though my daughter, who is TEMPORARILY teaching in China would be exempt from the Obamacare tax for 2014 because she lived overseas for over 330 days during a period of 12 consecutive months, and therefore qualified for an Obamacare tax exemption by passing the IRS's physical presence test. But if I'm correct on my new analysis, the physical presence test is more than at least 330 days/365, and to avoid the tax you need to qualify EXACTLY as you would to claim foreign income exclusion - which she doesn't. Lately I've learned that although according to 26 U.S. Code 911/Internal Revenue Code 911(d)(1)(B) my daughter DOES have a tax home outside the U.S., she still does NOT have minimum essential coverage to avoid the Obamacare tax for her over 330 days/365 because IRS publication 54 says you CAN'T have a tax home outside the U.S. if your abode (which the IRS says is considered a domestic issue, not vocational) is in the U.S. I believe my daughter's abode IS in the U.S. for my daughter's just TEMPORARILY teaching in China, has NO plans to stay in China after teaching, has her domestic ties in the U.S.(family, banking, etc.), is a resident of California and in her “heart of hearts” is domestically linked to the U.S. I believe now because of the aforementioned reference to abode in conjunction to tax home, my daughter DOES NOT qualify for an Obamacare exemption and needs to pay the tax. Please advise.
ANSWER: Hello Shone,
No need to make the things more complicated than they are.
Your daughter does not need to have an intent to live in China permanently.
She can claim health care exemption for the full year if she has spent 330 days abroad during 12 consecutive months and meets qualification for the Physical Presence test.
Hope this helps
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QUESTION: Hi I.J. Zemelman. Thanks for your prompt answer. It is SO appreciated! I'm still confused though!! As per your comment in your response, I don't think I'm making this particular healthcare exemption issue more complicated than it is. Please check out my references here. When the U.S. Treasury Dept. drafted their final law on this matter (as located in the Federal Register, Vol. 78, No.169, August 30,2015, rules and regulations) for citizens residing outside the U.S. to be considered to have minimum essential coverage for a month, they cited a month has to occur "during any period described in section 911(d)(1)(B)". To me, this means ALL of 911 needs to be cited in order to qualify for the exemption. You only cite 911(B), the 330 days, etc. I believe you need to take 911(1) "Qualified individual" which "means an individual whose TAX HOME is in a foreign country and who is" to legally evaluate if a person is exempt from the healthcare penalty, because 911(1) is linked to 911(B) with the word AND. You have cited 911(B), physical presence, as the only citation of 911 to be the sole determining factor to claim the healthcare exemption. Please tell me why you ONLY need to cite 911(B) and NOT also 911(1) to qualify for the exemption. What am I missing? Is this Treasury Dept. reference I gave at the beginning of this response outdated, irrelevant or what, and why? If you could please call to augment your response here in the spirit of a FREE consultation, I'd truly appreciate this. John .
I suggest that instead of surfing the maze of federal regulations you read the IRS public page where the foreign earned income exclusion qualification is explained in plain English.
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be ONE OF THE FOLLOWING:
A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
Your daughter meets qualification based on the last paragraph. There is no need to "legally evaluate if a person is exempt from the healthcare penalty". Visa stamps in her passport is a sufficient substantiation of exemption.
You may be confused by the term "tax home". You should not. Tax home is the locality of the individual main place of work for the year, nothing more than that. Based on your logic, your you doubt your daughter right for the foreign earned income exclusion in general, which has more serious consequences than health care penalty alone. Your daughter is qualified for both - exclusion and health care exemption.