The Affordable Care Act: Impact on international assignments
In 2010, the United States passed legislation which introduced sweeping changes to the landscape of US health care and imposed requirements for coverage. This legislation, which is commonly referred to as the Affordable Care Act (ACA), presents a myriad of complex issues related to internationally mobile employees. This article, originally published in "Global Tax Weekly," discusses the impact of the ACA on international assignments.
The landscape of US health care
In 2010, the United States passed legislation which introduced sweeping changes to the landscape of US health care and imposed requirements for coverage. This legislation, which is commonly referred to as the Affordable Care Act (ACA), presents a myriad of complex issues related to internationally mobile employees. In particular, as employers prepare to meet their 2015 year end ACA reporting requirements, special attention should be given as to how employees on assignment to or from the US should be reported.
As background, the ACA has two primary requirements for health care insurance coverage: the individual mandate, and the employer mandate. Although these two mandates are closely related, the requirements for each are unique and do not align precisely. In the simplest terms, the individual mandate requires that all US persons maintain health insurance coverage throughout the year for themselves and members of their household. The employer mandate requires that large employers offer coverage to employees and their dependents.
For a full list of references, download the article.
Excerpts from the article
Overview of ACA requirements
In order to address the complications that an international assignment can add to ACA coverage and reporting, it is critical to understand the general concepts of the individual and employer mandates, including what constitutes an acceptable health care plan, which individuals and companies are subject to these requirements, when an exemption may apply, and the reporting requirements placed on large employers.
Although the general rule that large employers must provide coverage to full-time employees seems consistent with the requirement that individuals must maintain coverage, there are disparities in who is considered an applicable individual for the purposes of both requirements, which can create confusion when trying to apply the two mandates concurrently.
Employers are required to provide MEC to full-time employees and their dependents, or face a penalty. The determination of who is considered a fulltime employee requires a thorough analysis of the hours worked by the employee, typically calculated by "looking back" to the prior year of service. For the purposes of determining full-time status, only hours of service related to work performed in the US are included. Therefore, an individual working outside the US would not be considered a fulltime employee and the employer is not required to offer that individual coverage. When an employee transfers into or out of the US during a given year, using hours from the preceding year can produce odd results. For example, if a full-time employee transfers from the US to another country in January, the employer could be subject to ACA penalties for failing to offer the employee coverage that year even if the employee does not return to the US. To address this issue, the regulations include specific rules for international transfers which in many cases allow them to be treated as new hires,
The individual mandate generally applies to all US citizens and residents, but does not apply to individuals who are nonresident aliens. Similar to the exclusion of non-US hours for the employer mandate, the individual mandate includes several exceptions for individuals who live outside the US.
The first is an exemption which applies to any month in which an individual is considered to be an "exempt noncitizen," which requires that the individual is not a US citizen and is not present in the US for at least one day during the month. Therefore, individuals who move into or out of the US during a given year will generally be able to qualify for an exemption for the months in which they were not living in the US, provided they are not a US citizen.
There is also an exception for US citizens or residents residing outside the US, based on qualification for the foreign earned income exclusion. The foreign earned income exclusion is available to US citizens who have their tax home in a foreign country and are a bona fide resident of that country for an entire taxable year. It is also available to US citizens or residents who meet the physical presence test by remaining outside the US for 330 days in a rolling 365-day period, which can span multiple tax years. For any month in which an individual is eligible for the foreign earned income exclusion, that individual is deemed to have MEC for the given month. This treatment applies regardless of whether the individual chooses to claim the benefits of foreign earned income exclusion on the individual income tax return.
The individual mandate requires that coverage is maintained for the individual's entire household, which includes the taxpayer's spouse if filing a joint return and also any dependents. The final ACA regulations clarify that a dependent includes any individual who qualifies to be claimed as a dependent on the tax return, regardless of whether that individual is actually claimed.
The individual and employer mandates are complicated even in the purely domestic context. Employees on international assignments can present a variety of unique considerations. These complications arise for both assignments to and from the US. Download the full article to explore additional requirements under the ACA, as well as examples that illustrate how the ACA requirements apply to these mobile employees.