# Bona Fide Residence Status



## ctm-cat (Jun 4, 2013)

My daughter is a UK/US dual citizen that was born in the UK and has always lived here. Some years she has had vacations in the US to visit relatives but has never lived there.

She is currently at a UK University and has been accepted on an international exchange year to the US. The other students on the same program will all get J1 student visas but she will use her American passport. Her tuition fees for the year will be paid to the UK university and she will only pay housing and living expenses in the US. In fact she has UK student loans to pay for the tuition and some of the living expenses.

From a tax perspective she satisfies the Bona fide residence test as the UK is her foreign home from birth. As she will be leaving in August to start her overseas exchange she will be in the US from August 2016 to May 2017 and may possibly travel for a few months in the states once her course ends. She will be back permanently in the UK to finish her degree.

As a bona fide resident she is exempt from the ACA healthcare which I always put down as she is my dependent . Will she still be considered a bona fide resident of the UK or will she lose this status while studying in the US? It will affect which insurance she has to buy as study abroad insurance is relevant to her situation (and what her universities is recommending ) but is not ACA compliant and also any foreign earned income that she now excludes in her tax return. 

Any thoughts would be welcome as an IRS ruling in 18-24 months does not help with the planning aspect in getting it right.


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## Bevdeforges (Nov 16, 2007)

As far as the FEIE goes for excluding any earned income while she is in the US (i.e. working in the US), no dice. The FEIE only works for earned income which means salary and salary-like income. So during that period of time that she is physically in the US, she won't have any foreign earned income and any earnings she has during that time will be taxable.

One of the requirements of the "bona fide resident" category is that you have spent one entire calendar year outside the US, so obviously, she loses the status while in the US - in her case for both 2016 and 2017. However, for any earned income she may have from back in the UK in 2016, she can use the physical presence test to qualify in 2016 (in which case she can exclude earned income up to her departure date for the US). In 2017, if she returns to working in the UK on her return, she may have to wait until the one-year anniversary of her return date to file her 2017 returns if she wants to claim the FEIE. (The physical presence test requires at least 330 days out of any consecutive 12 month period outside the US.) There is no problem switching back and forth between the two statuses.

I'm not sure how it's viewed for the ACA, but I strongly suspect that she will have to show ACA compliant coverage for the months she is physically in the US. 
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

She doesn't have to worry about the bona fide residence test at all in order to qualify for the Foreign Earned Income Exclusion. She will still meet the FEIE's physical presence test up until she leaves the United Kingdom and starting from when she returns (upon reaching the 330 day mark). Income she earns in the U.S. is not foreign, so it won't be excludable anyway -- whether or not she qualifies for the bona fide residence test. There should be absolutely no problems here on the U.S. side. Her much bigger concern, if there is even a concern, is whether HMRC will deem her a non-resident for _U.K._ tax purposes during her time overseas.

With respect to the Minimum Essential Coverage (U.S. health insurance) requirement, she is unlikely to be subject to the tax penalty at a typical (or even fairly atypical) student income level. In fact, particularly if she is attending university in a Medicaid expansion state, she may be eligible for Medicaid. And if she isn't eligible for Medicaid she could very well be eligible for fully or mostly subsidized health insurance through the Healthcare.gov exchange.

What would her income level be, approximately? I could take a reasonable guess at what her options are based on her approximate expected income. But the bottom line is that she's very unlikely to have any problems here. There are some caveats if somebody (such as you) claims her as a dependent on a U.S. tax return.

I should point out that she may be ineligible for study abroad insurance since she's a U.S. citizen; typically such insurance carriers exclude inbound Americans. (There are a couple carriers that don't exclude Americans, but it's not common.) Moreover, such insurance may not be adequate for her needs. Many universities have affordable PPACA-compliant student health plans anyway, and some universities require it. And it'd be rather silly to pay for anything if she qualifies for free Medicaid or a free silver level exchange policy. "More research required," basically.


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## ctm-cat (Jun 4, 2013)

Thanks for the responses. She has part time income of appoximately $5000 and unearned income of $1200 in 2015 and I suspect around the same amount or less of earned income in 2016 before she goes to the US so that won't be a problem. It is not anticipated she will work in the US but if she does I presume they will withhold taxes from her and it can be dealt with on her tax return. 

My main concern is the healthcare as I don't really know the system. At the moment my husband and I support her for (he is a non-resident alien that we don't file taxes for) so I presume I will still have to claim her as my dependent. Does this mean she can't get insurance through a marketplace? I will check what the university insurance is as they have only given us information for international insurance which won't meet the requirements.


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## BBCWatcher (Dec 28, 2012)

ctm-cat said:


> I will check what the university insurance is as they have only given us information for international insurance which won't meet the requirements.


Yes, I think that's a good idea. It's probably a better policy anyway, and it might even be lower cost. (It likely won't include medical repatriation, for example -- she's a citizen with the right to stay.) I would also check Healthcare.gov to get an indicative marketplace policy quotation. If necessary you can "simulate" a quotation by including your and your daughter's combined incomes (hers at zero, probably) but name and describe only her. That should yield a "reasonable" estimate, inclusive of subsidies.


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