# FEIE & ObamaCare Exemption for Expats



## RTWTraveler (Mar 16, 2016)

If you are a digital nomad or are thinking of traveling or moving abroad and have done any research on FEIE and ObamaCare regulations, I am sure you have been frustrated and confused, just as I have. I am hoping someone can be so kind to share their knowledge:

I will be leaving on a RTW trip for 2+ years and am trying to be proactive on learning expat tax laws, so I can plan out my travel dates accordingly to meet the 330 day PPT by June 15th and budget everything accordingly, so I don't have to file an additional extension. But I still have a couple of questions after reading for 3 days on the internet about everything and taking a look at Form 2555 in PDF and within HR Block and the questions therein and was wondering if you would be so kind to answer them:

I know that even after claiming FEIE, I am still liable for 15.3% SE tax, which is fine. But I would like to understand the FEIE exemption and whether I would be eligible for it:

Form 2555 requires me to put in an address for my tax home in a foreign country; if I am self-employed, working as a digital nomad, traveling the world for less than 30-60 days at a time on tourist visas (and not paying taxes in those other countries) and of course if I meet the 330+ PPT, what address do I need to enter there? The one I spent the majority of days in that 12 month period?
Note, I will no longer have an abode here of any sort, no apartment, no bills, just a mail forwarding company that will take care of my mail and I suppose keep my continued residency in Florida up.

If I provide professional services under my LLC, as a digital nomad, would it be an issue that it is an LLC with a Florida address (it will be the address of a mail forwarding service with a contracted FL registered agent), but I would be entering in a foreign address as my tax home?
Or would it be more beneficial to provide services as a freelancer (and dissolve my LLC) to avoid having a U.S. presence?

Could I still claim the Obamacare exemption if I meet the PPT test by being outside of the U.S. for 330+ full days in a 12-month period, even if my tax home is in the U.S. and not abroad? Or can the Obamacare exemption ONLY be claimed if I also claim FEIE?


Lastly, IF I am eligible to claim the FEIE and I report my foreign income earned as a freelancer on Form 2555 and I have no earned income from freelancing in the U.S., do I still have to file Schedule C on my tax return as usual and Form 2555 will deduct the income from there automatically?


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## Bevdeforges (Nov 16, 2007)

OK, just because the qualification terms are the same it does not mean that you have to file for the FEIE in order to claim the exemption for the ACA health insurance. They are separate and distinct parts of your tax returns.

Now, for the physical presence test, you need to be outside the country for 330 days out of a period of 12 consecutive months. You don't need to have established a tax residence, nor do you have to be on a long-stay visa or anything like that. 

The issue of tax residence, however, does get kind of tricky. If you don't have a permanent home of some sort, it comes down to a variety of tests - including where you spend the largest part of your time, where you have your "centers of interest", where your family is located, or a place that you regularly return to.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Before you even get to tax questions, what's the plan for your medical insurance coverage? Are you assuming that you wouldn't have medical insurance for at least two years? If so, why would you assume that?


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## RTWTraveler (Mar 16, 2016)

Thank you for your response Bevdeforges, I appreciate that!



Bevdeforges said:


> OK, just because the qualification terms are the same it does not mean that you have to file for the FEIE in order to claim the exemption for the ACA health insurance. They are separate and distinct parts of your tax returns.
> 
> Now, for the physical presence test, you need to be outside the country for 330 days out of a period of 12 consecutive months. You don't need to have established a tax residence, nor do you have to be on a long-stay visa or anything like that.


Got it. The issue I am running into and where I am trying to gain understanding to weigh my options is:

As far as I have read, we will qualify for the automatic 2 month extension to file our tax return through June 15th.
However, in order to meet the PPT Test by then, we would need to leave the U.S. by July 15th (with no further days spent in the U.S. until at least June 15th), however, we weren't planning on leaving until the end of July, around the 29th, which means we won't have met the PPT by June 15th the following year.

From my understanding, "You can get an extension of time to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction." (from irs.gov/Individuals/International-Taxpayers/Extension-to-Claim-Foreign-Earned-Income-Exclusion[/url])

However, if I only make $1000 between the time we leave and the end of the tax year, I would rather just pay standard tax and not claim FEIE than hiring an expat tax professional for $450+ to help claim FEIE. 

But if I don't claim FEIE, I cannot file Form 2350 just to meet the PPT for the ACA exemption, correct?

In that case (if we left at the end of July), I would have to file by June 15th not having met the PPT by June 15th, so I could not claim the ACA exemption either, correct?




Bevdeforges said:


> The issue of tax residence, however, does get kind of tricky. If you don't have a permanent home of some sort, it comes down to a variety of tests - including where you spend the largest part of your time, where you have your "centers of interest", where your family is located, or a place that you regularly return to.


My family lives in Germany, Poland, and Norway. My husband's family lives in Kentucky (my husband will be traveling with me as well).

Based on our itinerary, we will be spending the most length in Thailand (about 55-58 days) versus all other countries (<30 days). 


Any further insight is much appreciated!


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## RTWTraveler (Mar 16, 2016)

Thank you for taking the time to reply BBCWatcher 



BBCWatcher said:


> Before you even get to tax questions, what's the plan for your medical insurance coverage? Are you assuming that you wouldn't have medical insurance for at least two years? If so, why would you assume that?


We will have insurance through WorldNomads, which obviously does not qualify as minimum essential coverage.

After leaving the U.S., we will not elect to keep ACA coverage back in the United States. We do not plan on returning to the U.S. during our world trip which will last a minimum of 2+ years.


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## RTWTraveler (Mar 16, 2016)

One more comment:
I had also found this on the IRS website:
"If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. *If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work.*"

In this case, the bold section would apply to me above, is that correct?
So my tax home at each point would be wherever I am at for that time period.

I saw that for Form 2555, it does require the entire itinerary to be entered in to show that the 330 full days are met in the 12 month consecutive period; however, I am confused that it ALSO separate from the section of the breakdown, asks for a "foreign address and country of citizenship." on the beginning screen as well as a "tax home" later on when filing form 2555.

Would that be the address I stayed longest at during that 12 month period?


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## BBCWatcher (Dec 28, 2012)

RTWTraveler said:


> We will have insurance through WorldNomads, which obviously does not qualify as minimum essential coverage.


Forget tax law for a moment. It may not qualify as _adequate_ insurance for a U.S. person with no right of residence and no established residence outside the United States.



> We do not plan on returning to the U.S. during our world trip which will last a minimum of 2+ years.


I'm sure you don't plan to get sick either, but that's what (adequate) insurance is for, to protect against unplanned events.

So consider your medical insurance requirements very carefully. (You will certainly be returning to the United States if you get seriously ill, right?)

I would also point out that you could have some immigration law violations if you're working in the countries you visit, even if that work is so-called "digital nomad" self-employment. You have to check those rules and laws for each country. Moreover, a few places don't have the "traditional" 183 day tax residence triggers. (Within the U.S. New York State is an example. In principle you can work 5 minutes in New York State and be liable for New York State income tax, although there is an income threshold.) That is to say it's possible to violate immigration laws, tax laws, both, or neither depending on where you physically are when you work. (And work is where you perform it, not how long the wire or wireless connection is between you and anybody or anything else. As the telegraph established in the mid-1800s, so not new.)

OK, with all that said, you would file IRS Form 4868 to get an automatic extension to file until October 15 (based on when your tax return must be received at the IRS if you're mailing it from overseas). That should give you plenty of time to qualify for the FEIE's 330 day physical presence test. Just file that form in, say, February and you're all set in terms of your filing deadline. You're still required to pay any outstanding tax by April 15 -- there's no extension to pay.

As general practice, if there's a spot on a tax return where your answer doesn't fit then you can write or print "See Statement X" where X is a sequential number for however many statements you need. Then attach a piece of paper that looks like this at the top:

Robert T. Traveler - Social Security # XXX-YY-ZZZZ
STATEMENT X
2016 IRS Form 1040 Schedule A Line NN

and then provide the full answer on that sheet of paper. Replace the year, name of the form, and line number accordingly.

Don't use this technique just because you can. If you can answer the question in the space provided, do it. Don't answer questions not asked. But if you're asked for your foreign address, and you had 28 of them, then this approach might be required. It's _possible_ tax preparation software can do this -- I've seen some that does -- but that's not guaranteed of course.


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## RTWTraveler (Mar 16, 2016)

Thank you BBCWatcher, this is very helpful information.

You are correct, if I were to become seriously ill, I would probably return to the U.S.; I will have to weigh and research my options on different medical insurance options.

I will also be sure to research the laws of each country to assure I don't violate immigration laws or tax laws.

We have been working and saving up, so we don't HAVE to work while traveling, however I wanted to learn about all of the different rules and regulations to be able to decide at a later point whether it would be worth doing some freelance work while on the road considering all of the U.S. tax laws and as you mentioned foreign immigration and tax laws.

Thanks so much for taking the time to provide this valuable insight!


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## BBCWatcher (Dec 28, 2012)

RTWTraveler said:


> You are correct, if I were to become seriously ill, I would probably return to the U.S.; I will have to weigh and research my options on different medical insurance options.


So to cut to the chase, here's the basic problem: a coverage gap. Non-PPACA compliant medical insurance _might_ be perfectly fine...or might not. If that policy provides adequate coverage after a sickness-related return to the U.S., at least for the period until you can get enrolled in PPACA-compliant medical insurance (which cannot happen overnight), then no problem. But that'd be somewhat surprising, which is why I mention it....

....And I just checked. World Nomads provides zero coverage, as far as I can tell, once you're dumped back in the United States (or in any other home country for that matter). It provides limited (financially capped) emergency coverage outside your home country and limited (also financially capped) medical evacuation coverage back to your home country. Once you're in your home country their limited coverage ends. That policy might work if you have a home country policy that doesn't provide adequate emergency/urgent medical coverage outside your home country, but it's not a replacement or substitute for home country coverage. (In fairness it doesn't purport to be. It's labeled, correctly, as "travel medical insurance.")

Most PPACA-compliant medical insurance provides emergency and urgent care coverage outside the United States, and it's uncapped. (PPACA-compliant medical insurance cannot have annual or lifetime caps for covered services.) The only typical gap is the lack of medical evacuation coverage, so you could take a look at combining PPACA-compliant medical insurance, which includes emergency and urgent care coverage overseas, with a very narrow supplemental policy that covers medical evacuation.

Another option is to get a PPACA-compliant policy from a U.S. insurer geared toward "expatriates." Cigna, Aetna, and some others offer such policies. They're probably not good options if you qualify for federal tax subsidies to purchase health insurance through Healthcare.gov (the insurance exchanges).

The U.S. tax code never prevents you from underinsuring. The IRS is not your medical insurance advisor. You come to the tax questions _after_ you figure out what makes medical sense for you.


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## Bevdeforges (Nov 16, 2007)

Yeah, the idea of returning to the US for medical attention in a dire situation may be what trips you up here. Many, if not most forms of "expat" health insurance may specifically exclude care and treatment in the US (simply because it's so expensive), and many others will charge a steep premium if you have the right to "choose" to return to the US for treatment. You could take a look at the AARO insurance plan - not necessarily to purchase it, but at least to see what sort of premiums you'd have to pay for a policy that includes US coverage and is coordinated with Medicare for retirees.

But consider carefully the immigration aspects of your plans, too. Many forms of travel insurance require you to declare your "country of residence" and then base the fees on integration with the national health care system of that country. If you are dependent on your resources in the US and that is your only plausible "home base" you could be determined to be "tax resident" there even if you don't set foot in the country for a year or two. (Not sure on that - but if you have no other plausible tax residence, that could be the IRS argument if it comes to that.)
Cheers,
Bev


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## RTWTraveler (Mar 16, 2016)

Bevdeforges said:


> You could take a look at the AARO insurance plan - not necessarily to purchase it, but at least to see what sort of premiums you'd have to pay for a policy that includes US coverage and is coordinated with Medicare for retirees.


I will take a look at the AARO insurance plan as an option, thank you for sharing that.



Bevdeforges said:


> But consider carefully the immigration aspects of your plans, too. Many forms of travel insurance require you to declare your "country of residence" and then base the fees on integration with the national health care system of that country. If you are dependent on your resources in the US and that is your only plausible "home base" you could be determined to be "tax resident" there even if you don't set foot in the country for a year or two.


Good point! I am just going to pay income taxes regularly and forget FEIE. 



BBCWatcher said:


> World Nomads provides zero coverage, as far as I can tell, once you're dumped back in the United States (or in any other home country for that matter). It provides limited (financially capped) emergency coverage outside your home country and limited (also financially capped) medical evacuation coverage back to your home country. Once you're in your home country their limited coverage ends. That policy might work if you have a home country policy that doesn't provide adequate emergency/urgent medical coverage outside your home country, but it's not a replacement or substitute for home country coverage. (In fairness it doesn't purport to be. It's labeled, correctly, as "travel medical insurance.")
> 
> Most PPACA-compliant medical insurance provides emergency and urgent care coverage outside the United States, and it's uncapped. (PPACA-compliant medical insurance cannot have annual or lifetime caps for covered services.) The only typical gap is the lack of medical evacuation coverage, so you could take a look at combining PPACA-compliant medical insurance, which includes emergency and urgent care coverage overseas, with a very narrow supplemental policy that covers medical evacuation.
> 
> Another option is to get a PPACA-compliant policy from a U.S. insurer geared toward "expatriates." Cigna, Aetna, and some others offer such policies.


Yes, I believe you are 100% regarding there being no coverage through WorldNomads once back in the U.S.
I will look into PPACA-compliant medical insurance specifically for expats like the one you had mentioned.


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## Nononymous (Jul 12, 2011)

I can't really speak to the medical insurance issue. It may make economic sense for you to maintain US coverage, and you may need to pay US taxes as a resident to do this.

However, if it nets out better to go non-resident and avoid taxes altogether, I would try to take advantage of having family in Europe to give you one mail-drop address you can use for communication with the US government. If you're out of the country for 330 days (or whatever the criteria is) and you can claim the FEIE, then you're basically off the hook for US taxes, even if you're working remotely for US clients.

In terms of the countries you're visiting, yes, technically, you're probably violating all sorts of tax and immigration laws. But if you're moving every 30-60 days, coming and going on tourist visas, then it's not going to be detected. People do this all the time. I think where they get into trouble is when they find a place they like, somewhere in SE Asia perhaps, and do border runs every three or six months to renew the tourist visa, year after year. If you really are nomadic, it doesn't seem to be an issue (maybe don't write a blog about it though).


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## BBCWatcher (Dec 28, 2012)

Has anybody pointed out yet that Germany, Poland, and Norway are all part of the Schengen Area? You cannot spend more than 90 days in each country, hopping from country to country, on a Schengen visa waiver. You get a single 90 day stay limit for the Schengen Area as a whole, and you cannot exceed 90 days in any/every 180 day period. Not that nomadic travel is ever guaranteed -- foreigners have no right of entry -- but Germany-Poland-Norway-Germany, loop repeat, doesn't work. You have to remain outside the Schengen Area at least as long as you're inside it.


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