# 2017 health care mandate question



## jm27746 (Jan 3, 2018)

I am trying to avoid the obama care penalty/health care mandate, since I am a US citizen that lives abroad. My 12 month span starts July 2017-July 2018. I have already been in the US August 6, 2017-August 27, 2017=22days(so I have 8 days left). I would like to come back in May for more than the 8 days I have left. I would like to come for a couple weeks to a month. With the new tax reform, does this allow me to come back during my 2017-2018 12 month span or do I need to still conform to being out of the country 330 days to avoid the penalty for 2017 taxes?


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## Bevdeforges (Nov 16, 2007)

The latest tax reform does nothing to change the health care mandate terms and conditions, from everything I've read. But, you only have to have been outside the US for 330 days of that 365 day period - so with 22 days already used, you actually would have 13 days left. 

If you absolutely want to go back to the States for a longer period, it could very well pay for you to delay your trip until, say, July near your 1 year anniversary so that the excess days would fall outside of your qualifying year.

It's only the first year abroad where this comes into play. For 2018, you should be able to either claim the bona fide residence test or you'll be able to use a regular Jan-Dec 12 month period for your physical presence test.

On the other hand, if you arrived in Portugal in July 2017 but then returned to the States in August, how about claiming your physical presence period as being August 28, 2017 to August 27, 2018? It means you'd have to delay filing your 2017 taxes (if you're taking the FEIE based on physical presence, too) until September, but most folks have to extend their filing deadlines like that their first year abroad.

There is also a short-term coverage gap exception you can claim for the period from whenever your qualifying coverage lapsed in the US to August 28th. This from the Nolo website:


> One exemption of particular importance to expats is for short coverage gaps. Under this exemption, a penalty may not be imposed due to a once-per-year gap in coverage lasting less than three months. Thus, an expat who lacks coverage while out of the country for less than three months is not subject to the penalty.


If it's not your first year overseas, then you should be using a standard calendar year for your physical presence test period. Just because you arrived in July in a previous year doesn't mean you're stuck with the July to June period for qualification forever. (Or, you can can claim the bona fide residence test.) 
Cheers,
Bev


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## Moulard (Feb 3, 2017)

As Bev says the physical presence test is really only relevant in your first year. Once you have been a Bona Fide Resident on a foreign country for a full calendar year then your time back in the US is irrelevant unless it is your last year as a foreign resident. 

If this is your first year abroad (ie you left the US in July 17, then you should delay filing your US return until you have been out of the US for a full calendar year (use Form 4868 to extend your 2017 filing date until October 18)

You would then be able to use Code C exemption for July-Dec 17. Depending on your coverage and circumstances you might also be able to use a Code B exemption if you went without coverage for less than 3 consecutive months between Jan and June of 17.


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## jm27746 (Jan 3, 2018)

Moulard said:


> As Bev says the physical presence test is really only relevant in your first year. Once you have been a Bona Fide Resident on a foreign country for a full calendar year then your time back in the US is irrelevant unless it is your last year as a foreign resident.
> 
> If this is your first year abroad (ie you left the US in July 17, then you should delay filing your US return until you have been out of the US for a full calendar year (use Form 4868 to extend your 2017 filing date until October 18)
> 
> You would then be able to use Code C exemption for July-Dec 17. Depending on your coverage and circumstances you might also be able to use a Code B exemption if you went without coverage for less than 3 consecutive months between Jan and June of 17.



Our first year out of the US was July 2016-July 2017(but we were still residents of the US technically because we were just travelling around the EU, we actually received residency in July 2017). Our US accountant filed us a US residents for our 2016 taxes and 2017 we are still trying to figure out since we gained residency halfway through the year. Does anyone know how that works? 


How do we qualify for bona fide residence in a foreign country? Does it have to do with filing taxes in that specific country?


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## Bevdeforges (Nov 16, 2007)

jm27746 said:


> Our first year out of the US was July 2016-July 2017(but we were still residents of the US technically because we were just travelling around the EU, we actually received residency in July 2017). Our US accountant filed us a US residents for our 2016 taxes and 2017 we are still trying to figure out since we gained residency halfway through the year. Does anyone know how that works?


As long as you were physically outside the US for 330 days of 2017, you use the physical presence test for that tax year and be done with it. Residency has nothing to do with the physical presence test - that's why it's there.

In fact, for US tax purposes, you are considered US residents for the rest of your lives, or until you renounce your US citizenship. Don't know what you consider "gaining residency" but you don't need to do so for the physical presence test.



> How do we qualify for bona fide residence in a foreign country? Does it have to do with filing taxes in that specific country?


Bona fide resident test is really "squishy" and subject to interpretation - but the idea is that, once you've established yourself with no plans to return to the US in the near to mid-term future, you are a "bona fide" resident of wherever. You don't need to have filed taxes to claim it. 

If you have any doubts about your status, I'd go "physical presence" again for 2017 - but using the Jan - Dec 2017 as your 12 consecutive month period. Don't worry about the overlap - it's irrelevant for both tax and ACA purposes.
Cheers,
bev


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## jm27746 (Jan 3, 2018)

Bevdeforges said:


> As long as you were physically outside the US for 330 days of 2017, you use the physical presence test for that tax year and be done with it. Residency has nothing to do with the physical presence test - that's why it's there.
> 
> In fact, for US tax purposes, you are considered US residents for the rest of your lives, or until you renounce your US citizenship. Don't know what you consider "gaining residency" but you don't need to do so for the physical presence test.
> 
> ...



So are there any issues when people try and move back to the states after declaring bona fide residence in another country? Seems like everyone that moved abroad would want to declare this, what is the downside? 

I don't know if we could declare jan - dec 2017 our 12-month consecutive time because we were in the states for a couple weeks in the Spring of 2017. This was used as part of our July 2016 - July 2017 Consecutive time abroad. 

So if we declared our 12 months as Jan - Dec 2017 we technically would have already overstayed from the time in the spring and then the 3 weeks in August. Am I understanding this correctly? Where do you see an overlap?


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## Bevdeforges (Nov 16, 2007)

jm27746 said:


> So are there any issues when people try and move back to the states after declaring bona fide residence in another country? Seems like everyone that moved abroad would want to declare this, what is the downside? [.quote]
> Not really. What counts is your intention at the time you filed. Things change.
> 
> 
> ...


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## jm27746 (Jan 3, 2018)

Bevdeforges said:


> jm27746 said:
> 
> 
> > So are there any issues when people try and move back to the states after declaring bona fide residence in another country? Seems like everyone that moved abroad would want to declare this, what is the downside? [.quote]
> ...


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## Moulard (Feb 3, 2017)

> we are still trying to figure out since we gained residency halfway through the year. Does anyone know how that works?


Easy. 

In the first year you use the physical presence test. In that test you must have lived outside the US for 330 consecutive days. Those days do not have to be in the same tax year.

If you started living in Europe on 1 July 2017 then you would delay filing your 2017 taxes until at least the end of May 2018 and then use the physical presence test. 

When you file your 2018 returns you would have resided outside the US for a full calendar year and thus you could use the bona fide residence test for that year and each subsequent year you maintain your home outside the US.



> Bona fide resident test is really "squishy" and subject to interpretation


Both the tax home test and the bona fide residence tests are "squishy".

You aren't considered to have a tax home in a foreign country for any period 
during which your abode is in the United States.

Bona fide residence is all about intention.

Abode is not defined in US tax law -- neither is domicile, reside or home. 

Not that it would likely ever get to one, but when not defined in the law, courts revert to dictionary definitions... reside is to



> ... dwell permanently, or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place...


But the reality is that if it looks like a fish, smells like a fish and swims like a fish then it probably is a fish. 

But the reality is no one is going to question you on it....




> So are there any issues when people try and move back to the states after declaring bona fide residence in another country?


Nope. People move between countries all the time. There are no issues.

If you decided to return to the US to live you would still be eligible for the foreign earned income exclusion up to the point that you no longer maintained your primary home in the EU.

Again no one is going to check you on it....



> I don't know if we could declare jan - dec 2017 our 12-month consecutive time


Remember that there are two tests you must pass..

The Tax Home test and one of either the physical presence test OR the bona fide residence test.

If you don't pass the tax home test then you cannot take the foreign earned income exclusion.



> Your tax home is your regular or principal place of business, employment, or post of duty, regardless of where you maintain your family residence. ...
> 
> You aren't considered to have a tax home in a foreign country for any period during which your abode is in the United States. However, if you are temporarily present in the United States, or you maintain a dwelling in the United States (whether or not that dwelling is used by your spouse and dependents), it doesn't necessarily mean that your abode is in the United States during that time


So.. the first questions you should ask yourself is... Were you just travelling or did you have a primary place of business or employment outside the US? Did you maintain a home that you could return to in the US during that first year travelling through Europe? When you returned to the US for a couple of weeks did you stay in your US home. Did you still have a job in Europe

If the answer to those questions is yes, then chances are high that you do not meet the tax home test and the foreign earned income exclusion is moot.

If, however your ended your rental contract or rented out your home to an unrelated third party, stayed in hotels or with friends for those couple weeks and you maintained your job and home in Europe during the US visit then to me at least it would sound like your home was in Europe.


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## jm27746 (Jan 3, 2018)

Moulard said:


> Easy.
> 
> In the first year you use the physical presence test. In that test you must have lived outside the US for 330 consecutive days. Those days do not have to be in the same tax year.
> 
> ...



The answer to your questions: My husband works remotely for a US company on salary. The business has no entity set up in Europe, the business is not accessing the European market he is just a salary employee that lives in Portugal because it is so beautiful. 

His family business pays him salary and is based in South Carolina, so since he is salary, what issue could he or the business face? (there is a totalization aggreement and tax treaty with Portugal and the US)

We have no intentions of moving back to the US. We did not maintain a home while traveling. We stayed at our parents' houses and Airbnb's while visiting the US. 

The only thing that might tie us to the US is our drivers' licences and that we are registered to vote in South Carolina, do you suggest we cancel these? We have wills, Roth IRAs, investment accounts and family all in the state of Kentucky. 

As my husband is a salaried employee and we have not gotten everything set up in Portugal taxwise, we were going to continue to stay salary until mid-2018. 

Does staying as a remote salary employee affect our tax home test? We will continue to pay taxes in the US off his paycheck until we can get some sort of business set up here in Portugal, not sure what issues this causes for us or the family business?

Do we file Portuguese taxes first then our US ones for 2017? 


Thanks so much!


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## Bevdeforges (Nov 16, 2007)

Ooh, you need to be very careful with this approach. 


> My husband works remotely for a US company on salary. The business has no entity set up in Europe, the business is not accessing the European market he is just a salary employee that lives in Portugal because it is so beautiful.
> 
> His family business pays him salary and is based in South Carolina, so since he is salary, what issue could he or the business face? (there is a totalization aggreement and tax treaty with Portugal and the US)


You are considered to be working in whatever country you are physically present in while doing the work for which you are paid. So your husband is working in Portugal - and is subject to Portuguese labor and tax laws. Chances are he should be enrolled in the Portuguese social insurances scheme - and thus not paying into US Social Security. (The totalization agreement only covers how his working time is counted by each side when it comes time to apply for retirement or other benefits.) 



> As my husband is a salaried employee and we have not gotten everything set up in Portugal taxwise, we were going to continue to stay salary until mid-2018.


That may or may not be a problem given that he is working in Portugal. Usually, it's a matter of either the foreign employer registering with the Portuguese social security service so that the employee is properly registered for social insurances and taxes, or the "employee" has to register as a "consultant" or other independent contractor in order to bill the "employer" and then pay the proper taxes and social insurances to the Portuguese system. You don't get to choose which system you pay into and it sounds very much as though he should be registered with the Portuguese system in some manner.



> The only thing that might tie us to the US is our drivers' licences and that we are registered to vote in South Carolina, do you suggest we cancel these? We have wills, Roth IRAs, investment accounts and family all in the state of Kentucky.


None of this is a real problem - other than the financial accounts in the US which the IRS could tap if they consider that you're somehow not paying your "fair share." But check the status of your US drivers licenses in Portugal - most EU countries allow you to drive for up to a year on a US license, but after that you have to get a local one. You retain your right to vote (in Federal elections only) from the last address you lived at before leaving the States.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

As Bev says... you and your partner do need to be careful about how you set your finances in order to minimize dual taxation particularly if your employer in the US is witholding taxes to comply with both State and Federal Tax laws. Things will get tricky given the scenario you describe.

Some general thoughts on taxes and social security...

You will want to familiarise yourself with both the tax treaty and the totalization agreement between the US and Portugal.

https://www.irs.gov/pub/irs-trty/portugal.pdf

https://www.ssa.gov/international/Agreement_Texts/portugal.html

https://www.ssa.gov/international/Agreement_Pamphlets/portugal.html

These will govern who has primary taxing rights.

As I am not in Portugal, I will only make some general statements that are mostly common to all of these sorts of agreements.. you will need to validate against the agreements themselves.

Once you are a resident of Portugal, they will have primary taxing rights on your global income. As US citizens the US saves the right to tax you on your global income as if the treaty was not in effect for most sorts on income. You may need to look carefully at the Portuguese tax treatment of pension funds as some countries (including the US) require these to comply with local rules to gain concessional tax treatment.

As your partner's SC employer does not have a related Portuguese business entity they will not be able to withhold income tax, so you will have to plan on paying any income tax due out of your savings.

When filing your US taxes you would be able to offset your US taxes either by using the Foreign Earned Income Exclusion or by taking a Foreign Tax Credit. You would then get a refund on any relevant US taxes paid. You should be able to complete a new W-4 to stop witholding of income for US taxes but you will want to make sure you don't get stung with any witholding penalties in the first year.

Social Security coverage also needs to be considered.

Normally if a US employer sends you to a country with a totalisation agreement magic number is 5 years. Send for less that 5 years you continue to pay into the US system, more than 5 years the foreign system.

Technically your husband was not sent by the employer, but I believe that your husband's employer could apply for a certificate of exemption from the SSA which you would then attach to your Portuguese tax returns so you didn't have to pay into their system Otherwise I believe you would have to get a certificate of coverage from PT authorities and basically do it the other way round.


If the plan is to set up a business in Portugal, then you will also need to consider how that business entity is set up and what the US tax implications are for that too. You and your husband are likely to be significant shareholders / directors. Or, I guess potentially, it could be set up as a subsidiary in which case other family members could become significant shareholders / directors of it. 

If you went down the sole trader route (I assume that PT has an equivalent) rather than the corporation route then you would want to make sure that you were covered by Portuguese Social security and got a certificate of coverage otherwise you would likely have to pay US self employment taxes based on gross rather than net income.. 

Foreign businesses and corporations owned by US taxpayers can be extremely tricky and costly if gotten wrong from a US tax compliance perspective. All I can recommend is getting good tax advice.


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## Bevdeforges (Nov 16, 2007)

What Moulard said - with one small caveat. It seems that many (most?) European countries don't have quite the "sole trader" or "self-employment" type of arrangement that you find in the US or UK. It's very often the case that you will have to register a "business entity" - even if that business entity consists of one person. There is considerable "discussion" (with no resolution) about just how the IRS considers these sorts of non-corporate registered businesses. 

You may want to post a few questions on the Portuguese forum here to ask about setting up a single person business in Portugal - aside from the tax implications. Portugal Expat Forum for Expats Living in Portugal - Expat Forum For People Moving Overseas And Living Abroad
Cheers,
Bev


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## Bevdeforges (Nov 16, 2007)

What Moulard said - with one small caveat. It seems that many (most?) European countries don't have quite the "sole trader" or "self-employment" type of arrangement that you find in the US or UK. It's very often the case that you will have to register a "business entity" - even if that business entity consists of one person. There is considerable "discussion" (with no resolution) about just how the IRS considers these sorts of non-corporate registered businesses. 

You may want to post a few questions on the Portuguese forum here to ask about setting up a single person business in Portugal - aside from the tax implications. Portugal Expat Forum for Expats Living in Portugal - Expat Forum For People Moving Overseas And Living Abroad
Cheers,
Bev


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