Sunday, November 08, 2009

Health Care Bill Taxes American Abroad

As if the FBAR wasn't enough.

US President Obama's Universal Health Care program has already passed in the House of Representatives in Congress -- it only requires a majority in the Senate before this serious, nation-changing legislation becomes law.

Partisan politics aside, why would an American living outside the United States care?

The organization, American Citizens Abroad (ACA) has the reason; as an American citizen living outside the United States, you will be required to pay up to $1900 annually, even if you receive zero health benefits whatsoever.
Under Title 1, Subtitle D, “Shared Responsibility”, the Personal Responsibility Requirement currently states on page 28 that “Beginning in 2013, all U.S. citizens and legal residents” would be required to purchase coverage of one of the specified types of insurance coverage. This broad reference clearly includes U.S. citizens residing overseas. Yet citizens who are bona fide residents in foreign countries have health coverage plans valid in the country where they reside. If they subscribe to the U.S.-specific insurance outlined in the program – which they do not need and cannot use – they will be paying twice for health insurance. If they do not participate in the U.S. program, they will be subject to an excise tax to be levied on their IRS returns as defined in the bill on page 29.

The purpose of the excise tax is to encourage all Americans who benefit from the U.S. health program to participate in its financing. Americans residing overseas cannot benefit from the U.S. health system, so for them the excise tax is just that – a tax with no counter-part service. As per the September 22nd press release concerning the chairman’s markup, the maximum excise tax per family for non-participation, is $1,900, not a negligible amount.
This means: Even as an American living in Israel, paying monthly health care taxes in Israel, (under Israeli government mandated health care laws), you will also need to pay American Health care, even though you can get zero benefit from US Health care!

What can you do to help prevent this unfair tax? Immediately, (that means NOW) write to your congressperson in the Senate. The ACA makes our life easier as follows:

Attached is a sample letter that you can use to write to your Senator. We strongly suggest that you fax your letter as this has the most immediate effect however, you may also email or hard copy mail. Visit the following website for address information on your Senator. www.congressmerge.com

---------------sample letter---------------

The Honorable………
United States Senate
Washington, DC 20510

November , 2009

RE: America’s Healthy Future Act of 2009

Dear Senator………,

As one of your constituents who resides outside of the United States, I write you as my Senator to request that you alert Senator Baucus and the drafters of “America’s Healthy Future Act of 2009” concerning the urgent need for greater precision in the definition of those covered by the proposed legislation. In the version as released on September 16, 2009, there is wording which would inadvertently cause great hardship to American citizens living outside the United States. We hasten to bring this to your attention, so that it can be corrected early in the legislative process.

Overseas Americas should be exempted from the requirement to participate in the U.S. health plan and as a consequence, they should also be excluded to any right to claim a tax credit available for low income families in the United States under this health legislation.

Under Title 1, Subtitle D, “Shared Responsibility”, the Personal Responsibility Requirement currently states on page 28 that “Beginning in 2013, all U.S. citizens and legal residents” would be required to purchase coverage of one of the specified types of insurance coverage. This broad reference clearly includes U.S. citizens residing overseas. Yet citizens who are bona fide residents in foreign countries have health coverage plans valid in the country where they reside. If they subscribe to the U.S.-specific insurance outlined in the program – which they do not need and cannot use – they will be paying twice for health insurance. If they do not participate in the U.S. program, they will be subject to an excise tax to be levied on their IRS returns as defined in the bill on page 29.

The purpose of the excise tax is to encourage all Americans who benefit from the U.S. health program to participate in its financing. Americans residing overseas cannot benefit from the U.S. health system, so for them the excise tax is just that – a tax with no counter-part service. As per the September 22nd press release concerning the chairman’s markup, the maximum excise tax per family for non-participation, is $1,900, not a negligible amount.

Proposed solution:

A modest alteration in the present formulation would correct the legislation. Following is a suggested addition.:
“All U.S. citizens who meet the requirements of Sec. 911(d) (1)(A) or (B) of the Internal Revenue Code of 1986, without regard to the tax home requirement in Sec. 911(d)(1), are exempt from any mandate to purchase insurance in the United States and are not subject to the excise tax for non-participation in a U.S. health insurance plan.”

This modification would align the Senate bill to the "America’s Affordable Health Choices Act of 2009" (H.R. 3200) presented in the House of Representatives, which specifically exempts overseas Americans from a tax on not subscribing to a U.S. domestic health plan under Section 401 of the Act (which adds Section 59B of the Internal Revenue Code of 1986). America’s Affordable Health Choices Act of 2009 states under Part VIII – HEALTH RELATED TAXES
Subpart A -Tax on Individuals Without Acceptable Health Care Coverage
Section 59.B “Tax on Individuals Without Acceptable Health Coverage
(c) Exceptions:
(3) INDIVIDUALS RESIDING OUTSIDE UNITED STATES
Any qualified individual (as defined in section 911(d)) (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during the period described in subparagraph (A) or (B) of section 911(d)(1), whichever is applicable."

I thank you most sincerely for your attention to this important issue and trust that you will do all necessary to bring about the change in the text of the proposed legislation.

Sincerely yours,
(Your name)

Hat-tip: YMedad via Gidon


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20 comments:

YMedad said...

Thanks but by me, it's a kippah tip.

Jameel @ The Muqata said...

Actually, its a kaffiyah-tip

;-)

George said...

I've written to Sen. Bill Nelson (D-Fla.). But the fact is that the USA distrusts and disdains its citizens abroad, and has done since before the War of 1812. The US took from England the notion of 'allegiance' in lieu of 'nationality' and one result is a feeling, never expressed openly, that expatriation is treason. So there is little sympathy for those of us subject to draconian penalties for simple carelessness or inability to afford expensive accountants familiar with cross-border issues. Think: Forms 3520, 5471, TD F 90-22.1

Jameel @ The Muqata said...

George: I noted the FBAR above :-(

(TD F 90-22.1)

I'm curious what the American Democrats in Israel have to say about this.

Benji Lovitt said...

Hey Jameel-I'm not sure if I'm a Democrat but my gut feeling has been that I support universal health care in the States. I admit that I don't know the fine print but the reason is totally because of Israel and the fact that everyone here has health care. One of the great things about this country is the feeling of community, taking care of one another, we're all in it together....that to me is enough to make me want the US to have a little more of it even when it doesn't come cheap. It certainly doesn't come cheap in Israel either with the superhigh taxes we all pay.

Jameel @ The Muqata said...

Benji: Benji -- I think you missed the point. I'm not criticizing Universal Health Care in the US -- what I'm concerned about is that as a US citizen LIVING IN ISRAEL, I will have to pay up $1900 a year for health care benefits that are irrelevant to me! By the way - the same applies to you -- you'll also have to pay, even though you don't live in the US anymore.

The same way there's a dual tax treaty between the US and Israel, and that if you pay taxes in Israel you don't have to pay in the US as well - the same should apply for mandatory health care.

Why should a US citizen, who is a resident of another country, who pays taxes and mandatory health insurance to another country ALSO have to pay US health insurance?

Do you think that's a good thing?

Laura Ben-David said...

wow - thanks for the tip! will certainly pass this on.

leah said...

I am not a tax expert by any means but US and Israel have a tax treaty which stipulates that people don't pay taxes twice. I don't know if that will also apply to this new health tax.

Baila said...

My husband said he's renouncing his US citizenship if this goes through.

1900 US dollars is a huge amount of money on an Israeli salary--it's alot on an American salary as well. All of us here should be contacting our senators and notifying our e-mail lists and community listserves to get the word out.

As far as Universal HealthCare goes--it works here, but there are huge differences and gaps in the quality of care and wait time for procedures and appointments here. And our historical roots are based on socialism which we are getting more and more away from. The US is heading in the other direction, vis-a-vis government control.

Jameel @ The Muqata said...

Baila: Bad News -- The Bush Administration enacted an "Exit Tax" -- that a person who gives up their US citizenship has to part with a sizeable lump of cash as well.

You can't beat Uncle Sam...

Anonymous said...

AACI should publicize this. Who's going to alert them?

1Term said...

Oh come on. You know exactly why this is happening.

How often can David Plouffe send you an email asking for a $5 donation for Barak Obama, while you choose to keep ignoring the request?

If you aren't going to pay a voluntary Obama tax by donation, then you're going to pay an Obama tax by force of law.

--

Donating to Obama is a lot like buying a lottery ticket. Both are taxes on the stupid.

Jameel @ The Muqata said...

Anonymous: I contacted AACI yesterday.

Yori Yanover said...

From the IRS website:

U.S. employers generally must withhold U.S. income tax from the pay of U.S. citizens working abroad unless the employer is required by foreign law to withhold foreign income tax.

Foreign earned income exclusion.
Your employer does not have to withhold U.S. income taxes from wages you earn abroad if it is reasonable to believe that you will exclude them from income under the foreign earned income exclusion or the foreign housing exclusion.

The issue of paying for medical insurance shouldn't even enter the discussion when you live and work abroad. Baila, tell your husband to calm down, it's not time yet.

surrey said...

Hmmmmm....why this is happening...

Batya said...

It seems very difficult to enforce, and the sum mentioned has the phase "up to" prefacing it. So, we really don't know what it's all about. A few years ago we heard that we wouldn't be able to take out passports without paying American taxes, and bli eyin haraa...

Jameel @ The Muqata said...

Batya: The issue is very clear -- and with the advent of computers and the unification of homeland security, this will definitely be an issue in the coming years.

And I file my 1040 with the IRS annually...and pay (or receive) whats mandated by law.

You dont?

Kamagra said...

there is little sympathy for those of us subject to draconian penalties for simple carelessness or inability to afford expensive accountants familiar with cross-border issues.

Peter W. Dunn said...

Could we have your permission to repost this at Isaac Brock Society (http://isaacbrocksociety.ca)?

Peter W. Dunn said...

Extremely interesting post for our purposes. Thanks.

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