Senate Health Care Bill: Expats Exempt From Coverage Mandate, But Some Would Have To Pay Higher Medicare Taxes
The current draft of the U.S. Senate’s health care reform bill is 2,074 pages long. I have not yet read the whole thing, but I’ve tried to identify the provisions which would affect U.S. citizens who live abroad.
Here’s what you should know:
1. Formalities. The bill is titled the Patient Protection and Affordable Care Act, and it’s sponsored by Senate majority leader Harry Reid. The bill is currently numbered H.R. 3590. (Why does a Senate bill carry a House of Representatives number? Presumably because all bills which raise taxes or spend money must formally originate in the lower house, as per Article 1, Section 7 of the Constitution.)
2. Coverage Mandate. All “applicable individuals” are required to be covered by health insurance. H.R. 3590, Section 1501(b) (proposing new Internal Revenue Code section 5000A(a)).
3. Fines and taxes. If you are an “applicable individual” and you are not covered by health insurance, a fine of about $63 a month can be imposed. H.R. 3590, Section 1501(b) (proposing new Internal Revenue Code section 5000A(c)). Since this would be an I.R.S. fine, failure to pay the fine could expose the person to the I.R.S.’s many civil penalties. See Letter from Joint Committee on Taxation dated Nov. 5, 2009. Criminal penalties could not, however, be imposed for failure to pay the penalty. H.R. 3590, Section 1501(b) (proposing new Internal Revenue Code section 5000A(g)(2)(A)).
4. Expats exempt. As with the House bill, people who reside outside of the United States for at least 330 days in a 12-month period “shall be treated as having minimum essential coverage” for each of those 12 months. H.R. 3590, Section 1501(b) (proposing new Internal Revenue Code section 5000A(f)(4)).
5. Higher-income expats have to pay ½% more. U.S. taxpayers earning more than $200,000 individually or $250,000 jointly will have to pay an additional one-half of one percent of their income as Medicare taxes. H.R. 3590, Section 9015(a), (b) (proposing new Internal Revenue Code section 3101(b)). Consequently, the Medicare tax for these higher-income expats will increase from 2.9% to 3.4%. Medicare tax must be paid by U.S. citizens regardless of where they reside. And there is no cap on Medicare tax, so expats have to pay it on all wage income.
6. New plastic surgery tax may increase medical tourism. The bill seeks to impose a 5% tax on elective plastic surgery, to be paid by the patient and to be collected and remitted by the doctor. H.R. 3590, Section 9017 (proposing new Internal Revenue Code section 5000B). This adds another weapon to the marketing arsenals of non-U.S. hospitals seeking to attract medical tourists.
7. Effective Dates. The plastic surgery tax would start in six weeks – on January 1, 2010. H.R. 3590, Section 9017(c). The higher Medicare tax would kick in January 1, 2013. H.R. 3590, Section 9015(c). The coverage mandates and fines for non-coverage would begin January 1, 2014. H.R. 3590, Section 1501(c).
In sum: Expats earning healthy salaries would see a tax increase under the Senate plan, although they would not be mandated to obtain qualifying health insurance coverage.
Labels: Health Care Reform and Expats