U.S. Internal Revenue Service Form 1040, Line 61—What it Means to Non-resident Taxpayers

U.S. taxpayers who are resident abroad, and are hustling to complete their tax returns (U.S. IRS Form 1040) on time for the June 15 deadline may have cause to pause at Line 61 under “Other Taxes” —which states, “Health care: individual responsibility”. How to fill it in? To tick, or not to tick?

The voluminous instructions to IRS Form 1040 helpfully explain that a taxpayer must either: 

• Have qualifying health care coverage for every month of 2015 (including for dependents); 
• Qualify for an exemption from the requirement to have health care coverage; or
• Make a “shared responsibility payment.”

You Say ‘Payment’, I Say ‘Penalty’

Introduced in 2014 as part of the implementation of the Affordable Care Act of 2010, the shared responsibility payment is a controversial charge imposed on non-exempt Americans who do not have healthcare insurance meeting certain minimum essential coverage requirements. The levy, which increases annually, is set, for the 2015 tax year, at the greater of: 

• US$325 per adult and US$162.50 per child (to a maximum of US$975 for a family); or
• 2 percent of the taxpayer’s household income in excess of the tax return filing threshold for his filing status.

What’s a Non-resident To Do?

Where does that leave a U.S. citizen who files as a non-resident—and who is likely to be covered by an employee health plan and/or by the national health care system of their country of residence?

Carol Hipwell, a Private Client Tax Director at the tax and accounting practice of Frank Hirth in London, England, explains: “Most U.S. citizens and resident aliens living abroad qualify for an exemption from the U.S. requirement to have qualifying health coverage. This exemption extends to individuals who have to file U.S. returns as non-resident aliens or who were non-resident aliens for any part of the year.”  She adds that certain foreign health coverage might be treated as minimum essential coverage for purposes of the Affordable Care Act, but that overseas filers generally rely on the exemption instead. 

The exemption for U.S. citizens living abroad is described on the U.S. IRS portal at this link.

Taxpayers claim the exemption by filing IRS Form 8965 (Healthcare Coverage Exemptions) with their IRS Form 1040.

Filing Deadline Extension

The general due date for the 2015 U.S. Individual Income Tax Return was April 18, 2015. (The usual filing date of April 15 was extended because April 15 fell on Emancipation Day).  Taxpayers living outside the U.S. and Puerto Rico qualify for an automatic extension until June 15, 2016. No form is required to qualify for this extension, but U.S. embassy websites advise taxpayers to write ‘Taxpayer Resident Abroad’ on the top of the tax return. 

By Joanna Norland, Technical Tax Editor, Bloomberg BNA

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