ACA Insurance for Foreign Earned Income Exclusions: How it Works

As a U.S. citizen or resident working overseas, you may be eligible for a foreign earned income exclusion (FEIE). This exclusion reduces your taxable income by the amount you earn while living and working in a foreign country. However, claiming the FEIE can have implications for your eligibility for Affordable Care Act (ACA) health insurance tax credits.

What is the Foreign Earned Income Exclusion?

The FEIE is a tax break that allows U.S. citizens and residents who live and work in a foreign country to exclude a certain amount of their foreign income from U.S. taxes. The exclusion amount varies depending on your filing status and the length of time you spend overseas.

How Does the FEIE Affect ACA Tax Credits?

If you claim the FEIE, you may not be eligible for the ACA’s premium tax credits (PTCs). PTCs are tax credits that help low- and moderate-income individuals and families afford health insurance through the Health Insurance Marketplace.

This is because the FEIE reduces your taxable income, which can make you ineligible for the income requirements for PTCs. The income limits for PTCs are based on a percentage of the federal poverty level (FPL). For 2023, the income limit for a household of one is $53,000.

Example

Let’s say you are a single individual and earn $60,000 in income from working in a foreign country. You claim the FEIE, which reduces your taxable income to $40,000. This would make you ineligible for PTCs, as your taxable income is below the $53,000 income limit.

What Should You Do?

If you are considering claiming the FEIE, it is important to speak with a tax professional to discuss the potential impact on your eligibility for ACA tax credits. They can help you calculate your taxable income and determine if you are eligible for PTCs.

You may also want to consider the following:

The FEIE has a five-year waiting period. If you claim the FEIE, you will not be able to claim it again for five years.
The FEIE can also impact your eligibility for other tax breaks, such as the standard deduction and personal exemptions.

Conclusion

The FEIE can be a valuable tax break for U.S. citizens and residents working overseas. However, it is important to understand the potential impact on your eligibility for ACA tax credits. If you are considering claiming the FEIE, speak with a tax professional to discuss your options.