With the effective date of the “pay-or-play” employer mandate just over the horizon, employers who sponsor group health plans are well aware of the layers of complexity presented by the mandate. One of the layers that employers should be sure to unpack: how do the rules affect expatriate (expat) and inpatriate (inpat) employee populations?
Expats: Employer Mandate Considerations
The final employer mandate regulations under Internal Revenue Code section 4980H regulations define “Hours of Service” to exclude hours for which the compensation paid is foreign-source income under the Code. Therefore, employers need to analyze whether expats have foreign-source or U.S.-source income; liability under the employer mandate is limited to employees with U.S.-source income.
Employers should pay special attention to employees who transfer between U.S. and foreign employers. For employees transferring to a foreign employer, special transfer rules could apply that allow the U.S. employer to treat the employee as having terminated employment (if certain conditions are met). For employees transferring to a U.S. employer, the transfer rules could allow the employer to treat the employee as a new hire, depending on the application of the regulations’ “rehire” rules.
Inpats: Employer Mandate Considerations
An “employee” for purposes of the employer mandate is defined as an employee under the common-law standard. So, if an inpat qualifies under the common-law standard as an employee of a U.S. employer, it seems they would be counted for purposes of determining an employer’s liability under Code section 4980H.
The final regulations do not contain any exclusion for common-law employees who are aliens.
On the other side of the mandate coin, employees may have questions about their personal liability under the individual mandate. U.S. citizens living abroad are subject to the individual mandate, but may be treated as having “minimum essential” coverage for any month if they satisfy certain requirements that the IRS has outlined. The individual mandate applies to U.S. citizens and nationals who live in the U.S., as well as foreign nationals who are in the U.S. and qualify as resident aliens.