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Deferred Action for Childhood Arrivals and the Affordable Care Act

December 17, 2015 : Lindsey Buchholz - The Tax Institute

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Deciphering a person’s immigration status can be hard enough to figure out, but throw in the Affordable Care Act (ACA) and you can be stuck in a maze of confusion! When it comes to taxes, a person’s immigration status can have different definitions for different purposes and, as we’ll see, even those definitions can have exceptions.

First, let’s take a look at something called “DACA.” In June 2012, the Obama administration created the Deferred Action for Childhood Arrivals program (DACA). Under this program, an undocumented individual who entered the U.S. as a child younger than 16 and meets certain other requirements can get approval to legally work in the U.S. The individual receives an employment authorization document (work authorization) from U.S. Citizenship and Immigration Services (USCIS) and may be issued a social security number as well. So, it’s possible for someone to not be a U.S. citizen but to have legal clearance to work and even a social security number.

Now, let’s look at the Affordable Care Act. Under the ACA, an individual must be lawfully present in the U.S. in order to qualify for a premium tax credit (PTC) through the Marketplace. An individual’s immigration status determines whether he or she is lawfully present for ACA purposes. Certain “non-citizens,” which include undocumented aliens, do not qualify for PTCs and may not get health insurance from the Marketplace. Further, they are not subject to the ACA requirement to have health insurance are thus exempt from the ACA tax penalty.

It might seem like DACA individuals would be required to get health insurance under the ACA because they are allowed to stay in the U.S. and work. You might think they would be eligible for Marketplace coverage and PTCs. But that’s wrong. DACA individuals are the sole exception to the rules (45 C.F.R. §152.2(4)(f)). Those who have obtained DACA status are not considered to be lawfully present for ACA purposes. As a result, they may not obtain Marketplace coverage or PTCs, and they are exempt from the ACA tax penalty.

What makes this even more confusing is that a DACA individual may be considered a resident alien for tax purposes, even though they are not lawfully present for ACA purposes. A person’s resident alien or nonresident alien status determines the tax form he or she will file and which tax benefits are available to them. Resident or nonresident alien status is usually determined by the length of time the person is in the U.S. and, in some cases, the type of visa the person has.

Most importantly, the fact that an individual may have an SSN or ITIN cannot be relied on alone to determine whether he or she is eligible to purchase Marketplace insurance or is exempt from the ACA tax penalty. It is generally a reflection of the individual’s ability to legally work in the U.S. As we’ve noted, DACA individuals may have SSNs and file as resident aliens, but they are not subject to the ACA mandate. Conversely, another individual may be lawfully present in the U.S. and hold a work visa, while the individual’s spouse and children have ITINs. In that case, all family members are subject to the mandate.

This is definitely tricky. If you still need help determining whether you are eligible for health insurance coverage through a Marketplace, or whether you will be subject to an ACA penalty, you can always make an appointment with an H&R Block tax professional for help.

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Lindsey Buchholz - The Tax Institute

Lindsey Buchholz - The Tax Institute

H&R Block

Lindsey Buchholz, JD, LLM, MBA, is a program manager at The Tax Institute. Lindsey leads research teams and regulatory implementation of the Patient Protection and Affordable Care Act across H&R Block.

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