If you’ve lived and worked overseas as an American citizen (or any other category of US person), there’s a good chance you’ve encountered, and perhaps struggled with, understanding your US tax reporting obligations while abroad. This article is part of a series, designed to guide you through the murky, and sometimes frustrating waters of US tax reporting and compliance.
In the next posts, we’ll be focusing on the Foreign Account Tax Compliance Act (FATCA). You can view all the articles in the series here.
Although FATCA may not exactly be a household name for US expats, it's a critical piece of legislation that shouldn’t be overlooked. Whether you're a long-term expat or a recent arrival to foreign shores, understanding your responsibilities under FATCA is essential to ensure you're on the right side of the law and to avoid serious penalties. In this guide, we'll break down FATCA, its reporting requirements, exemptions, and offer practical tips for US expats living overseas.
Note: The details in this post are based on the latest information as of Oct. 4, 2023, and may be subject to future revisions. The latest information about the FATCA can always be found on the IRS website, or provided by a tax professional.
What is the FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a 2010 US federal law requiring US persons to report their non-US foreign financial assets annually on IRS form 8938. FATCA reporting is required in addition to the annual requirement for filing an FBAR (Report of Foreign Bank and Financial Accounts). Its primary goal is to help combat tax evasion by US taxpayers holding financial assets abroad.
The good news: If you’re an expat and the combined value of your foreign assets is well below USD 200,000 (USD 400,000 if you’re married), then you probably don’t need to submit a FATCA report! But, we still recommend you read on to stay informed and better understand your tax responsibilities.
FATCA also requires foreign financial institutions to search for and report on their own customers who have ties to the US – If you’re a US person living in a foreign city like Taipei, Hong Kong, or Singapore, the IRS will know when you open a local account! Some institutions will outright refuse to serve Americans due to the additional workload created by FATCA reporting requirements.
Key Takeaways
If you are a US person with foreign financial assets, you are subject to FATCA requirements and may need to submit FATCA form 8938 with your annual tax return.
If you live overseas, you only need to file a FATCA report if the total value of your assets exceeds USD 200,000 on the last day of the tax year or USD 300,000 at any point during the year. (USD 400,000 and USD 600,000 respectively if you are married)
Many different types of assets need to be reported under FATCA - not just your bank accounts. Read on for a more complete list.
Penalties for non-compliance are harsh: USD 10,000 per violation, plus an additional USD 50,000 for continued failure to file after IRS notification, and a 40% penalty for undisclosed (or under-disclosed) assets. Criminal penalties may also apply.
The higher thresholds for FATCA reporting (relative to FBAR) suggest that it generally targets higher-net-worth individuals – meaning more money is on the line, and the stakes are higher if you’re found to be non-compliant.
How can I get help with preparing my FATCA form?
We understand how stressful, and frustrating, it can be to deal with complex tax reporting obligations like the FATCA and FBAR, and we’re here to help. In addition to standard tax filing and preparation services, the experts at Del Sol CPA and Associates are more than happy to offer you assistance with filing a timely and compliant FATCA form each year with your tax return.
If you have any questions or are seeking guidance, please don’t hesitate to reach out to our bilingual team of trained tax professionals for answers. We look forward to serving you!
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