Have you ever wondered, “What is FATCA reporting, and does it apply to me?” For U.S. expats, FATCA, the Foreign Account Tax Compliance Act, creates an additional layer of tax reporting complexity. It ensures the IRS is aware of foreign financial assets owned by U.S. taxpayers to combat tax evasion.
While the intention is clear, FATCA’s rules can feel overwhelming. U.S. expats must not only manage taxes in their country of residence but also comply with FATCA’s stringent requirements. Whether you’re an expat working abroad, a retiree, or an entrepreneur managing international assets, understanding FATCA reporting is crucial.
1 What is FATCA Reporting?
FATCA, enacted in 2010, mandates that:
- U.S. taxpayers disclose specified foreign financial assets if their value exceeds thresholds.
- Foreign Financial Institutions (FFIs) report accounts held by U.S. persons to the IRS.
FATCA uses Form 8938 (Statement of Specified Foreign Financial Assets) to capture this information. Unlike FBAR, which focuses solely on foreign bank accounts, FATCA covers a broader range of financial assets, including investments, trusts, and pensions.
Why Does FATCA Exist?
The U.S. government implemented FATCA to prevent tax evasion by requiring transparency about foreign-held assets. The act encourages compliance by penalizing non-filing and incentivizing FFIs to cooperate through international agreements.
2 Who Must File FATCA Reports?
FATCA applies to a wide range of taxpayers and entities:
1. U.S. Citizens
Whether you live in the U.S. or abroad, you must file if your foreign assets exceed FATCA thresholds.
2. Green Card Holders
Even if you live permanently overseas, holding a green card means you are considered a U.S. taxpayer and subject to FATCA reporting.
3. Resident Aliens
Non-citizens meeting the substantial presence test must comply with FATCA rules.
4. Non-U.S. Entities with U.S. Ownership
Entities such as corporations, partnerships, or trusts with U.S. ownership or significant U.S. connections may trigger FATCA requirements.
5. Foreign Spouses of U.S. Taxpayers
If you file jointly with a foreign spouse, their financial assets may also be subject to FATCA reporting.
3 FATCA Reporting Thresholds
The thresholds for FATCA reporting depend on your residency and filing status.
For U.S. Residents:
- Single or Married Filing Separately: $50,000 at year-end or $75,000 anytime during the year.
- Married Filing Jointly: $100,000 at year-end or $150,000 anytime.
For U.S. Expats:
- Single or Married Filing Separately: $200,000 at year-end or $300,000 anytime.
- Married Filing Jointly: $400,000 at year-end or $600,000 anytime.
What Counts as a Specified Foreign Financial Asset?
FATCA includes various asset types beyond traditional bank accounts, such as:
- Foreign pensions, annuities, and life insurance policies with cash value.
- Stocks and securities issued by non-U.S. entities.
- Interests in foreign trusts, partnerships, or mutual funds.
4 FATCA Reporting Rules for U.S. Expats
Being an expat adds complexity to FATCA compliance. Here’s what expats should know:
Automatic Extensions for Expats
U.S. expats automatically receive a two-month extension to file taxes and FATCA reports, making their Form 8938 due on June 15th instead of April 15th. Additional extensions are available upon request.
Dual Taxation Concerns
FATCA doesn’t mean you’ll be taxed twice. Expats can use the Foreign Tax Credit (FTC) or the Foreign Earned Income Exclusion (FEIE) to offset taxes paid to their host country.
Overlap with FBAR Reporting
Many expats who file FATCA reports must also file an FBAR (Foreign Bank Account Report) if their foreign bank account balances exceed $10,000.
Example Scenario
Imagine you’re a U.S. expat living in Germany with:
- $250,000 in a German investment account.
- $50,000 in a foreign retirement fund.
Since the combined value exceeds the $200,000 threshold for single expats, you must file FATCA reports.
5 How to File FATCA Reports
Filing Form 8938 is essential for FATCA compliance. Here’s how:
Steps to File Form 8938:
- Determine if You Meet the Thresholds: Calculate the value of all your specified foreign financial assets.
- Collect Relevant Documents: Gather account statements, investment details, and ownership records.
- Complete Form 8938: Provide asset descriptions, account balances, and income earned.
- File with Your Tax Return: Attach Form 8938 to your annual U.S. tax return (Form 1040).
Important Deadlines
FATCA reports are due when your tax return is filed. For most expats, the deadline is June 15th, with extensions available until October 15th.
6 Penalties for Non-Compliance
Failing to comply with FATCA reporting can lead to harsh penalties:
Financial Penalties
- Failure to File Form 8938: A $10,000 penalty applies, with additional penalties of up to $50,000 for continued non-compliance.
- Accuracy-Related Penalties: A 40% penalty may be assessed on underpayments related to undisclosed assets.
Criminal Penalties
Willful non-compliance can lead to criminal prosecution, with potential fines of $250,000 and up to five years in prison.
Impact on FFIs
Foreign financial institutions that fail to comply with FATCA risk a 30% withholding tax on U.S.-source income.
7 FATCA Reporting vs. FBAR
Though FATCA and FBAR are often mentioned together, they differ in scope:
| Feature | FATCA Reporting (Form 8938) | FBAR (FinCEN Form 114) |
| Purpose | Disclose foreign financial assets to the IRS | Report foreign bank accounts to FinCEN |
| Threshold | Varies by filing status and residency | $10,000 aggregate balance |
| Agency | IRS | FinCEN |
| Filing Method | Attach to Form 1040 | File separately via FinCEN portal |
8 How to Stay Compliant
Key Steps for Expats:
- Understand Your Obligations: Know whether your assets exceed FATCA thresholds.
- Track and Organize Assets: Keep records of foreign investments, accounts, and financial holdings.
- File Form 8938 Accurately: Include all required information to avoid penalties.
- Seek Professional Help: Work with tax advisors experienced in expat tax issues.
- Stay Updated: FATCA rules may evolve, so remain informed about changes.
Final Thoughts: Stay Ahead with FATCA Reporting
Understanding what is FATCA reporting is essential for U.S. expats managing foreign financial assets. Compliance protects you from penalties and ensures peace of mind.
If FATCA feels overwhelming, consult Globe Tax for expat tax issues. Stay informed, stay compliant, and safeguard your financial future.
FAQs
1. What is FATCA reporting?
FATCA reporting requires U.S. taxpayers to disclose specified foreign financial assets exceeding thresholds using Form 8938.
2. Who needs to file FATCA reports?
FATCA applies to U.S. citizens, green card holders, resident aliens, and entities with significant U.S. ownership.
3. What happens if I fail to file FATCA reports?
Failure to file Form 8938 can result in penalties up to $50,000 and, in severe cases, criminal prosecution.
4. Does FATCA apply to all foreign assets?
FATCA covers foreign accounts, investments, trusts, pensions, and other specified financial assets.
5. How does FATCA affect U.S. expats?
Expats must file FATCA reports if their foreign financial assets exceed thresholds based on their filing status and residency.
