If you’re a U.S. taxpayer with foreign assets, you’ve likely heard of FATCA, the Foreign Account Tax Compliance Act. This U.S. law requires individuals and entities to report foreign financial assets exceeding specific thresholds.
But FATCA can feel complicated, leaving many people wondering: “Am I required to report under FATCA?”
The answer depends on your citizenship, residency, and the value of your foreign assets. Failing to comply can result in hefty penalties, making it essential to understand FATCA’s criteria and your reporting responsibilities.
This guide explains who needs to report under FATCA, the filing thresholds, and practical tips to ensure compliance.
What is FATCA? A Quick Overview
The Foreign Account Tax Compliance Act (FATCA) became law in 2010 to combat tax evasion by U.S. taxpayers using foreign accounts. It requires:
- U.S. taxpayers are to report specified foreign financial assets on IRS Form 8938.
- Foreign financial institutions (FFIs) to disclose accounts held by U.S. taxpayers.
FATCA’s Goals:
- Increase transparency in global financial transactions.
- Prevent tax evasion through offshore accounts.
- Ensure U.S. taxpayers report and pay taxes on worldwide income.
Who is Required to Report Under FATCA?
1. U.S. Citizens
All U.S. citizens, regardless of where they live, must report foreign financial assets if their total value exceeds the FATCA thresholds.
2. Green Card Holders
Permanent residents (green card holders) are subject to FATCA reporting requirements, even if they live abroad.
3. U.S. Tax Residents
Individuals classified as U.S. tax residents under the Substantial Presence Test must also report foreign assets.
4. U.S. Entities
Trusts, corporations, and partnerships must comply with FATCA if they hold foreign financial assets.
5. Individuals with Dual Residency
Dual residents who file U.S. taxes may also fall under FATCA’s scope, depending on their asset values.
FATCA Reporting Thresholds
FATCA applies only if your foreign financial assets exceed specific thresholds. The thresholds vary based on your filing status and whether you live in the U.S. or abroad.
1. For U.S. Residents
- Single or Married Filing Separately: $50,000 on the last day of the year or $75,000 at any point during the year.
- Married Filing Jointly: $100,000 on the last day of the year or $150,000 at any point during the year.
2. For U.S. Expats
- Single or Married Filing Separately: $200,000 on the last day of the year or $300,000 at any point during the year.
- Married Filing Jointly: $400,000 on the last day of the year or $600,000 at any point during the year.
3. For U.S. Entities
Thresholds vary based on the entity type and financial holdings. Consult a tax professional to determine specific requirements.
What Assets Must Be Reported Under FATCA?
FATCA covers a broad range of foreign financial assets, including:
1. Foreign Bank Accounts
Savings, checking, and brokerage accounts held outside the U.S.
2. Foreign Investment Assets
Stocks, bonds, and mutual funds held with foreign financial institutions.
3. Foreign Insurance and Pension Plans
Life insurance policies with cash value and foreign pensions may qualify.
4. Ownership in Foreign Entities
Shares or interests in foreign corporations or partnerships.
How to Report Under FATCA
Filing FATCA involves submitting Form 8938 as part of your U.S. tax return.
Step 1: Gather Information on Foreign Assets
Collect the following details:
- Account numbers and financial institution names.
- Maximum asset values during the year.
- Dates of account opening or closing.
Step 2: Complete IRS Form 8938
Attach Form 8938 to your annual tax return (Form 1040). Provide information for each qualifying foreign asset.
Step 3: File by the Deadline
Submit your tax return and FATCA report by April 15. If you live abroad, you may qualify for an automatic extension to June 15, with the option to extend further to October 15.
What Happens If You Don’t Report Under FATCA?
Failing to comply with FATCA can result in serious consequences, including:
1. Financial Penalties
- $10,000 fine for failure to file.
- Additional $50,000 for continued non-compliance.
2. Increased Scrutiny
Non-compliance may trigger audits, IRS investigations, and additional penalties.
3. Criminal Charges
Willful violations may result in criminal charges, including fines and imprisonment.
FATCA and Foreign Financial Institutions (FFIs)
FATCA requires foreign financial institutions to report U.S. account holders directly to the IRS. If FFIs fail to comply, they face:
- A 30% withholding tax on U.S.-sourced income.
- Potential loss of access to U.S. financial markets.
Tips for Staying FATCA-Compliant
1. Know Your Filing Threshold
Review FATCA thresholds annually to determine if you need to report.
2. Keep Detailed Records
Track account balances, ownership details, and financial transactions throughout the year.
3. File on Time
Submit your tax return and Form 8938 by the relevant deadlines to avoid penalties.
4. Seek Professional Advice
Consult a tax advisor specializing in international reporting to ensure compliance.
Wrapping It Up
So, who is required to report under FATCA? U.S. citizens, residents, and entities with foreign assets exceeding the reporting thresholds must comply. While FATCA’s requirements may seem complex, understanding the rules and staying organized makes compliance manageable.
Need help navigating FATCA or reporting foreign assets? Globe Tax provides expert guidance to simplify the process and keep you compliant.
FAQs
1. Who needs to report under FATCA?
U.S. citizens, residents, and entities with foreign assets exceeding specific thresholds must report under FATCA.
2. What is the threshold for FATCA reporting?
The threshold varies based on your filing status and residency. For single U.S. residents, it starts at $50,000.
3. What assets are reported under FATCA?
Foreign bank accounts, investment accounts, pensions, and ownership in foreign entities qualify for reporting.
4. What happens if I don’t comply with FATCA?
Non-compliance can lead to financial penalties, audits, and potential criminal charges.
5. Can a tax professional help with FATCA?
Yes, a tax advisor can guide you through the process and ensure compliance with FATCA regulations.
