US expat taxes can be confusing, but then you also have to consider additional reporting requirements that may apply to your specific situation. One such requirement is the Foreign Account Tax Compliance Act (FATCA), which went into law in 2010, and requires individuals to report foreign bank account information to the IRS on Form 8938 if they exceed certain thresholds. While Form 8938 is relatively new, the requirement to report foreign assets is not – much of this information has been required by Foreign Bank Account Reporting (FBAR) for many years.
In addition to you having to file Form 8938, FATCA requires foreign financial institutions to report your accounts to the IRS. Due to the complicated nature of FATCA, the IRS had granted a grace period before it began enforcing this law against foreign financial institutions to allow them to get up to speed and become compliant – but that has just ended.
How Does the Grace Period Ending Affect Me?
When it comes to FATCA, understanding the ins and outs of this law can be quite tricky. Since its implementation, there has been plenty of controversy among foreign financial institutions and the individuals who must file Form 8938 to report their foreign bank account information. As mentioned, the grace period for foreign financial institutions just ended on June 30, 2016 – while this expiration does not directly affect you as an individual taxpayer, you may expect to see your foreign bank enforcing the requirements a bit more stringently, if they haven’t already done so. Here are some key points you should know about how FATCA affects you as a US expat.
What is the Purpose of FATCA?
The implementation of FATCA essentially created new information reporting and withholding for payments made to certain foreign financial institutions and foreign entities. FATCA makes it easier for the US government to keep track of US persons and businesses who are earning income from investments and/or deposits in foreign bank accounts. Under FATCA, all US citizens must report foreign assets to the IRS if they exceed the specified thresholds and foreign financial institutions are required to report on the assets of their American clients in order to avoid a 30% withholding on certain payments from the US. The primary goal of FATCA is to enforce tax evaders to fess up; however, US expats are simply caught in the crossfire since they will have assets and accounts overseas, as it’s part of their daily life.
What Should I Know About Reporting?
FATCA is comprehensive and requires you to report all foreign bank accounts and foreign assets. These include:
- Foreign pensions
- Foreign stockholdings
- Foreign partnership interests
- Foreign financial accounts
- Foreign mutual funds
- Foreign issued life insurance
- Foreign hedge funds
- Foreign real estate held through a foreign entity (You don’t need to report the real estate, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate)
In terms of the thresholds for filing, here’s a breakdown, depending on filing status:
Single taxpayers living abroad:
$200,000 on the last day of the tax year or $300,000 at any point during the year
Married filing jointly taxpayers living abroad:
$400,000 on the last day of the tax year or $600,000 at any point during the year
Single taxpayers living in the US:
$50,000 on the last day of the tax year or $75,000 at any point during the year
Married filing jointly taxpayers living in the US:
$100,000 on the last day of the tax year or $150,000 at any point during the year
FATCA is reported on Form 8938 and is due at the time your US expat tax return is due – which is June 15th for US expats, unless you filed an extension until October 17th (usually the 15th, but that date falls on a weekend this year).
Why Do I Need to Fill Out a W-9 Form?
Now that the grace period mentioned above is over and FATCA requirements are being fully enforced by the IRS, you may find your foreign bank asking you to complete a W-9 form (if you haven’t already done so!). The W-9 is a fairly straightforward form (see below for instructions), and its purpose is to provide basic taxpayer information to your foreign bank in order for it to report your income from your accounts to the IRS. The W-9 is typically held by your foreign bank for informational purposes – the form itself not turned over to the IRS.
If you’re a US citizen, Green Card holder or your tax residence is in the US, you’ll need to complete the W-9 and return it to your foreign bank. Failing to do so may cause the bank to attempt to kick you out or withhold tax from your income.
How Do I Complete the W-9 Form?
Sometimes, deciphering the instructions on IRS forms can be confusing – hopefully these instructions will make it a bit easier!
- Write your name that you use on your US tax return – or which appears on your Social Security card or passport.
- Skip the business name, for individuals.
- Check the box labeled “Individual/Sole proprietor.”
- Write the address that you use on your tax return or your principal residence.
- Write your city, state, and zip code.
- Leave the account number blank.
- Leave the requestor’s name blank.
- Write your Social Security in the designated boxes. (If you don’t have a Social Security Number, this is where you’d list your Individual Taxpayer Identification Number – ITIN).
- Sign and date Part II, Certification. This is certifying you’re a US citizen and that you are not subject to withholding, since you should be declaring the income on your US tax return annually.
- Return the completed form to your foreign financial institution that requested it.
Note that the W-9 is simply a reporting document – you are not taxed on anything by filling out and submitting this form to your foreign bank.
Need Some More Information Regarding FATCA?
Greenback is here to help! Our team of expat-expert CPAs and IRS Enrolled Agents have the expertise you’re looking for when it comes to understanding your US expat taxes – contact us today!