When it comes to foreign asset reporting, most American government rules apply to those American citizens who live abroad. Since these people, often referred to as expats, retain their American citizenship while living abroad, they are required to file U.S. tax and other financial reporting forms related to their income, businesses, accounts, and assets overseas.
The Foreign Account Tax Compliance Act, more widely known as FATCA, includes a requirement to file one of those forms.
Why, may you ask? To answer that question, we need to look back at the history of FATCA. Enacted in 2010, it was part of the Hiring Incentives to Restore Employment (HIRE) Act. This act sought to reduce potential tax evasion by requiring financial assets in foreign banking institutions by United States citizens be reported to the federal government annually.
Recognizing that virtually anyone can hold assets in a foreign country whether they reside there or not, U.S. officials applied the sweeping requirements globally. This means that FATCA not only affects many of the more than 10 million American expats currently living in a foreign nation but also millions more who continue to reside on American soil.
Here are five facts every expat should know about FATCA asset reporting, also commonly referred to as Form 8938:
There are income thresholds
Whether or not you need to file Form 8938 depends on your income and residency status. For individuals living abroad, the minmum reporting threshold is $200,000 of financial assets held abroad at the end of the current tax year or $300,000 at any time during the year. For married couples, those limits double to $400,000 and $600,000 respectively. For Americans residing stateside, the income limits are significantly lower, just $50,000 of foreign registered assets for an individual on the last day of the tax year or more than $75,000 at any time during the year. For married couples, assets must exceed $100,000 and $150,000 respectively.
If you qualify for FATCA filing, you are required to report certain foreign assets
All foreign bank accounts established and maintained by a foreign financial institution fall under FATCA, including specific foreign non-account investment assets. Assets that come under jurisdiction of FATCA include foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons and interests in foreign entities.
You may still need to file FATCA even if you already file the Report of Foreign Bank and Financial Accounts (FBAR) form
According to the IRS, certain foreign financial accounts are subject to reporting on both FATCA and the FBAR reporting. That means if you have a financial interest in or signature authorization on an offshore financial account, this must be stated on the FBAR form regardless of if you’re already reported it Form 8938.
Penalties for not filing the FATCA are severe
Whether you willfully or unwillingly neglect to file your FATCA, your inaction can result harsh fines and penalties. Always consult an expat tax professional for advice.