The Facts About FATCA for Americans Abroad

November 15, 2024 | | 5 minute read
Expat Tax Blog. Tax Tips for US Americans abroad.

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Man Filing FATCA Form 8938

Navigating the complex world of taxation can be daunting for Americans living abroad. Although there are many aspects of US taxes, this article will focus on one piece of legislation that impacts expats: the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010, FATCA was designed to combat tax evasion by requiring the disclosure of overseas assets. It has far-reaching implications, especially for those with foreign bank accounts or other foreign financial assets.

What is FATCA?

FATCA requires foreign financial institutions to report information about accounts held by US persons to the US Treasury and IRS. It tracks potential illegal tax activity and monitors American taxpayers who earn income abroad. The government tracks income and investments deposited into foreign bank accounts.

Additionally, through FATCA, the US government has the power to withhold payments from being deposited into certain foreign financial accounts or other entities.

Who Needs to Be Compliant with FATCA?

The key determinant is US citizenship or residency. If you are an American citizen or Green Card holder, even if you’re living outside the US, you are still subject to FATCA’s reporting requirements. This also applies to dual citizens who hold accounts in their non-US country of citizenship. The law affects a wide range of financial assets, including foreign bank accounts, mutual funds, pensions, and other financial assets located outside the US.

You may be surprised to learn that FATCA affects foreign institutions and governments as well as American expats. The Act ensures everyone is involved in preventing illegal money activity overseas.

FATCA Form 8938 Filing Requirements

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Thresholds for Filing FATCA Form 8938

If you have foreign assets that exceed certain thresholds, you must report them using Form 8938, “Statement of Specified Foreign Financial Assets.” These thresholds vary depending on your residency and filing status.

Filing StatusLast Day of the Tax YearAt Any Time During the Tax Year
Single Filers$200,000$300,000
Married Filing Jointly$400,000$600,000
Married Filing Separately$200,000$300,000

If these thresholds are met, expats must report their assets on FATCA Form 8938.

For those who live in the US, even if only partially in the year, the thresholds will be a lot lower, prompting FATCA reporting amounts as low as $50,000.

When is the FATCA deadline?

With FATCA, all you must do is include Form 8938 on your US tax return. Therefore, the deadline is the same deadline as when you file your taxes. The traditional tax filing deadline can differ for different people, depending on your residency status and whether or not you owe taxes. Make sure you know when you need to file by and if you need to request an extension.

FATCA vs. FBAR: Key Differences

The FBAR—or Foreign Bank Account Report—is similar to FATCA in that its purpose is to uncover tax avoiders or people who use foreign bank accounts to hide money.

US expats must file an FBAR if the combined value of foreign financial accounts exceeds $10,000 at any time during the year. Additionally, this report is filed with the Foreign Crimes Enforcement Office (FinCEN), not the IRS.

FATCA for American expats abroad is different from the FBAR. While it’s also used to report foreign financial accounts and assets, it’s more comprehensive due to its high filing thresholds and reporting of income from such assets.

Penalties for Non-Compliance

Non-compliance with not filing FATCA Form 8938 when required can lead to severe penalties, including:

  • Failure-to-File will result in a $10,000 penalty
  • Additional penalties of up to $50,000 for continued failure after IRS notification.

Foreign Financial Institutions

Institutions eligible to register under the FATCA law can do so online and receive a Global Intermediary Identification Number (GIIN). Approximately 400,000 global institutions are already registered. To check if your local bank or institution has a GIIN, you can use the FFI List Search and Download Tool.

Additionally, foreign financial institutions that agree to report their account holder’s information to the IRS can withhold 30% on payments if the American expat account holder does not comply with the FATCA law.

But if a foreign financial institution fails to report to the IRS, a 30% withholding tax will be placed on them when or if they trade in US markets.

FATCA’s Impact on Banking Abroad

FATCA’s implementation has made it more difficult for US citizens to open foreign bank accounts. It’s not uncommon to go to a bank overseas, request an account, and be denied because of your US citizenship. There are even reports from American families having trouble buying a home because of FATCA laws. Unfortunately, it’s an obstacle US citizens living abroad must overcome.

Disclosing bank account details to the government is incredibly frustrating for people who no longer live in the US. This often results in American expats wanting to renounce their citizenship.

Staying Tax-Compliant with FATCA

Although the FATCA reporting requirement can create many challenges for US citizens living abroad, it is important to remember that the US government is trying to eliminate the potential hiding of overseas assets. Failure to file will result in severe penalties on top of expat filing.

With the help of MyExpatTaxes, expat can file FATCA Form 8938 without problems. This will help you to avoid fines, remain tax-compliant, and stay out of trouble.

Written by Nathalie Goldstein, EA

November 15, 2024 | | 5 minute read

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