What is FATCA?
When you moved overseas, you probably established new roots by doing things like renting an apartment, taking out health insurance, or opening a bank account. Well, if you opened a bank account or acquired any financial assets overseas, the IRS wants to know about it. That’s where the Foreign Account Tax Compliance Act, or FATCA, comes in.
The Foreign Account Tax Compliance Act (FATCA) Summarized for Americans Abroad
It used to be pretty easy for Americans to get around paying their fair share of taxes by hiding money in foreign banks. To prevent this, U.S. lawmakers passed the Foreign Account Tax Compliance Act (FATCA) which required foreign banks to share financial information with the U.S.
If you are a U.S. citizen or green card holder living abroad and have foreign assets or foreign bank accounts, you may need to file Form 8938 when you file your U.S. tax return if the value of your assets exceeds certain thresholds. FATCA reporting requirements for financial institutions overseas mandates them to disclose information about U.S. citizens who hold accounts overseas. Your foreign bank may have you fill out a U.S. tax document (form W-9) so they can comply with these rules.
If you haven't been filing U.S. tax returns, FATCA reporting can result in the IRS discovering your failure to file. Don't worry! H&R Block can help you catch up.
Why FATCA was created
The U.S. Treasury created FATCA to ensure U.S. citizens abroad follow U.S. tax rules.
Before implementation, the U.S. government discovered that they were losing billions of dollars in tax revenue per year thanks to U.S. taxpayers stashing cash in overseas banks and other financial institutions. To combat this, the U.S. drafted legislation—the Foreign Account Tax Compliance Act—that would require other countries to disclose any financial accounts held by Americans abroad.
Its success depends on the cooperation of other countries. To make the whole thing work, each participating country signs an intergovernmental agreement (IGA) that incorporates FATCA into their local laws. You can see which countries have signed IGAs below.
The IRS has a complete FATCA PDF summary on the IRS website.
FATCA reporting requirements
Who is subject to FATCA reporting? Well, both individuals and financial institutions need to disclose information related to FATCA:
- Individual U.S. taxpayers may need to file FATCA Form 8938
- Institutions need to disclose information about U.S. citizens with accounts overseas. How each country goes about that depends in their individual IGA with the U.S.
FATCA vs FBAR
Tax law is an alphabet soup of acronyms, and many U.S. expats confuse your FATCA declaration with Foreign Bank Account Report (FBAR) reporting.
While these two forms are similar, FATCA and FBAR have slightly different reporting requirements. For example, the people who need to fill out FACTA are U.S. citizens, residents, and certain non-resident aliens. The FBAR is filed by the above and a wider range of tax filers, including estates, trusts, and other financial entities with assets abroad. Residents and entities in U.S. territories also have to file FBARs, but not FATCA forms
A big difference between the two is the government organization responsible and where you file them. Your FBAR reports any assets in foreign financial institutions to the Financial Crimes Enforcement Network of the U.S. Treasury, or FinCEN. Your FATCA reports assets in foreign financial institutions to the IRS.
You may have to fill out one or both of these forms. If you’re unsure, we recommend you leave it to the pros.
FATCA countries with declarations or treaties
The following are countries with FATCA declarations or treaties with the U.S.:
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