Understanding FATCA as an American Living in Germany
Updated - May 2020
As a US expat, you're likely aware of the confusing nature of expat taxes. Then, you also might have to consider additional reporting requirements specific to your tax situation, like reporting foreign financial accounts, if you meet the filing threshold. One such requirement is the Foreign Account Tax Compliance Act (FATCA), which was implemented in 2010.
What Do I Need to Know About FATCA?
Due to FATCA, individuals are required to report foreign bank account information to the IRS on Form 8938 if the accounts exceed a certain amount. On the surface, FATCA may seem similar to Foreign Bank Account Reporting (FBAR) obligations. However, there are many differences.
Under FATCA, both expats and their foreign financial institutions are required to report accounts held by US citizens to the IRS. The primary purpose of FATCA is to make it easier for the US government to keep track of US persons and businesses that are earning income from investments and/or deposits in foreign financial accounts. All US citizens must report their foreign assets to the IRS if they exceed the specified thresholds and the foreign financial institution is required to report on the assets of their American clients in order to avoid a 30% withholding on certain payments from the US.
What Do I Need to Report?
FATCA is very comprehensive and you must report all foreign bank accounts and foreign assets, including:
- 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)
FATCA Filing Thresholds
Your FATCA filing obligation will be triggered when you meet a certain threshold. These thresholds depend on your filing status and location:
- Single taxpayers living abroad:
$200,000 on the last day of the tax year or $300,000 at any point during the year
- Married taxpayers filing jointly 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 taxpayers filing jointly living in the US:
$100,000 on the last day of the tax year or $150,000 at any point during the year
How and When to File
Report your financial assets on FATCA Form 8938 and include it along with your US expat tax return. US expats receive an automatic two-month filing extension, which means you'll need to submit your expat tax return by June 15th. That is, unless you filed an extension until October 15th.
Are There Additional Reporting Requirements?
When setting up your foreign financial account, the financial institution will likely ask you to complete a W-9 form. This form is fairly straightforward. Your foreign bank will use the basic taxpayer information you provide to report income from your accounts to the IRS. Your foreign bank holds this form for informational purposes; it isn't turned over to the IRS. If you are a US citizen, Green Card holder or your tax residence is the US, failing to complete the W-9 form can cause your bank to terminate your service or to withhold tax from your income. Make sure you become and stay compliant with this requirement!
What If I'm Unsure of How FATCA Affects Me?
Sometimes determining whether or not you need to complete certain reporting requirements can be challenging! It's always a good idea to consult with a tax professional if you have any questions about your responsibilities when it comes to reporting foreign income or filing US taxes. Check out our blog for more information regarding FATCA and Form 8938.
This post was written by David McKeegan, co-founder of Greenback Expat Tax Services. Greenback specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and IRS Enrolled Agents who have extensive experience in the field of expat tax preparation. For more information about FATCA, expat taxes or Greenback, please visit greenbacktaxservices.com.