Understanding FATCA as an American Living in Germany
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. This form is relatively new, but the requirement of reporting foreign assets is not – much of this information has been required on the Foreign Bank Account Report (FBAR) for years.
In addition to filing Form 8938, your foreign financial institution is required to report your accounts 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)
When it comes to the filing thresholds, here's a breakdown, depending on your filing status:
1) Single taxpayers living abroad:
$200,000 on the last day of the tax year or $300,000 at any point during the year
2) 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
3) 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
4) 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
You'll report these assets on Form 8938, and include it along with your US expat tax return – which is due June 15th for US expats, unless you filed an extension until October 17th (note: this date is usually the 15th, but that date falls on a weekend in 2016).
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, and the purpose of it is to provide basic taxpayer information to your foreign bank in order for it 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, you'll need to complete the W-9 form and return it to your foreign bank or financial institution. Not doing so can cause the bank to kick you out or withhold tax from your income, so it's important to 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 http://www.greenbacktaxservices.com.