US Expat Filing Requirements

What filing requirements do US-connected need to compile with?

 FATCA is a tax law that compels US citizens at home and abroad to file annual reports on any foreign account holdings such as foreign pensions, mutual funds, life insurance and stockholdings. Please see common reporting requirements below for US expats:

  • Form 8938 – According to the IRS, if you are single and live outside of the US, you must submit a Form 8938 (https://www.irs.gov/pub/irs-pdf/f8938.pdf) if you have more than $200,000 of specific financial assets at the end of the year or $300,000 at any time during the year. If you are married and file jointly, these thresholds are doubled and apply even if only one spouse lives abroad. The deadline for filing Form 8939 is June 15th for US expats.
  • An FBAR – An FBAR (Foreign bank account report) (https://bsaefiling1.fincen.treas.gov/lc/content/xfaforms/profiles/htmldefault.html) is a separate filing requirement for US expats which needs to be filed online each year with FinCEN (the Financial Crimes Authority) when the aggregate of the individual’s highest balances of their non-US accounts in any given day in a calendar year is over $10,000. The deadline for filing the FBAR is October 15th. The US-designed this to crack down on money laundering and other financial crimes. Failure to disclose these assets could lead to fines of $100,000 or 50% of the undisclosed sum – whichever is higher!
  • Form 1040 and Form 2555 – The foreign earned income exclusion lets US expats exclude up to a maximum of around $105,000 of the earned income from US taxation, however, passive income such as pensions, rent and dividends cannot be excluded. Fortunately, the US has 60 double taxation agreements across the world. Expats who pay foreign income tax at a higher rate than the US rate are often better off claiming the Foreign Tax Credit through the filing of Form 2555 (https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-forms-to-file) with Form 1040 https://www.irs.gov/forms-pubs/about-form-1040

 

Failure to comply and report can lead to serious fines, starting at $10,000 for an unintentionally missed filing or error per year. Therefore, it is imperative for US expats to get their finances in order to avoid these potential fines.

Further complications

All Non-US financial institutions need to reveal the identities of US account holders or impose a 30% withholding tax. The costs of complying with FATCA are estimated to be about $200m for each foreign institution, meaning most non-US financial institutions no longer accept US connected clients. In addition, many US individuals have had their American brokerage accounts closed since moving overseas. In 2020 large institutions such as Charles Schwab and Wells Fargo closed all brokerage accounts that had a foreign address. Furthermore, purchasing foreign mutual funds or other pooled investment products is classed as a “passive foreign investment company (PFIC) and are taxed punitively at the highest marginal rate of tax – 39.6% making these options unattractive

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