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US expats urged to avoid FATCA tax filing traps
| Published: | 3 Feb at 6 PM |
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Tagged: USA, Citizenship
More than nine million American expats living overseas dread tax-reporting time due to FATCA’s extra filing and reporting requirements.
It’s bad enough that the USA insists expatriates pay tax in the home country in addition to having to pay local taxes on earnings in their country of residence. Even worse are the FATCA requirements making an already cumbersome process into a nightmare for many US expats.
Making sure you’ve filled in the reams of extra paperwork dumped annually on your comfortable expat life is a chore in itself, but making an unintended mistake will bring even worse news. The most dangerous mistakes occur in the FBAR information forms requesting financial accounts and foreign bank details, as they are penalty-sensitive and can attract horrendous fines if overlooked.
These forms must be filed by those holding even one bank account outside the USA, provided the aggregate value of the account or accounts exceeds $10,000 at any one time in the tax year. Form 8938 discloses all foreign financial assets and is also mandatory. Should you make an error on your FBAR, you’re liable for a fine of up to $10,000 – an expensive mistake. Those who’re trying it on and get discovered face penalties of $100,000 or half the account’s balance.
Those in paid employment during the 2016 tax year can use the foreign earned income exclusion, provided earnings don’t exceed $101,300, but even those who’ve earned less must file a return. However, using the exclusion means you may not be eligible for other credits, including the foreign tax credit and the child tax credit.
There’s no overseas marriage break for US citizens who’ve married local girls in their host country, meaning filing separately is a must. AS with the entire process, the rules are complicated, with specialist help the best way to avoid fines.
Those with multinational employers may find US social security and Medicare payments are being made as part of the compensation package, but those working for local companies should check whether their foreign employer is contributing to a local scheme. Some countries have a pact with the US authorities ensuring double Social Security taxation doesn’t occur.
Source: CNBC Special Reports
It’s bad enough that the USA insists expatriates pay tax in the home country in addition to having to pay local taxes on earnings in their country of residence. Even worse are the FATCA requirements making an already cumbersome process into a nightmare for many US expats.
Making sure you’ve filled in the reams of extra paperwork dumped annually on your comfortable expat life is a chore in itself, but making an unintended mistake will bring even worse news. The most dangerous mistakes occur in the FBAR information forms requesting financial accounts and foreign bank details, as they are penalty-sensitive and can attract horrendous fines if overlooked.
These forms must be filed by those holding even one bank account outside the USA, provided the aggregate value of the account or accounts exceeds $10,000 at any one time in the tax year. Form 8938 discloses all foreign financial assets and is also mandatory. Should you make an error on your FBAR, you’re liable for a fine of up to $10,000 – an expensive mistake. Those who’re trying it on and get discovered face penalties of $100,000 or half the account’s balance.
Those in paid employment during the 2016 tax year can use the foreign earned income exclusion, provided earnings don’t exceed $101,300, but even those who’ve earned less must file a return. However, using the exclusion means you may not be eligible for other credits, including the foreign tax credit and the child tax credit.
There’s no overseas marriage break for US citizens who’ve married local girls in their host country, meaning filing separately is a must. AS with the entire process, the rules are complicated, with specialist help the best way to avoid fines.
Those with multinational employers may find US social security and Medicare payments are being made as part of the compensation package, but those working for local companies should check whether their foreign employer is contributing to a local scheme. Some countries have a pact with the US authorities ensuring double Social Security taxation doesn’t occur.
Source: CNBC Special Reports
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