When it comes to international tax reporting, you’ll undoubtedly come across these two acronyms: FATCA and FBAR. While both FATCA (Foreign Account Tax Compliance Act) and FBAR (Foreign Bank and Financial Account Reporting) are forms related to reporting foreign assets, investments, accounts, and income to the U.S. government, they have several notable differences.
Depending on your unique tax situation, you could be required to file one form, both forms, or neither of them. Understanding the requirements of each form is key to avoiding problems with the IRS or the FinCEN (Financial Crimes Enforcement Network). Let’s take a look at the difference between FBAR and FATCA.
FBAR Filing Requirements
The FBAR (Foreign Bank Account Report), also known as FinCEN Form 114, is an annual report that Americans with non-US bank accounts must file with the U.S. Treasury Department. The FBAR is not a tax. Rather, it’s a report designed to combat tax evasion and money laundering by making it harder for U.S. citizens to hide assets overseas. Individuals filing FinCEN Form 114 are not taxed on any balance of their accounts.
While the FBAR was enforced by the IRS in 2003, it has been around since 1970 under the Financial Crimes Enforcement Network (FinCEN).
Legally, you are required to file FBAR if both of the following are true:
- You’re a U.S. resident, citizen, dual citizen, Green Card Holder, or domestic business entity.
- All the foreign bank and financial accounts you own or control have a combined value of more than $10,000 at any time during the calendar year.
This filing requirement applies even if the balance hits the $10,000 threshold for just one day.
FBAR filing requirements cover various forms of accounts maintained overseas, including security accounts, bank accounts, assets, and certain foreign retirement arrangements. Ignoring FBAR requirements can result in serious legal consequences and penalties.
FATCA Filing Requirements
The FATCA (Foreign Account Tax Compliance Act) is part of the jobs legislation known as the HIRE Act. It was designed to combat offshore tax evasion by individuals with foreign assets and accounts. FATCA Form 8938 generally requires certain foreign financial institutions and non-financial entities to report accounts and assets held by U.S. persons to the IRS. A U.S. person can be a citizen or resident, a domestic corporation, a domestic partnership, any estate other than a foreign estate, or any person that is not a foreign person.
If you live in the U.S. for the entire tax year, you are required to file Form 8938 if you have:
- More than $75,000 (or $150,000 for married couples filing a joint income tax return) at any time of the year, or
- More than $50,000 (or $100,000 for married couples filing a joint income tax return) at the end of the year.
Expats living abroad have a higher reporting threshold:
- $300,000 (or $600,000 for married couple reporting jointly) at any time of the year, or
- $200,000 (or $400,000 for married couples reporting jointly) at the end of the year.
Failure to file FATCA information could attract steep penalties and interest.
The Bottom Line
While the FATCA and FBAR reporting requirements are similar, there are several key differences. The FBAR is required by the IRS for expats and other citizens with foreign financial accounts. FBARs must also be filed on behalf of domestic entities, estates, and trusts with interest in foreign bank accounts. FBAR pertains to foreign account balances of $10,000 or more.
FATCA applies to individual citizens, non-resident aliens, and residents. It pertains to foreign account balances between $50,000 and $600,000, based on the filers’ marital status. Individuals holding foreign accounts and living in U.S. territories must file FBAR but may not need to file FATCA.