New U.S. Law Concerning Reporting on Overseas Accounts
A new law that requires overseas financial institutions to report on accounts held by U.S. citizens may make opening accounts overseas more difficult for expats.
"The problem is that smaller foreign banks, which do not have any U.S. holdings, may not wish to comply with the reporting requirements of the Foreign Account Tax Compliance Act [FATCA], so 'they may just decide they are not going to have accounts with any Americans,'" says Cathy Schultz, vice president for tax policy at the National Foreign Trade Council in Washington.
The new law would hold foreign financial institutions that do not report on the holdings of American citizens to the U.S. Internal Revenue Service with a "withholding charge of up to 30 percent on any income and capital payments the company gets from the United States, beginning in 2014. The intent of the law is to find U.S. citizens who try to evade taxes by keeping funds overseas."
FATCA, passed in March 2010, as part of the Hiring Incentives to Restore Employment (HIRE) Act. The IRS also recently increased the threshold limits for income that must be reported.
"Instead of $50,000, as originally set, the IRS now requires U.S. citizens -- who are considered foreign residents for the entire 2011 tax year or who are expats -- to file the new IRS Form 8938 if they have aggregate foreign assets of $200,000 on the last day for the year, or $300,000 at any time during the year. Those numbers increase to $400,000 and $600,000, respectively, for married filing jointly."
As the tax season rapidly approaches for Americans, abroad and at home, taxes are on many minds. Remember, the next IRS Tax filing deadline is on Tuesday, April 17, 2012.