FATCA and FBAR are two distinct reporting requirements that U.S. taxpayers with foreign assets must understand. Although both target tax compliance and transparency, they differ in their filing thresholds, where they’re submitted, and the specific details they capture. This guide clarifies each requirement, explains who must file, and outlines the potential penalties for noncompliance so you can stay fully informed about your U.S. tax obligations.
What is FBAR?
An FBAR (Foreign Bank Account Report) is a mandatory filing with the U.S. Treasury Department for certain U.S. persons who have a financial interest in or signature authority over foreign financial accounts. The FBAR, officially known as the Report of Foreign Bank and Financial Accounts, plays a key role in helping the U.S. government identify and combat money laundering, terrorist financing, and other financial crimes.
What is the Difference Between FBAR and FATCA Reporting?
FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) are two separate reporting requirements designed to increase transparency around foreign financial accounts and foreign financial assets. While both aim to prevent tax evasion and uncover offshore accounts, they serve different purposes, have different thresholds, and are reported to different entities.
FBAR (FinCEN Form 114): Reporting Foreign Bank Accounts
FBAR is an informational filing required under the Bank Secrecy Act (BSA) and is filed with the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department. Its primary goal is to combat money laundering, foreign financial crimes, and offshore tax evasion by tracking the movement of funds in and out of the U.S.
Who Must File FBAR?
U.S. persons, including citizens, residents, and certain domestic entities, must file FinCEN Form 114 if they have a financial interest in or signature authority over foreign financial accounts, such as:
- Foreign bank accounts
- Foreign mutual funds
- Foreign hedge funds
- Accounts held in foreign financial institutions
FBAR Filing Requirements
- Threshold: Must file if the aggregate value of all bank and financial accounts exceeds $10,000 at any point during the tax year.
- Reportable Accounts: Includes checking accounts, savings accounts, brokerage accounts, and accounts held at foreign branches of U.S. financial institutions.
- Deadline: April 15, with an automatic extension to October 15 for U.S. expats.
- Submission: Filed electronically through the BSA E-Filing System.
Purpose of FBAR
FBAR is only an informational document and does not assess taxes. Its primary focus is to ensure that foreign accounts are disclosed to FinCEN, aiding the government in monitoring foreign financial activities and preventing illegal activities like money laundering and offshore tax evasion.
Keep in mind—even if your account balance exceeds $10,000 for just a moment, such as a single day or even one minute, you are still required to file the FBAR.
What information must be reported on the FBAR?
The following information must be reported on the FBAR:
1. The name on the account
2. The account number
3. The name and address of the foreign financial institution where the account is held
4. The type of account (e.g., checking, savings, securities, or other)
5. The maximum account value during the calendar year being reported
How to Determine the Maximum Value of an Account for FBAR
FATCA (Form 8938): Reporting Foreign Financial Assets
FATCA, enacted under the Foreign Account Tax Compliance Act, requires U.S. taxpayers to disclose specified foreign financial assets on Form 8938, which is filed with their federal income tax return to the Internal Revenue Service. Unlike FBAR, FATCA focuses on tax enforcement.
FATCA Key Information:
- Submission: Attach Form 8938 to your federal tax return.
- Reportable Assets: Includes more than just foreign bank accounts, such as foreign stocks, foreign mutual funds, foreign hedge funds, and even foreign currency held directly in certain cases.
Who needs to file FATCA?
U.S. Taxpayers Living in the United States: You must file Form 8938 if the total value of your specified foreign financial assets exceeds:
- $50,000 at the end of the year or $75,000 at any time during the year (for single taxpayers or married individuals filing separately).
- $100,000 at the end of the year or $150,000 at any time during the year (for married individuals filing jointly).
U.S. Taxpayers Living Abroad: For individuals who qualify as living abroad, the reporting thresholds are higher:
- $200,000 at the end of the year or $300,000 at any time during the year (for single taxpayers or married individuals filing separately).
- $400,000 at the end of the year or $600,000 at any time during the year (for married individuals filing jointly).
Purpose of FATCA
FATCA is designed to uncover undisclosed foreign financial assets and enforce tax compliance. It also places obligations on foreign financial institutions (FFIs) to report U.S. account holders directly to the IRS. Non-compliance can result in a 30% withholding tax on U.S.-source income for the institution.
Keep in mind – Form 8938 does not relieve filers of FBAR filing requirements!
Related: What to Do if the IRS Freezes Your Assets as an Expat?
Do You Need to File Both FBAR and FATCA?
Yes, many U.S. taxpayers with foreign accounts may need to file both FBAR and Form 8938, as each serves a distinct purpose. For example, someone with two foreign bank accounts exceeding $10,000 in total would file FBAR, while those same accounts, along with foreign stocks or foreign mutual funds, could trigger a FATCA filing if the combined foreign assets exceed the FATCA thresholds.
Key Exemptions
You do not need to file Form 8938 if:
- The total value of your foreign financial assets does not exceed the thresholds.
- The assets are already reported on other forms, such as Form 3520 (foreign trusts) or Form 5471 (foreign corporations), although you must still disclose these filings on Form 8938.
Related: FBAR VS Form 8938: A side-by-side comparison
At 1040 Abroad, we offer free tax advice to all U.S. expats, ensuring you fully understand your filing obligations and avoid unnecessary stress. When it comes to preparing your tax return, Form 8938 (FATCA) is included in our standard fee—we do not charge additional fees for the form or for the number of accounts reported.
While both FBAR and FATCA are critical for reporting foreign financial accounts and assets, they differ significantly in purpose, thresholds, and filing requirements. FBAR, filed with FinCEN, focuses on combating money laundering and financial crime, whereas FATCA, filed with the IRS, emphasizes tax compliance and ensuring U.S. taxpayers report foreign financial assets accurately.
If you have questions about these requirements or need assistance with your filings, we’re here to help. Contact us for expert guidance!
