What does the "FATCA Filing Requirement" on Form 1099 mean?
If you received a 1099 Form at the beginning of the year, you might have noticed a FATCA filing requirement box. It might be checked or unchecked, but questions linger. What does this box mean? Should you check it if it isn’t? Should you file any additional forms with the Internal Revenue Service (IRS)?
Below we are going to answer all of these — and go over the FATCA requirements themselves and their origins.
What is FATCA?
FATCA stands for Foreign Account Tax Compliance Act. It was passed into law in 2010 with a simple purpose: to ensure that US citizens who hold substantial assets overseas pay taxes from these assets. In short, FATCA’s purpose is to combat tax evasion.
Naturally, a question pops up: How would the IRS (who oversees the enforcement of the act) know if someone holds offshore assets? Well, according to FATCA, financial institutions outside the US must report if US citizens have assets on their balance. And, as many countries have agreed to honor FATCA, the chances of the IRS being unaware of someone having overseas assets are minimal.
Also read. FATCA reporting & filing requirements
What does the FATCA requirement checkbox mean?
It means that the institution that sent you the 1099 Form is aware of the FATCA requirements and shows its willingness to comply with them. Sometimes the FATCA filing requirement box is checked to signify it, sometimes it isn’t. But you don’t have to check it yourself.
Who needs to worry about the FATCA checkbox?
Every US taxpayer who holds substantial financial assets abroad — regardless of whether they live in the US or overseas. We’ll stop on what “substantial” means in a bit, but first: if you receive a 1099 with the box checked you might need to file Form 8938 (to comply with FATCA), a 114 report (to comply with FinCEN), or both. Check-in with your tax preparer to clear that up.
Finally, “every US taxpayer” does not equal “every US citizen”. You can just as well be a US resident alien or even a non-resident alien who chooses to file as a resident for the year in question — for example, if you are filing jointly with a spouse. All of those still fall under FATCA reporting requirements — provided the asset threshold is met.
It’d also be remiss of us not to mention coming into compliance with the IRS regulations. A set of rules was created for those US citizens who haven’t, unwillingly, paid taxes on foreign assets and are now willing to rectify that.
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Is FATCA different from FBAR?
Yes, it is. FBAR stands for Foreign Bank Account Report. In short, a US citizen who has one or several foreign bank accounts that cumulatively exceed $10,000 must file an FBAR report. The reporting threshold to comply with FATCA requirements is much higher: it stands at a $50,000 minimum.
Here are some other key differences:
- FBAR only deals with bank accounts, while FATCA includes all foreign assets.
- You file an FBAR-compliant report with FinCEN (Financial Crimes Reporting Network), using Form 114; but to comply with FATCA you need to file Form 8938 with the IRS.
- Form 114 needs to be filed before April 15th for the previous tax year, while Form 8938 needs to be filed together with your annual 1040 Individual Tax Return — the deadline for which is not necessarily April 15th.
We’ve covered the main differences here; however, you can get your teeth into the finer details by using a handy comparison table from the IRS.
Also read. FBAR Filing Guide 2023
Not sure if FATCA requirements apply to you?
We can lend you a hand. FATCA and FBAR requirements are not straightforward. If you are unsure you can navigate all the forms and filing procedures on your own, drop us a line.
We’ll be happy to walk you through the process and help you file on time. We can even negotiate with the IRS on your behalf.
FAQ
You might need to. Check with your tax preparer or contact us to get a lowdown.
Yes, they are as well as nonresident aliens who choose to file as residents for the tax year in question. However, you need to hold at least over $50,000 in foreign assets on the last day of the year or $75,000 at any point during the year to worry about complying with FATCA.
FBAR requirements are a different story though: a cumulative balance of over $10,000 in foreign bank accounts means you need to file Form 114 with FinCEN.