FBAR Filing for H-1B Visa Holders
FBAR Filing for H-1B Visa Holders: The FBAR Filing for H-1B Visa Holder rules are more complex than they need to be. And, with the IRS continuing to take an aggressive position on matters involving foreign accounts compliance and unreported foreign income — compliance is crucial. When an H-1B visa holder meets the substantial presence test, they are considered a U.S. person.
The FBAR Filing for H-1B Visa Holders rules provides that if a foreign resident is in the U.S. on H-1B, and meets the substantial presence test, they become subject to FBAR reporting and tax just as if they were a U.S. Citizen or Green Card Holder (aka Legal Permanent Resident)
U.S. Tax Requirement Basics
Here is a summary of the basics:
Non-Resident (With No U. S. Status)
When you reside outside of the United States (as a Non-U.S. Person) and you earn U.S. sourced employment income, you will generally file a 1040NR (“ Non-Resident”).
Non-U.S. Person means that you are neither a U.S. Citizen, Legal Permanent Resident or Visa Holder who otherwise meets the IRS Substantial Presence Test.
Once you begin working in the United States (for example, if you are in the United States on an H-1B Visa) and you meet the Substantial Presence Test, not only must you file a 1040 (just as if you were a U.S. Citizen or Legal Permanent Resident), but you will also have FBAR filing requirements (if you meet the minimum threshold requirements).
It is very important that you report all of your foreign bank accounts in accordance with FBAR Reporting Requirement, since the penalties for not reporting foreign accounts can be staggeringly high.
The following is a summary of the Substantial Presence test followed by a summary of FBAR reporting requirements:
Substantial Presence Test
As a non-US citizen and non-US green card holder, you are generally only required to pay tax on your “US Effectively Connected Income” (money you earn while working in the United States). However, if you qualify for the Substantial Presence Test, then the IRS will tax you on your WORLDWIDE income.
IRS Substantial Presence Test generally means that you were present in the United States for at least 30 days in the current year and a minimum total of 183 days over 3 years, using the following equation:
- 1 day = 1 day in the current year
- 1 day = 1/3 day in the prior year
- 1 day = 1/6 day two years prior
Example A: If you were here 100 days in 2016, 30 days in 2015, and 120 days in 2014, the calculation is as follows:
- 2016 = 100 days
- 2015 = 30 days/3= 10 days
- 2014 = 120 days/6 = 20 days
- Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).
Example B: If you were here 180 days in 2016, 180 days in 2015, and 180 days in 2014, the calculation is as follows:
- 2016 = 180 days
- 2015 = 180 days/3= 60 days
- 2014 = 180 days/6 = 30 days
- Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.
FBAR – Reporting Foreign Accounts
If you, your family, your business or your foreign trust and/or PFIC have more than $10,000 overseas in foreign accounts (either directly or indirectly) and either have ownership or signatory authority over the account, it is important that you have an understanding of what you must do to maintain FBAR (Report of Foreign Bank and Financial Accounts) compliance. There are very strict FBAR filing guidelines and requirements in accordance with general IRS tax law, Department of Treasury (DOT) filing initiatives and FATCA (Foreign Account Tax Compliance Act) disclosure requirements.
Filing FBARs and ensuring compliance with IRS International Tax Laws, Rules, and Regulations is extremely important for anyone, or any business that maintains:
- Foreign Bank Accounts
- Foreign Savings Accounts
- Foreign Investment Accounts
- Foreign Securities Accounts
- Foreign Mutual Funds
- Foreign Trusts
- Foreign Retirement Plans
- Foreign Business and/or Corporate Accounts
- Foreign Life Insurance and Life Assurance Policies
- Foreign Accounts held in a CFC (Controlled Foreign Corporation); or
- Foreign Accounts held in a PFIC (Passive Foreign Investment Company)
FBAR or FinCEN Form 114 is used to report foreign bank and financial accounts. FBAR is not limited to individuals. Entities, Trusts and Estates may also have an FBAR filing requirement. The threshold for filing is when the filer has an “annual aggregate total” of more than $10,000 on any day of the year.
In addition, the FBAR requires more than just bank accounts. FBAR also includes:
- Investment Accounts
- Mutual Funds
- Stock Accounts
- Life Insurance
FBAR is the Foreign Bank and Financial Account Form. The FBAR form must be filed electronically.
FBAR Filing can be complicated, depending on the specific FBAR Filing requirements of the filer. For example, if a person has one savings account in Taiwan, the reporting is not that bad. But, if a person has 50 accounts, life insurance, mutual funds, and foreign life insurance — the FBAR filing may be much more complicated.
FBAR Filing Deadline
The FBAR filing deadline is relatively forgiving. Unless the IRS and FinCEN change the current FBAR filing deadline rules, then the FBAR is due when your tax returns are due (April or June). But, the FBAR is on automatic extension through October.
The FBAR Instructions as provided by the IRS and FinCEN can be dense. Therefore, Golding & Golding have prepared our own FBAR instructions for your reference.
FBAR Reporting is the general term for filing the FBAR. FBAR reporting involves the preparation, analysis and submission of the FBAR.
FBAR requirements can be deceivingly complicated. While the form itself is not overly complex, and the due date is relative clear — the actual FBAR requirements are many. Some accounts may have to reported on the FBAR, which may not be required on other common forms, such as the Form 8938 (signatory accounts with no interest in the account). Likewise, while direct ownership of stock is not required to be included on the FBAR — a stock account may be required.
FBAR penalties: The failure to file the FBAR (or filing the FBAR late) may result in FBAR penalties. FBAR penalties can be broken down into different categories:
- Willful FBAR Penalties
- Non-Willful FBAR Penalties
- Civil FBAR Penalties
- Criminal FBAR Penalties
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance with getting compliant.