Reporting Foreign Interest - Questions

[PRIYA200892]

1. I have some interest income earned on my foreign savings accounts/ other investments products. Is there a minimum threshold for this foreign interest income to be reported while filing US Taxes?

2. The interest income on some investment products in India are tax-free in India. Will that interest income be tax-free in US also or not ? 

3. Should I report foreign interest income in the same page as 1099-INT on Turbotax ?

4. Do I need to submit Form 8938 ? What are the criterion that needs 8938 to be filled ?

[ToddL99]

1. There is no minimum threshold for reporting foreign interest income  when filing US Taxes.
 

2. Interest income from foreign sources is not tax-free in the U.S. even if it is tax-free in the country where it comes from.  Some foreign investments such as Canadian registered retirement accounts (RRSP) may receive tax-deferred growth treatment, but overall it is rare.

3. Yes, report foreign interest income in the same page as 1099-INT.

4. You need submit Form 8938 if you meet one of the following thresholds:

The threshold filing requirements vary based on whether a person is filing as single, separate or married filing jointly, and whether the person files as a U.S. resident or foreign resident. 

The rules for Taxpayers living in the U.S.:

Unmarried Taxpayers

If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Married Taxpayers Filing a Joint Income Tax Return

If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

Married Taxpayers Filing a Separate Income Tax Return

If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

The rules for Taxpayers living outside the U.S.:

Unmarried Taxpayers

If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

Married Taxpayers Filing a Joint Income Tax Return

If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

[pk]

@PRIYA200892  also note that if you have  essentially  "liquid"  investments -- bank accounts  or cash accounts resting  in brokerage, you may have to file FBAR   ( form 114 at FinCen.gov -- they will transfer you to BSA e-filing  for actual filling out of the form). Even if you do not  own/operate the account  but are on the account  -- nominee -- as is often common  with older relatives  in many countries, you would need to report these accounts.

Namaste

pk

[PRIYA200892]

Thanks a lot pk! 
: )

[PRIYA200892]

Thank you for your responses. Very clearly put. 
1. Does turbo tax free online account allow tax filing for two states or needs an upgrade to deluxe ? I was able to fill all my taxes for free account and on the very last page it asks me to upgrade with a hefty $160 fee. 

[pk]

@PRIYA200892 , I am not familiar with the  (a) TurboTax online and (b) TurboTax Free.  All I can say is that for simple returns, using standard deductions generally take advantage of this "FREE" offer.  It is advertised as  "Free, Free, Free" implying   preparation and filing of  one federal  and at least one state , but again I really  do not know  where the limits are .  For sure you can  prepare  at least one state ( for this  Free, Free, Free  offer) but  I suspect  that more than one state  preparation and filing probably  would result in charges at least for the filing of the  2nd state.   Sorry for my lack knowledge

Namaste

pk

[PRIYA200892]

@pk Thank you for your response pk. This is helpful (y)
Hopefully I should be able to find a solution. 

[LinaJ2020]

You are required to report any amount of foreign interest on your US tax return unless it meets certain tax treaty agreements between the two countries.  However, international tax treaty is out of scope for our service.  I will suggest you to consult another professional for verification.  If the foreign interest is taxable to the US, you can report it under "Other Income" so that you will be able to e-file.  Here are the steps:

In TurboTax online, 

• Sign in to your account, select Pick up where you left off
• To the right upper corner, in the search box, type in "other reportable income" and Enter
• Select Jump to other reportable income
• Next screen, "Other Wages Received", select No to continue
• Next screen, scroll down all the way to the bottom, under "Other reportable income", select Start
• Next screen, "Any Other Taxable Income?" select Yes to continue
• Enter a description and the amount

Technically, you would enter a Form 1099 for interest, dividends to create a Schedule B.  However, with a foreign entity, you would not have a US FEIN to qualify for the e-file.  To workaround, enter it under Other Income in the program.  To the IRS, as long as the total amount is reported on your taxes as Other income on line 8 Form 1040, you should be okay.  

As far as Form 8938, if you live in the US and meet one of the following criteria, you would need to file:

• Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
• Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year. 

In the program, follow steps here:

• At the right upper corner, in the search box, type in "foreign assets" and Enter
• Select Jump to foreign assets
• Follow prompts

@PRIYA200892