# Using Foreign Earned Income Exclusion but what about interest



## Kph100 (Jul 23, 2018)

Hi

So my wife lives Uk and earns about $25k income, So clearly the FEIE will cover this.
She has mentioned that she may have received minimal bank interest in an account, like less than few pounds per year, she is going to get back statements.

Do we need to fill that in an interest, and need to claim a seperate allowance, as she has paid UK tax on that interest.

Thank you


----------



## Bevdeforges (Nov 16, 2007)

Technically, yes, she is supposed to file and report all worldwide income. However, once your earned income is "excluded" using the FEIE (form 2555), any miscellaneous interest like this is usually eliminated for taxation purposes between the personal exemption and the standard deduction. (The combined total of which is about $10,000.)

However, the banks outside the US don't report interest and other earnings to the IRS, so even if you leave it off, chances are there will be no repercussions. But until your "unearned" income (i.e. not subject to the FEIE) reaches about $10,000 there's no tax.

Next year (well, the 2018 tax year), the personal exemption is being eliminated, while the standard deduction is being increased. Remains to be seen how that will affect us all.
Cheers,
Bev


----------



## JustLurking (Mar 25, 2015)

Bevdeforges said:


> However, the banks outside the US don't report interest and other earnings to the IRS ...


They do, under FATCA:


> The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. ('foreign') financial institutions (FFIs) to search their records for customers with indicia of 'U.S.-person' status, such as a U.S. place of birth, and to report the assets and identities of such persons to the U.S. Department of the Treasury.
> ...
> As enacted by Congress, FATCA was intended to form the basis for a relationship between the U.S. Department of the Treasury and individual foreign banks. Some FFIs responded however, that it was not possible for them to follow their own countries' laws on privacy, confidentiality, discrimination, and so on and simultaneously comply with FATCA as enacted. Discussions with and among financial industry lobbyists resulted in the Intergovernmental Agreements (IGA's) between the Executive Branch of the United States government with foreign governments. This development resulted in foreign governments implementing the US FATCA requirements into their own legal systems, which in turn allowed those governments to change their privacy and discrimination laws to allow the identification and reporting of US persons via those governments.


----------



## Bevdeforges (Nov 16, 2007)

You have to read through the IGAs or Bilateral agreements to see exactly what information they are providing. There are at least two formats for these agreements - but based on the IGA I read, they are reporting only the year-end balances, and not the interest or other earnings on the accounts. They are also not reporting a number of named "tax free" accounts - though these vary by the country involved.
Cheers,
Bev


----------



## JustLurking (Mar 25, 2015)

Bevdeforges said:


> You have to read through the IGAs or Bilateral agreements to see exactly what information they are providing. There are at least two formats for these agreements - but based on the IGA I read, they are reporting only the year-end balances, and not the interest or other earnings on the accounts.


Gross interest, dividends, proceeds from sales, and so on are definitely reported under Model 1 FATCA 'agreements'. Specifically for the UK, details are in Article 2, paragraph 2(a) of the the UK's FATCA IGA.


----------



## Bevdeforges (Nov 16, 2007)

Perhaps there is a difference between the reporting for investment accounts and regular old bank accounts. But for bank accounts, the IGA I read didn't indicate anything about reporting interest amounts paid (certainly not on tax free accounts that they aren't reporting). 
Cheers,
Bev


----------



## JustLurking (Mar 25, 2015)

Bevdeforges said:


> Perhaps there is a difference between the reporting for investment accounts and regular old bank accounts.


No. From the aforementioned UK FATCA IGA, Article 2 paragraph 2(a)(6):


> The information to be obtained and exchanged is: ... (6) in the case of any Depository Account, the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period ...


And from Article 1 paragraph 1(t):


> t) The term “Depository Account” includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a Financial Institution in the ordinary course of a banking or similar business.


There are a few exemptions to FATCA reporting for the UK, for example pensions and ISAs (limited tax-free savings/investment accounts, roughly equivalent to a French Livret A). Other than these, everything else is FATCA reportable.


----------

