Banking abroad: What Americans need to know about FATCA
If you’re an American living abroad—or even just thinking about it—there’s one four-letter word that could trip you up with your taxes, your bank, or even your ability to open a new account overseas: FATCA. It sounds like something out of a spy novel, but it’s very real. And if you don’t know what it is or how it works, it could end up costing you thousands of dollars in fines—even if you’re not doing anything wrong.
Let’s break it down in plain language.
What Is FATCA and Why Should You Care?
FATCA stands for the Foreign Account Tax Compliance Act. It’s a U.S. law that was passed in 2010 to make sure American citizens aren’t hiding money in bank accounts overseas. But instead of just checking in with Americans, the law reaches into the rest of the world and makes foreign banks tell the U.S. government who their American customers are.
This law doesn’t only affect wealthy people with secret offshore accounts. It applies to every U.S. citizen, including folks with regular checking and savings accounts in countries where they live. Even if you’ve lived abroad for 20 years, even if you pay taxes in your new country, even if you only have a small amount of money in your account—FATCA still applies to you.
Yes, FATCA Applies Everywhere
The U.S. has made agreements with over 110 countries and territories to enforce FATCA. That means your bank in Mexico City, Berlin, Bangkok, Toronto, or almost anywhere else is probably sharing your account details with the IRS.
Banks that don’t cooperate risk facing huge financial penalties: a 30% withholding tax on any money that comes from U.S. sources. That’s a powerful incentive for banks to follow the rules—even if it means dropping American customers altogether. In fact, some banks will simply refuse to open accounts for U.S. citizens because they don’t want the paperwork or legal risk.
So no matter where you live, you can’t hide from FATCA—even if you’re not trying to hide anything at all.
What You Have to Do as an American Abroad
As a U.S. citizen, you are required to file taxes with the IRS every year—no matter where you live or where you earn your income. That means filing a regular 1040 form just like people living in the States. But if you have foreign bank accounts or other types of assets, FATCA means you may also need to file extra paperwork.
There are two big reporting requirements to know about:
Form 8938 – This form is part of your regular tax return. You need to file it if your total foreign financial assets are above:
$200,000 at the end of the year (or $300,000 at any time) if you’re single and living abroad
$400,000 at the end of the year (or $600,000 at any time) if you’re married and living abroad
FBAR (FinCEN Form 114) – This is a separate form filed online, not with your tax return. You need to file this if the total of all your foreign accounts is more than $10,000 at any point during the year. That includes checking, savings, investment accounts—even if it’s just a little over for one day.
So yes, even if you’re not rich, even if you’re just trying to build a normal life abroad—you still have to report.
What Happens If You Don’t Report?
The penalties for not reporting under FATCA are very steep.
If you don’t file Form 8938, you could be fined $10,000, with even higher fines if you keep ignoring the requirement. If you skip filing an FBAR, the penalties start at $10,000 and can go much higher—especially if the IRS decides you were willfully avoiding your responsibilities.
These fines are real. People have been hit with them for honest mistakes. If you didn’t know you had to file, that won’t necessarily protect you.
And it’s not just the IRS you need to worry about. Many foreign banks are required to collect FATCA paperwork from you before they’ll even let you open or keep an account. If you don’t have the right documentation, they can close your account or freeze your funds.
This Isn’t About Taxes. It’s About Compliance.
Here’s the good news: even though you have to file, you might not owe any U.S. tax at all. There are laws like the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit that help most Americans avoid double taxation.
But filing is still required. FATCA is not about how much you owe—it’s about making sure your assets are visible to the U.S. government. Think of it like airport security: even if you’re not doing anything wrong, they still want to see what’s in your bag.
Don’t Panic—Just Get Organized
Living abroad as an American comes with a lot of perks, but also a few extra to-dos. Don’t let FATCA sneak up on you. Take a deep breath, stay organized, and make sure you:
Know your account totals
Keep copies of your financial documents
Work with a tax professional who understands expat taxes
And make sure you’re checking the official IRS guidelines.
Want Help?
At Rainbow Relocation Strategies, we help LGBTQ+ individuals and families understand what it really means to move abroad—and how to do it legally, safely, and confidently. Moving abroad shouldn’t feel like stepping on a financial landmine. It should feel like freedom.
RAINBOW SERVICES
