412 thoughts on “How to Report Your Foreign Bank Interest on Your US Income Tax Return”

  1. Hi,
    I am a resident alien and I have a joint account with my parents in my home country. I had no contribution to the account, and didn’t get any interest. But my parents put my name on the title, in case I need to use that money. So, should I have to file any tax form other than FBAR for this account?
    Thanks.

  2. Hi Raj,
    sorry I sort of missed this post. If your bank isn’t actually posting your interest until 2022 (or whatever year) then you report it in the year it’s posted. Must like a US Savings Bond, the interest is posted when you cash it out. That would be proper to report that way.

  3. Hi Ken,
    If you are filing taxes as a US resident and earning interest income overseas, you must report that income–even if you never bring that income into the United States. You are a person, not a corporation.

    Interest is not a stock. If you are claiming the interest earned annually on your CD–then at the last minute the value of the currency changes, you do not get the benefit of a loss like you would with a stock.

  4. Hi Raju,
    I would report the foreign interest for 2012 and file an FBAR form. For the other years, I would amend those returns and report the foreign interest. I would not do the OVDI–you were not required to file FBARS for those years. I would report the interest though, just to be on the safe side.

  5. I have a CD in a foreign bank account that accrues interest. My intention is not to ‘break’ the CD or to take a distribution or repatriation, i.e. the initial capital investment and the interest earned will never be repatriated to the U.S., do I still have to report the interest income on Schedule B or do I get to apply the same tax treatment that U.S. corporations do, i.e. don’t have to pay taxes on foreign income unless it is repatriated?

    Another question, if I had an initial investment of let’s say $100,000 in a foreign bank account CD with a maturity of 5 years that earned 10% interest, so $10,000 of interest per year and I report that income on my return every year and pay tax on it and let’s say the exchange rate is stable for al lthe 5 years at the initial exchange rate. In year 5 when the CD has matured and I want to repatriate the initial investment with the cumulative interest earned, so $150,000, but the exchange rate has depreciated such that the translation results in a loss on my initial investment and the interest translated is less than the $50,000 that I have been reporting all along then do I get ot deduct a loss on the interest income in addition to the loss on the initial investment for FX translation?

  6. Hi Jan,
    Continuing to John’s question above. Assuming someone have foreign account for years 2010 and 2011 but never exceeded it above 10k each year for any day and hence did not file FBAR. But those accounts accrued small interest which was not reported in schedule B. In 2012 the amount exceeds 10k for first time. So what should be course of action?
    1. File FBAR for 2012 with schedule B and amend previous year’s tax.
    2. apply for OVDI as prior years small interest was not reported because of ignorance.

    Thanks,
    Raju

  7. Hello Jan,. If I had interest from a GIC that matured in April 2012 why do I have to use the average exchange rate from the Gov./Treas website for 2012 Calendar year? Why would I not use the exchange rate specified at the maturity date?

  9. My bank is not crediting interest each year, it will credit all the 10year interest at maturity which is year 2022. How can I show interest in tax for 2012? Can i wait till 2022 and file all the interest as part 2022 taxes?

  11. Hi! This is all very helpful, thanks so much! My question is basic, I think. I have a foreign acct with only about US $5k in it. My total interest from all sources is under US $200. I know I need to “confess” to the foreign account in Part III of Schedule B. But since my total interest is far less than $1,500, do I need to fill out Parts I and II, too? Thanks! 🙂

  12. First of all, thanks for your efforts in answering these questions. I became aware of this situation only today, and realized that I exceeded the $10000 threshold in 2011 itself. My question is: In Schedule B Part III, there is only a Yes/No section. So where do I report in numbers the taxable interest from a Foreign bank account, so that I can pay taxes on it in my federal 1040 tax return?

  15. Jan, I noticed that one of my Certificate of Deposit in foreign back does not credit interest quarterly or semi-annually or yearly. The bank credit interest only at maturity, in my case, it’s end of 10 year term.

    Should I still calculate yearly interest even though bank did not credit and pay USA income tax? or is it ok to wait until 10 years and report all interest together and pay taxes at that time.

    Appreciate your help.

  17. Hi Jan,

    Please assume that a person has had a foreign bank account for a number of years with the balance never exceeding $10,000 before 2012. The money has been earning him a nominal interest which was never declared on the 1099-INT (non-willful). In 2012 the balance increased to above $10,000 and he’s now planning to declare the income on a 1099-INT and also file a FBAR (both for 2012).

    Is it recommended that he file an amendment for all the years the foreign income was not declared even though the balance in his account was below $10,000?

    Thanks,
    John

  19. Hi Pal,
    You don’t file a 1099 INT or a 1099 DIV. The form you will be filing is Schedule B, that’s what will go with your tax return.
    And yes you will be filing an FBAR. List both of our bank accounts.

  20. Hi HS,
    You are absolutely right. The new rules for 2012 do have more questions. Do you have a foreign bank account and to you have to report? And yes, you have to report if the balance in the account is over $10,000. Thanks for updating this.

  21. Hi Pal,
    Don’t worry about your 2011 return. You didn’t exceed the 10,000 balance. For 2012, report it, file the FBAR and do report your foreign interest on your US tax return.

  22. Jan, I think you are mistaken when you wrote that you don’t have to mark “Yes” on schedule B (7a) if your foreign account is less then $10000.00 The instructions used to be like that in prior years, but not anymore.
    IRS told me that I have to mark 7a “Yes” I have a foreign account even if it is only a few Dollars. Anyone with a foreign account has to mark it “yes” now.
    Then mark 7b (are you required to file form TD F 90-22-1?) with “No”. which I assume is the all important follow up question if you only have a low balance foreign account,
    Could you please re-read the new instructions for Schedule B section III
    and advise me if I am getting the right info
    thanks
    HS

  23. Does the dividends received from Indian Mutual fund/Stock are classified as ordinary Dividend or qualified dividend?

    If it is qualified dividend, then should we fill up the same amount of 32.45$ in both the column 1a Normal dividend and 1b qualified dividend? Please clarify.

  24. Hi Roberg,

    I have already sent a question this morning and am adding more to it.
    For year 2012, I had 2 foreign accounts in India and below are the interest, dividend received. (Conversion rate of 1$=54.45 Rs as of 12-31-2012)

    Indian Savings Account:
    Interest Earned: 3935 Rs.
    Dividend Earned from India: 1767 Rs. (32.45$)

    NRE/NRO account:
    Interest Earned: 867 Rs
    Tax Paid: 268 Rs.

    Total Interest: 4802 Rs (88.79$) and Interest paid – 268 Rs (4.92 $)

    Could you please answer my below questions:

    1. I should filing 1099-INT with 88.79$ as interest received and 4.92$ as the Foreign tax paid. All the interest received would be under foreign interest. Correct me if am wrong.

    2. Should I be filing 1099-DIV with 32.45$ – for the dividend earned from Indian mutual funds and stocks?

    3. Out of the 2 Indian accounts, my savings account had more than 10000$ in 2012. So should i declare both the accounts or just one account which qualify under FBAR.

    Please advise.

  25. Hi Roberg,

    Your posts are highly helpful. I do have certain specific questions.

    Consider a case where one has moved to US in H1B permit during mid of 2011. During 2011 tax return filing foreign bank account did not have balance more than 10000$ and it was not declares – also wasn’t aware, it needs to declared.

    And in the year of 2012, there has been couple of instances where the net balance has been more than 10000$. Also another new foreign bank account was opened in the year of 2012. So, it is fine to declare the bank account rite now for 2012 filing alone- while it was not declared in 2011 ?

    Also the interest earned in one of the Foreign accounts has tax detected @ source by the foreign bank. And should the interest also be reported while filing for 2012?

  27. I want to file FBAR for from 2008 to 2012. wanted to understand if I need to file amendment for all the years and report the interest to IRS. Also wanted to know the exact procedure for filing the interest for all the past years as well with the FBAR

  28. Hi Amey,
    Your question is a good one. I would file the form 1116 since you don’t have a form 1099INT. For you to claim you don’t need to file, your foreign interest must be reported on the INT or a K1. Sorry.

  29. Hello,

    I have accrued a net interest of ~$100 on my foreign accounts. Out of this $18 has been deducted at source by the foreign bank. My question is when is it okay to check form 1116 not applicable. Do I have to file a form 1116 if I do not have a form 1099-INT.

    Also, I booked a fixed deposit last year , so technically I should only report the interest when it matures right? I am sorry if this question seems stupid. I am new to reporting foreign interest

  32. Jan, Thanks a lot for your quick response. The interest is paid to times a year March and September. So, if I understand correctly, I need to report the amount what was deposited in my account during Jan-Dec timeframe even though september thru december is actually paid in march following year. Is my assumption right.

  33. Hi Raj,
    That’s a good question. Here’s my simple answer–if that works. Your foreign bank reports interest for April – March. My question is: when do they pay the interst? Do they pay monthly? Or do they pay annually? If they pay the interest in March, then you would report the interest that was paid in March. Report what was paid for the year it was paid in. For example, your bank statement for March 31, 2012 said you earned $150 so on your US 2012 income tax return you would report $150. Your March 2013 statement would be reported on your US 2013 tax return.

    Now if the interest is reported monthly on a bank statement–then you would take the intererest that is listed on the monthly statements and add up the months in the US calendar year.

  34. how do I calculate interest rate for US financial year (jan thru december) when the foreign bank reports according to their country financial year (April thru March). Talked to the bank and they mentioned there is no provision to provide interest rate for Jan thru Dec. thanks in advance

  35. Hi Tom,
    That’s a really important question. I was just in on an IRS webinar not to long ago about that same issue. That interest money is not your income so it doesn’t go on your tax return, but you do have signature authority over that bank account and so you want to report that and file an FBAR form. Here’s a link about that: http://robergtaxsolutions.com/2012/03/how-to-prepare-the-fbar-form-td-f-90-22-1/

    When you do the Schedule B for with your 1040, you’re going to say “yes” about having signature authority, even if you wind up not needing the schedule B for any other reason.

  36. I have signature authority on my mother’s foreign account. She is in poor health so I am paying her bills with her money. She lives in the foreign country and files a tax return there. The account has earning around $1,100. Do I need to report the income on my US return?

  37. Thanks. Yes, I agree it is best to get some in person advice. Thanks once again for your time.

  38. Hi Peter,
    I would say option 3. I’m guessing if you asked someone else, he may say option 2. I think a good case could be made for option 2. Option 1–no.
    I think you’re probably at a point where you need to have somebody take a look. Here’s a link to find someone in your area that can do that for you. https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx

    You can only go into so much detail on the internet. I’m thinking of about 20 questions that need to be asked, that you should not be answering online. Go see someone in person to make sure that all the other i’s are dotted and t’s are crossed. It’s the smart move.

  39. Thanks for your patience in answering my long list of questions!

    As you have said, I need to claim credit for the actual foreign taxes paid during the year, however my confusion has been on how you define “actual foreign taxes paid.” As I see it there are 3 options:

    1. The actual tax withheld in the calendar year (using the actual dates in the calendar year the tax was withheld, even though spread across 2 foreign fiscal years).
    2. The net tax that relates to the calendar year after determining the actual tax (net of refund for excess withholding) for the 2 fiscal years that overlap the calendar year, and assigning the appropriate pro-rated amounts from each fiscal year to the calendar year.
    3. The net tax calculated for the foreign fiscal year that ends in the US calendar year (in other words the tax calculated for say Apr 2010 – March 2011 as the actual tax for calendar 2011, even though some of the payments were in the previous calendar year, and there will be further payments made in the current calendar year, and the refunds might not be received for another 2 or 3 years).

    The way I filed my returns so far was using Option 1 with the intention of amending if/when I received refunds, which would in effect make it Option 2. And on a go forward basis I was going to use Option 2 (including filing an extension to allow me to get the foreign return done first).

    However, I think you are defining “actual foreign tax paid” as Option 3, correct?

    Clearly Option 1 is wrong, but are Option 2 and 3 equally valid, and can I choose either one depending on which one I can manage more easily?

    If I use Option 3, I suppose I still report the foreign interest income on a calendar year basis (using the average currency rate for the calendar year), just the foreign tax on a foreign fiscal year basis (using the exchange rate for the foreign fiscal year)?

    Also in Option 3, on Form 1116, Part II, I show date tax paid as March 31 of the year? Or “Various”?

    And finally, with Option 3, the trigger for amending my prior years would not be that I just received the refund, but rather I did it wrong all along. In that case am I opening myself up to penalties?

    I know I am taking up a lot of your time with all these follow-on questions, so as always I really appreciate your help.

  40. Hi Peter,
    Yes, there’s a mismatch, but that’s 100% honest and factual. You are reporting actual interest that was earned during 2012 and you are reporting actual taxes paid in 2012. Yes the taxes were paid for a non-calendar tax year, but that’s the way your taxes are filed.

    Here’s different example that might help. I file a tax return for a US corporation that uses a fiscal year instead of a calendar year. Much the same as your foreign tax return. Now the corporation issues W2s to its employees based on a calendar year–because that’s the law. But if you look at the corporate tax return, the wages paid won’t match the W2s at all–because of the difference between the fiscal and calendar years. Your situation is really no different. As long as your reporting accurately and honestly, it’s good.

    On your 1116 form you would check, paid, not accrued.

    For your amended returns, use the refund that applies to the taxes you claimed on the return it relates to. Like you said, you’ll have to tie everything together.

    So, if I understand correctly–you already claimed the foreign tax credit for the foreign April 2010-March 2011 tax year on your US January 2011 – December 2011 tax return. Is that correct?

    Here’s what I think: Amend your returns to show the actual tax paid correctly. That means that your 2009 foreign tax goes on your 2008 return. Go back to the beginning. You’re not showing refunds of taxes, your going in and showing the correct tax amount paid.

    That way, all of your returns will show the correct amount. You’ve got to amend anyway, so you may as well amend them correctly. You’ll have your actual tax returns to prove your actual tax.

  41. Thanks for replying so soon, especially since you are in the middle of a busy time (which I did not realize, sorry!)

    I want to make sure I understand your advice on the foreign tax year issue. Let’s say the situation is as follows, using hypothetical numbers:

    Foreign Return Apr 2011 – Match 2012
    Interest Earned $40,000
    Tax Withheld $12,000
    Final Tax (after refund) $4,000
    (based on return filed July 2012)

    US Return Jan 2012 – Dec 2012
    Foreign Interest Income $50,000
    Foreign Tax Withheld $15,000
    Foreign Tax Credit $4,000 (based on above foreign tax return)

    [Assumes that the foreign interest earned is different for the US calendar year than the foreign fiscal year]

    So, if I am understanding correctly, in my US 2012 return I would claim a credit for the $4,000 final tax determined in my foreign return, even though the $4,000 is on a different amount of income ($40,000, not $50,000) and for a different period (Apr 2011 – Mar 2012 rather than Jan 2012 – Dec 2012). If that is correct:

     Is this mis-match acceptable to the IRS?

     Do I check “paid” or “accrued” for the tax on Form 1116? I would have paid the tax than I am claiming for credit, plus some, but effectively I have also accrued an expected refund, so it is a combination of paid and accrued.

     If I follow this approach for 2012 forward, then when I amend my 2009, 2010 and 2011 returns to account for the refund that I receive for those years, do I use the same approach (in other words for my 2010 return use the final tax for Apr 2009 thru Mar 2010, and report the difference between that and what was previously shown as a “refund”)? The problem with doing that is that the IRS wants details of the refund – date received, amount, exchange rate used etc and none of those could be supplied since this is a notional (calculated)refund, not the actual refund received, since there is the mis-match of periods etc as stated above.

     The other option would be to amend those prior years using the final net tax for the calendar years using the actual refunds received, but then I would be counting the same tax twice as follows:
    o For 2009, I would have taken credit for net tax paid Jan – Dec 2009
    o For 2010, credit for net tax paid Jan – Dec 2010
    o For 2011, credit for net tax paid Jan – Dec 2011
    o For 2012, credit for tax accrued for April 2011 – Mar 2012.
    o So, the tax paid from April 2011 – Dec 2011 would be counted twice (once each in 2 different US tax years).

    Once again, I do appreciate your time and assistance on this.

  42. Hi Peter,
    Sorry to wait so long on the reply but I was filing end of season tax returns. Here’s some answers.

    1. When you do an amended return, calculate the tax you owe and send a check to the IRS. They will probably issue you a bill for penalties and interest.

    2. Two different types of interest. First, if the government paid you interest on their tax refund–that is interest income and yes, it’s taxable. Second, the IRS will charge you interest on the past due payment you owe them. Just like they’d pay you interest if your amended return had a refund, instead.

    You’re not just turning over the interest you earned to the IRS–but you are paying tax on it.

    3. Yes, there will be a penalty.

    Funky foreign tax years. What fun. Here’s what I do–

    Let’s say it’s for tax year 2011–the one that just ended. Your tax return was due on April 17th. Your foreign 2011 tax return won’t be done yet.

    I figure the income based upon the actual income earned during 2011, but for the taxes paid and the foreign tax credit, I use the actual calculated tax from the prior year return. So, for your US 2012 return you’d use your 2011 foreign return. That way, you use the actual foreign tax due. So let’s say the income was $50,000 USD and they withheld $15,000. But you don’t report that as tax paid, you prepare your foreign tax return and it shows that the actual tax due to that country is only $5,000 to $10,000 — that’s what you report as your tax paid.

    Then you won’t have to be amending those returns all the time.

  43. If you don’t mind, can you help me with these follow-on questions?

    A.
    1. Since I have to file amended prior year returns, do I calculate any tax due myself and send in a check with the 1040X? Or do I wait for the IRS to calculate what’s owed?

    2. Do I have to pay any interest? I read the instructions for the FTC and it seeems that if I received interest from the foreign govt along with the refund then I owe the IRS interest, otherwise I do not. I got interest on 1 of my refunds, not on the other, so I assume I need to calculate interest and pay that to the IRS. But what rate do I use, and how do I determine how many months I owe?
    Also, do I report the interest I received with the refund as interest income? It seems that in effect the IRS is asking me to pass it on to them, so I would hope that I don’t have to report it as income and pay tax on it if I didn’t get to keep any of it.

    3. Do I owe any penalties?

    B. I would like to avoid having to amend my prior returns every year when/if I receive foreign tax refunds, but I’m not sure how to proceed. Here is the situation:

    1. I have a foreign bank account and the interest I earn there is subject to a foreign withholding tax of about 30%

    2. Then I have to file the foreign tax return and claim a refund, the final tax comes out to maybe 5% or 10%.

    3. However, the foreign tax year runs April through March, so I file the foreign tax return in July. Thus, for example, I won’t know my real foreign tax for 2012 until July 2013. So what do I put on my 2012 US tax return for the foreign tax – the actual tax withheld, or an estimate of the likely final foreign tax, or wait until July (file an extension on the US return)?

    4. Further, I am not even sure if I will get the refund I claim. It has taken 3 to 4 years to receive these refunds, though I suppose now that I have actually started receiving them I have a greater probability of continuing to receive them, even if the process takes a few years.

    5. It seems that the only way to avoid having to file amendments is to do the extension, otherwise even if use an estimate of the final tax I still will be filing an amendment if and when I receive the final refund. And if I don’t get any refund then too I will have to amend the return to claim the entire withheld tax. What is the best approach for me to take?

    Sorry for the long list of questions, your help is really appreciated!

  45. Hi Peter,
    According to the IRS, if a “redetermination of a foreign tax occurs” I interpret that to be a refund, then an amended tax return is required. Sorry.
    So you can still amend a 2008 tax return if you owe–you just don’t get anything back if you redid your 2008 and should have gotten a refund.
    Ideally, once you find out that your tax return should be amended, you’re supposed to do it. The deadline for getting a refund on your 2009 return would be April 15th, 2013–but since I’m guessing you have to pay, there’s not drop dead date on that. (The IRS is always ready and willing to accept additional payments.)

  46. I had foreign interest income in 2008 and 2009 and paid foreign taxes. I also reported the foreign interest on my US return and claimed the foreign taxes as credits on my US tax return.

    However, I have now received partial refunds of those foreign taxes. How do I handle this — do I have to amend my 2008 and 2009 returns? Isn’t it too late to amend 2008? Instead, can I show the refunds as income in 2012 or offset against (reduce) any foreign tax paid in 2012? If I have to amend my 2008 and 2009, what is my deadline to do so?

    Thanks.

  49. Atul–
    No, you won’t be double taxed, there is a credit for taxes paid to a foreign country. When you’re inputting the foreign interest earned, there is also a box for foreign tax paid as well. Fill in the box, check the box saying “form 1116 not required” and the tax you paid to a foreign country should show up as a credit on page 2 of your 1040.

  50. I have about $200 in interest income from a foreign bank, which I am reporting on schedule B. What is bothering me is that the tax was deducted at the source by the foreign bank, and now I will be paying tax on it again, so this interest is being double taxed !! Not very fair if you ask me.

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