How to Report Your Foreign Bank Interest on Your US Income Tax Return

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

1. Yes Vijay,
   You would report the interest earned from both accounts. And I think you’re right about listing both of the banks with their interest amounts separately. I always like listing everything out separately. You don’t want to be audited, but if it happens, it’s much easier to prove your case when you line item everything.

2. Thanks for the reply Jan. Some questions related to the same topic In schedule B do I need to report interest earned from both accounts (NRE and other local saving accts) even though there is no 1099 int for those accts ? Do I need to just mention my foreign bank name as payer and the interest amount in Sch B ?

   Thanks

3. Hi Vijay,
   I would report both accounts. Even though the local account only has a minimum balance, your total account balances are over $10,000 so you may as well just report that you have both bank accounts.

4. Hi , This post is really helpful and I got majority of my questions answered. I have some specific questions regarding reporting my foreign income and filing FBAR.

   1) Do I need to report only interest earned from my NRE account or it includes any indian saving account which I am not really using and only maintaining min balance (where I really earn 10000$ this year- While filing electronic FBAR do I need to report only my NRE account or even include my indian local savings account that I mentioned in my Question 1 above where I keep only min balance.

   Appreciate if you can reply to the above questions.
   Thanks

5. Hi Sam,
   you have an excellent question. I didn’t delete your question, there’s just a delay, but I left both posts up because together they spell things out better.

   I do know that a client that I now represent had gotten into trouble before coming to me for not reporting their Citibank India bank account on an FBAR form. This was some years ago, but it was specifically Citibank so that’s why I bring it up.

   Now, according to the IRS website: http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
   This is the comparison between FBAR and form 8938 requirements, it states that if you have a financial account at a foreign branch of a US institution (which is what I would call Citibank India) the you should file an FBAR, but you are not required to file the 8938.

   So my opinion is that yes, you should still file the FBAR but the 8938 is not required.

   Okay–here’s where I’m coming from–if you’re filling out the paperwork anyway, why not just report the Citibank India on the 8938? You’re already reporting on the FBAR, there’s no additional tax associated with the 8938 but the penalties for not filing when you should are stiff–$10,000.

   So, yes, the IRS website sort of looks like you shouldn’t have to file, but I’d rather file the 8938 when I don’t have to than pay a $10,000 fine because I should have and didn’t. For penalties, see page 7 of the instructions for the 8938.

   Sorry for being geeky and technical with the IRS publications–but I wanted you to have the documents that I was looking at to substantiate why I’m giving you the answer that I’m giving.

6. Looks like my earlier question was not clear and got deleted. Below is another attempt, but before that appreciate all the effort by JAN to help guide.

   1. To be very specific does Citibank (India) is considered as foreign entity. I get 1099 from them and report same as local US bank. Should i do something different. I file my own taxes using Turbo TAX

   If above is not a foreign institution that eliminate my need to report on FBAR and 8938. Mo tax Consultant able to answer this question and call to Citibank also does not yield any result. I do understand answer here is just a good opinion and should not be taken as final.

   Thanks

7. Jan – Great explanations and answers to the accuracy. Thanks a lot for helping. I have below question.

   I have account in Citibank India (Indian Local currency). But the funds are always transferred from by checking account in USA. Since the principal is over $50000 i guess this is now a candidate for FBAR and 8938. However

   Should we treat Citibank as foreign institution. I am leaning toward not treating as foreign institution as part of Citibank USA. This eliminated the need of FBAR and 8938

   I receive regular 1099 in $$ from Citibank India. I process this as a normal 1099 alnong with other US banks. Am i doing something wrong. ?

8. Hi Cal,
   That’s an excellent question. According to the IRS Pub 17, foreign interest is taxable unless it is specifically excluded from US income tax. I realize that doesn’t give us a whole lot of information there, because the obvious question is: well, what’s exempt from US tax? And basically, that’s going to be tax free munincipal bonds–tax free American munincipal bonds. I haven’t found anything that exempts any foreign investment interest from US tax. That doesn’t mean it doesn’t exist, but just that I don’t know about it.

   On the flip side, there are some US tax free investments that are not taxable in other countries, but I haven’t found the reverse to be true.

9. What if a US citizen has foreign interest income that is non-taxable in that foreign country. Is that interest income also non-taxable in the US?

10. Hi Mike,
    1. You sill report the $100 interest earned because that was the interest earned.
    2. You still report $100. Same reason.
    What IRS forms or publications explain that? Gosh, I’m not seeing anything that explains that explicitly.
    Claiming expenses against the interest income would go on your for 1116. The wire transfer fee would make sense–the plance ticket to India to look at the bank is probably not going to pass inspection. Now perhaps you could fly to India to visit your family–then take a cab to the bank to discuss your investment–the cab fare, maybe. But seriously, you’d want to keep your investment expenses commensurate with the investment.

    Now, about the currency gains and losses. That’s out of my league. If you were trading currencies on a Forex type of account–then you would be claiming your gains and losses as you sold the currencies. Here, you’re just keeping the money in the bank–so there’s no actual gain or loss–it’s all on paper. Of course, as the value of the currency goes down, so goes the value of the interest you earn. But you report your interest exchange rate as being the date the interest was earned.

11. Thanks Bob,
    You are absolultely right! Foreign accrued interest should be reported on your US Tax return even if it is not reported on your foreign bank statement. That sounds crazy, but that’s what the IRS expects of foreign reporting. Thanks for pointing that out.

12. As a hypothetical question, let’s say:
    I am a US citizen and live in the US.
    I will open an interest bearing account in Foreign Currency in India for example.
    The initial balance was $1000 and it earned equivalent of $100 interest during the year.
    At the end of the year, we fill out the forms and report that $100 to IRS as foreign interest income and file 1116 for Foreign Tax Credit.
    I understand that.

    My questions:
    1) What if Foreign Currency exchange rate goes down. In this case, the initial investment was $1000. It earned $100 interest. However, due to exchange rates the initial investment is now worth $950 at the end of the year.
    In this case, do we still pay taxes on that $100 earned interest? or Can we deduct the $50 loss to reduce the tax obligation?

    2) What if the opposite is true? Initial $1000 investment earned $100. Due to exchange rates, the initial investment is now worth $1050 at the end of the year.
    Do we pay extra tax on the $50?

    What IRS forms or publications explain this situation?

    Related to opening and keeping a bank account in a foreign country: What are the typical expenses we can declare in the forms to reduce our tax obligation, legally?
    For example: wire transfer fee, travel expense such as plane ticket to go and visit the bank? Others?

13. Hi Jan, wouldn’t the accrued interest on these foreign long term (up to 10 years)CD accounts be treated like any US bank CD where you have to report the accrued interest annually regardless of whether it shows up on the back statement in the current year or not? My accountant referred me to OID rules The IRS seemed pretty clear on this in a ruling letter I found on the internet (number: INFO 2009-0151). I was hoping I could find somewhere that the foreign accounts were not included ,but I can’t so I believe those who think they can report the interest income on maturity may be mistaken. Can you review, I would prefer your method but don’t want potetntial IRS issues with OID rules
    thanks
    Bob

14. Hi Sid,
    Good questions. First, I do not know about reporting a forex loss under Section 988 on line 21 of form 1040. I’m not saying you can’t do it, I’m saying I honestly don’t know the answer to that one. I, personally, would put the loss on the 8949 because that’s the way I learned it. (I tried doing a little research on claiming it on line 21, but didn’t find anything to support or go against it.)

    Regarding Kumar and Manjima–Kumar hadn’t sold his currency investment, but Manjima had. The funds don’t need to be “repatriated” to the US–it’s just that the sale of the asset (or closing the deposit.)

    It’s kind of like owning stock–if you buy 200 shares of a stock at $1 per share–the basis is $200, right? If the value of the stock drops to $0.50 a share, you can’t claim a loss of $100 unless you sell the stock and actually realize the loss. Same thing with the forex trading. Until you realize the loss (or gain) you don’t actually report it on your taxes.

    I hope that helps.

15. Hello Jan,

    In regards to your reply to Manjima, I had another question related to this:
    Can the entire forex loss not be claimed under Section 988, on Line 21 of Form 1040?

    Also, in regards to your reply to Kumar, you indicated that the loss cannot be claimed.
    Not sure I understand the difference in the replies. Does it require a repatriation back into USD for the loss to be “realised” and hence claimed?
    In other words, in your response to Kumar, did you mean that the loss cannot be claimed only because you assumed the account was not being closed and the money repatriated?

    Also, for the loss to be claimed, is repatriation necessary, or is it sufficient to just close the fixed deposit at maturity and keep the money in the foreign bank in foreign currency?

16. Hi Manjima,
    So if I’m interpreting this correctly–you invested $20,000 principal into an account. Now you are closing the account and you have a 28% loss on the principal.

    First, the loss will be used to offset any forex gains or other capital gains on your tax return. Any remaining loss, up to $3,000 will be used to offset your other income.

    If you have net losses that exceet $3,000 (which I think you may), then the remaining losses will be carried forward to future years to offset your income.

    Let’s say you have no other investment income to offset–if there’s a 28% loss, then you’ve got $5,600 in losses. There’s a limit of $3,000 that you can use to offset your ordinary income, so the remaining $2,600 will be carried forward and you’ll use it on the next year’s tax return to offset either capital gains or ordinary income.

17. I am a US citizen. I invested $200,00 in a fixed deposit in India starting Feb 2012. In 2012 I accrued 7% interest which I reported and paid taxes. However since the I invested the foreign currency has depreciated 28%. I plan on prematurely closing the fixed deposit and converting the principal and interest back into USD this year. I will therefore take a f forex loss of 28% on the principal. How do I write off the forex loss on the principal in my income tax returns

18. Hi Njia,
    You can just pay the tax on the interest when the CD matures. That shouldn’t be a problem.

19. Thanks for your response. Given the fluctuation in currency I would prefer to pay the taxes when I actually receive funds (ie. when CD matures). Going forward I can treat it the new way?

20. Hi Njia,
    You ask a really good question. Technically, you report your interest when it is “constructively received”. That means, you don’t have to report your interest until it actually shows up in your bank statement and you have access to the funds.
    That said, you may report the interest as it is accrued–so you’re fine, you don’t have to amend your return. What I would do is just report the accrued interest every year and keep track of it. That way, if there ever was a question about how your reported it, you’ve got your documentation.
    But it’s perfectly fine and acceptable to report the accrued interest.

21. Hi,

    I wish I had seen your posts earlier. These have been really useful. Thanks for your service. I have one clarification and one question.

    I have a CD in Indian (NRE) account that matures in 2017. When I look at the CD, it shows me the principle amount and maturity amount. There is no interest deposited into my accounts. Do I need to report accrued interest on the CD on my US taxes?

    If not, I already filed my 2012 taxes with that income declared. Do I file amended returns and what do I say as reasons?

    Thanks.

22. Hi John,
    You ask some really good questions. Let me start with your global funds from Dodge & Cox. Since Dodge and Cox is a US company, even though you have money in international funds, you don’t include those funds in the dollar count as far as filing the FBAR or the 8938.

    The reason you don’t need to include those funds in your form 8938 is because your income there is already reported to the IRS, you received a 1099DIV for them. That’s the biggest clue for taxpayers about what does and does not have to be reported: basically, if you receive a 1099-DIV, then you won’t need to file the 8938.

    But that doesn’t get you out of the 1116 form, especially since you’ve also got foreign bank interest without a 1099 form.

    Now, as far as the interest from the Australian bank–that’s easy for you because you’ve got the actual information. Now, when claiming the credit for the international fund, you’ll just have to lump the fund income into one line: VARIOUS. I’m guessing that all of the income in your international fund is non-US income. If not, your statement would break it down.

    VARIOUS is a perfectly acceptable “country” to put on the line of your 1116 in your situation. Also, you may have trouble with the date you earned the income because it was over the course of the year. 12/31/2012 is a perfectly acceptable answer when reporting your investment fund income.

    Now, about your residency–(You really wanted to make me work on a Monday morning didn’t you?) Because you are a US government employee with a US mailing address, generally you are treated as being in the US, and would have to go by US tax home rules. That said, once you take your global investment funds out of the mix, I’m guessing the your foreign holdings are much lower than you were figuring.

23. Jan:

    Am writing to ask if you could provide some advice to properly complete a Form 1116 given the following facts:

    (i) Have over $500.00 in foreign taxes paid from eight different [US] international and global mutual funds (example: Dodge & Cox Int’l Fund and Dodge & Cox Global Stock Fund).

    (ii) Over $150.00 (converted into US Dollars) form several savings accounts in Australia.

    One particular concern I have is must I have or get foreign source income totals? For the savings accounts that is easy – just the total interest paid. The international and global funds I have, however, do not all include a breakout of foreign source income with the year end tax information (Form 1099-DIV) they mail out. Will I need the foreign source income totals for the mutual funds when completing the Form 1116?

    Have one other question. The threshold for a single filer being required to file a Form 8938 is $50,000 at year end of $75,000 at any time during the year. For a single taxpayer who lives abroad, the thresholds rise to $200,000 and $300,000 respectively. How are people who work for the US Government and are assigned overseas but have a US mailing address (AP in the Pacific; AE in Europe) handles for this rule?

    Thanks very much for any help you can provide on these questions.

24. Hi Dhansuk,
    Report the interest when it is actually paid. You won’t receive a 1099, but you will need to report it anyway. If she has over $10,000 USD in the account, she will need to file an FBAR form every year, whether she is reporting interest on the account or not. FBARS are due on June 30th.

25. Abigail,
    There are many situations where you would not be preparing a foreign tax return and claiming a credit for taxes paid to another country. The main one that comes to mind is on investments that have foreign assets in them. (Like what you’d find on an Edward Jones statement.)
    So, yes, you could use the taxes withheld at the source as the taxes paid if you did not file a foreign tax return. But don’t skip filing a foreign tax return if you are required to by that country.

26. Hi Kumar,
    Report the interest when it is recorded but be sure to report the accounts on your FBAR or 8938.
    You will not be able to claim a loss if the exchange rate runs against your favor. Sorry.

27. Hi Manos,
    The way I see it, you are not earning interest, your father is. So you should not be reporting that interest. You do have a signature authority over the account, so, if the account is worth over 10,000 USD, then you should be reporting that on an FBAR. I’m thinking that your children, being minors, don’t really have signature authority even though their names are on the account.

    Since you do not owe tax on this account, then you should file the delinquent FBARS with an explanation as to why you haven’t done so. (Like you didn’t know you had to would be a good reason.) You might want to look at item number 17 on this IRS link: http://www.irs.gov/Businesses/International-Businesses/2011-Offshore-Voluntary-Disclosure-Initiative-Frequently-Asked-Questions-and-Answers

28. Hi Mayte,
    You will not be required to submit copies of your foreign bank statements or documents along with your tax return. You should keep a copy for your records in the event that you are audited. But you will not need to send them.

29. Hi Abhi,
    You asked about the threshold of filing the 8938 for married taxpayers. Yes, you’re right, you don’t need to file the 8938 unless the amount at the end of the tax year exceeds $100,000 on the last day of the tax year — or — $150,000 at any time during the tax year.

30. Hi Mario,
    you would report the interest you earn on your personal bank account in Europe on your own tax return. Because it’s only worth 7,000USD you normally wouldn’t have to report it on an FBAR. But since you have signature authority over your parent’s account–even though you don’t get any money from it, you’re just on the account to help them–you will have to report that on an FBAR or 8938. You won’t report th interest, just that you have access to the accounts.

31. Hi Dinish,
    More excellent questions. Thank you.
    Your Public Provident fund from India would appear to me to be a social security type of government retirement program. Please correct me if I’m wrong about that. But if I’m right, then you would not be required to report that on an FBAR or a form 8938.
    I believe that the interest earned in these accounts would not be reported at taxable either.
    Now the bank accounts that your parents have given you signature authority over–that’s another story. You won’t have to pay interest on those accounts–as they belong to your parents and your parents would be responsible for paying the taxes on them. But–because you do have a signature authority over them–you do need to report them on the FBAR or 8938 depending upon your situation. (Assuming that the accounts are large enough to require reporting.)

32. Hi Dhansuk,
    I would report the interest when it is paid on maturity. Of course, if she needs to report the account on an FBAR or 8938 she should still do so even if she is not required to report interest earned.

33. Hi Neha,
    Another good question. Since your bank is recording the interest you earn, you should also report it on your tax return. Since you have a penalty for taking the money out early, if you did that, you would claim the penalty as a deduction on your 1040 tax return. It’s on line 30 “penalty for early withdrawal of savings.”

34. Hi Aka,
    You have a situation similar to Soni’s. Your bank doesn’t report the interest for another year. I would report the interest in the year it is posted, but like I said to Soni, you still want to report those accounts on an FBAR or 8938 depending upon the value of those bank accounts.

35. Soni,
    That’s a really good question. You have a foreign bank account but it only posts the interest after 10 years–you want to know if you should still report the account on the FBAR or the 8938. I would definitely report that account even if you have no interest to report.

36. Hi Trevor,
    Technically, since you have two separate types of foreign income, you have two 1116s. But, if you’re not claiming a tax credit on the $100 of interest, then you don’t need an 1116 since you’re not claiming the tax credit. As long as you report the interest you earn on the Schedule B, you’re okay.

37. A follow up on your response earlier. I am presuming one needs to file taxes back in the foreign country to gauge the taxes that can be used for Foreign tax credit right ?
    What happens if an individual can report the tax deducted as source but then claim it back in the foreign country ? Can somebody skip the tax filing in the foreign country and rely on Tex deducted at source instead to get Foreign tax credit ?
    ************************
    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.

38. Hi,
    I have fixed deposits in NRE accounts in India that will mature in 3-5 years. Interest statements do not show any interest because interest will be deposited only at maturity.

    1. What should I report to IRS? No interest earned or Do I have to calculate the interest accrued so far and report even though it is not paid to me and doesn’t show in interest statement.

    2. If the exchange rate changed against my favor from when I opened these fixed deposits in 2012 to Dec 31st 2012, can I write this off as a loss and which form do I need to use for this if I can do so?

    Thanks
    Kumar.

39. I am a US citizen and have three children. My name is on my father’s accounts in Greece along with the names of all my kids. We have not contributed to these accounts at all but we have the right to conduct transactions. These are term accounts that upon expiration produce interest. I just bacame aware of FABR. Is there a penalty for declaring previous years? Also do I have to pay taxes on the interest? My father is the first name of the account. If I have to pay taxes do I divide the interest by 5? Thank you.

40. Hi,
    Thanks for all your help.
    I have reviewed all the questions, but I do not seem to find an answer to mine. If you are reporting several foreign bank accounts that gave you interests through the usual channels (Schedule B, Form 8938, FBAR) do you need to include tax forms from those banks? In other words, do you need to prove that the information you are giving is accurate? I know you dont have to include tax statements from your USA banks, but I am not sure what to do with my foreign accounts, specially because, due to the different tax calendar, I will not not receive those forms from my foreign banks until after later in the year.
    Thanks a lot,
    Mayte

41. Jan,

    I have a follow up question to your response to Dan. My understanding is that Married filing a joined return the income needs to exceed 100K for filing form 8938. Is that your understanding as well ?

    Thanks

42. I have a question regarding my parents’ bank and saving accounts in a European bank. I am listed as a joint account holder for those accounts. Do I have to declare them? I don’t contribute anything to those accounts other than manage them for them. It’s their money, and they are the ones getting the interests and paying taxes at their country. Also if it makes any difference, my status in the US is that of permanent resident.

    I also I have an account of my own for which for a while I was getting a Eur6 interest a year. The account has no more than $7000 and is no longer earning any interest. Do I have to declare that?

    thanks for your help!

43. I am Permanent resident of US and citizen of India.
    Couple of questions
    1. Does PPF (Public provident fund) aka Retirement fund in India needs to be part of FBA? If so, how can i indicate its retirement account.
    2. Does interest earned in Retirement account in India (PPF) needs to be disclosed in Taxes?
    3. If none of the money in my india banks is sent by me from US but my parents put my name in the Fixed deposits (Time deposits) as joint owner with their money (they are getting old). Money from Interest goes into their bank accounts not mine, then do I need to declare all the interest earned in my taxes in US and Pay taxes on that?

44. My Daughter as 5 years Fixed deposit account in a foreign bank. The interest is not paid every year, it is accumulated with the Principal amount. So the amount will be paid after 5 years – Principal plus Interest on Maturity. Please let know if the Tax should be paid every year or when the Interest is paid on Maturity

    Since it is foreign account there is no 1099 at all. Please advice
    .

45. Query about 8938 form: Do we need to file Form 8938, “Statement of Specified Foreign Financial Assets” in a scenario where we meet the threshold requirement but there is no interest income from the asset as of date since all asset is in the certicate deposit account and CD have maturity date of 10 years (2022)

    Your help will be highly apprciated.

46. Hi Jan Roberg,

    I have CD opened in May 2012 and it will mature only after two years. If I withdraw the CD before a year I will not receive any interest. The accrued interest on the CD is posted quarterly to CD’s account.

    My questions are following

    Should I have to report the accrued interest posted in my account as interest received on form 1040 while filing taxes for 2012.

    What If I withdraw the amount before the CD matures then my question is. How do I reclaim my taxes paid for the interest which I didn’t receive, as the bank will reverse the interest credited?

    Regards,
    Neha.

47. I have a question reagrding already posted query”
    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?”

    and this was the response i see in the blog
    “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.”

    But my question now is do we need to mention that account in the 8938 Form and FBAR form.

48. I have unrealized interest(accrued) income on my NRE fixed deposits (2year tenure). Do I have to pay taxes on this unrealized interest? I do not have any document from the bank for this income. And if I declare this in this year’s tax filing, how do I waive it off next year when fixed deposit matures and shows up in the bank letter that I receive every year for interest income?

49. Hi,

    I am a US citizen living outside the US and my wife is not a US citizen, I have 2 foreign savings accounts, one a joint account where my wife is the primary and a second only in my name. On the joint account there was about $100 in interest earned which I reported on my wife’s foreign income tax return since she is the primary. The other savings account earned less than $5 in interest and I did not need to report this on my foreign income tax as it falls under the minimum $50 reporting threshold. When I’m filling out my US taxes I’m reporting the interest on Schedule B but I’m not sure how to deal with this on the 1116. Do I need to file 2 1116s, one for general income and one for passive income, or can I just lump this interest into my general income? The other complication is since I didn’t or need to report this on my foreign income tax return I did not pay any foreign tax on this interest so I’m not sure how to deal with this on the 1116. Can you provide any guidance on this? I really hoping I don’t have to fill out another 1116 just for this as it’s such a small amount of interest.

    Thanks

50. Hi Dan,
    The FBAR is fine for most accounts, but if you have assets that are over $50,000 USD, then you may also be required to file a form 8938. The 8938 goes with your tax return, the FBAR is mailed completely separately.
    Neither of these forms is an income reporting form, they’re both just letting the government know that you have assets in a foreign account.
    Here’s a link to the 8938: http://www.irs.gov/pub/irs-pdf/f8938.pdf

This site uses Akismet to reduce spam. Learn how your comment data is processed.