The United States (US) is a leading immigration destination for Indians. In fact, Indian Americans make up one of the fastest-growing ethnic groups in the US. And many of these immigrants send money to their dear ones back home in India.
Why immigrants send money to India
As an immigrant, you may be looking to open a bank account in India to either transfer money home or for investment. With giant strides in technology, you can use online or offline modes to send money overseas. Whatever be your reason, you must report any overseas bank account and foreign-earned income to the US government.
The significance of FBAR for US immigrants
FBAR stands for Foreign Bank Account Report of a US resident. The Internal Revenue Service (IRS) of the US requires that residents who hold or have signatory authority over financial accounts outside the country have to file Financial Crimes Enforcement Network (FinCEN) Form 114. If you are one of them, here is a list of financial accounts you must report.
- Savings bank and checking accounts
- Brokerage and securities accounts
- Mutual funds
- Annuities with cash surrender value or foreign life insurance
- Overseas online gambling accounts
- Foreign retirement plan
- Commodity futures or options accounts
You must file the FBAR by 30 June every year if your foreign account has reached a total value of USD 10,000. As a best practice even if the balance does not reach USD 10,000, it is advisable to report the amount of interest you have earned.
FinCEN Form 114
FinCEN Form 114 is used to report any foreign-earned income. You must file this online with the US Treasury Department through its BSA E-Filing System.
As a US citizen with foreign-earned income, you may qualify for tax benefits if the following two conditions are met:
- You meet the tax home test.
- You pass the bona fide test or the physical presence test.
This means that your tax home must be in a foreign country all through the period of bona fide residence. So, you must stay there for at least 330 days. Your tax home should be your regular place of employment, business, or post of duty. This is regardless of where you stay. If you do not have a steady job or business, then your tax home is considered to be your fixed residence.
For 2019, the maximum foreign earned income exclusion is USD 1,05,900.
What happens if you fail to file FBAR?
If you fail to file FBAR, the penalties may include the following:
- Up to 50% of the account balance or civil penalties of up to USD 1,00,000
- Criminal penalties of up to USD 2,50,000
- Imprisonment for five years
- Criminal and civil penalties may be applied for each year
For non-wilful failures to file FBAR, the penalties may include the following:
- A penalty of USD 10,000
- If there is reasonable cause for the failure, you may file six-years’ FBAR along with an explanatory letter. The penalty may be waived in such a case
Online money transfer services
As a US resident who sends money to India, online money transfer services such as RemitMoney are a boon. Unlike bank transfers that often incur high charges and may take days to get processed, online remittance providers provide speedy and inexpensive services. For example, with RemitMoney, you can send money to India hassle free. The exchange rates are low and there are also no hidden charges. Moreover, there is a ready record of all your transactions and you can schedule future transactions to be sent automatically.
Settling in the US is a dreams for many. But once you get there, you must apprise yourself of all the financial rules. Remember to file FBAR if you transfer funds overseas or earn a foreign income.