FATCA – Foreign Account Tax Compliance Act impact on employers has been added to your bookmarks.
FATCA – Foreign Account Tax Compliance Act impact on employers
An overview and practical considerations for employers’ benefit programs
The Foreign Account Tax Compliance Act (“FATCA”) is a new set of tax reporting rules that the U.S. government intends to use to prevent U.S. taxpayers from avoiding their U.S. tax obligations by holding financial assets in non-U.S. institutions. FATCA requires Foreign Financial Institutions (“FFIs”) to identify U.S. taxpayers with financial accounts in these FFIs, and provide this information to the U.S. Internal Revenue Service (“IRS”). Given that many FFIs have little nexus to the U.S. and may not otherwise be subject to U.S. tax law, FATCA imposes a significant withholding tax on certain U.S. sourced payments made to FFIs that cannot document FATCA compliance as a means of enforcing these reporting rules.
Staying ahead of FATCA
FATCA appears just to be the beginning of increased global coordination of identifying and reporting global sources of income. The reach is far enough to sweep in benefit plans, such as retirement plans, so it will be necessary for employers to have a better understanding of not only the types of benefits their employees receive, but the tax reporting considerations as well.