Key takeaways:

1. The Foreign Account Tax Compliance Act (FATCA) is a U.S. tax law aimed at combating tax evasion by U.S. taxpayers using foreign bank accounts.
2. FATCA may require non-U.S. contractors receiving payment for their services from a U.S. source to have their income reported to the IRS and may require U.S. taxpayers with foreign financial assets to report them to the IRS.
3. To ensure FATCA compliance, international contractors should understand their obligations, accurately report any U.S. source income, and seek professional advice.

Navigating the tax landscape is crucial for international contractors, especially when dealing with U.S. clients or institutions. One essential piece of legislation you should understand is the U.S. Foreign Account Tax Compliance Act (FATCA). This blog post delves into the world of FATCA and its implications for international contractors.

FATCA Explained: What You Need to Know

Enacted in 2010, the Foreign Account Tax Compliance Act (FATCA) is a U.S. tax law aimed at combating tax evasion by U.S. taxpayers using foreign bank accounts. FATCA requires Foreign Financial Institutions (FFIs) to report specific information about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold substantial ownership interest.

FATCA's Impact on International Contractors

As an international contractor with financial ties to the U.S., FATCA could affect you in the following ways:

Reporting of U.S. Source Income: If you're a non-U.S. contractor receiving payment for your services from a U.S. source, FATCA may require the U.S. payer to report your income to the Internal Revenue Service (IRS). Additionally, the payer might need to withhold a portion of your income to ensure U.S. tax compliance.

Reporting of Foreign Financial Assets: If you're a U.S. taxpayer with foreign financial assets exceeding a certain threshold, you may need to report these assets to the IRS using Form 8938, Statement of Specified Foreign Financial Assets.

For example, let's say you're Maria, a Spain-based contractor providing services to a U.S. company. Under FATCA regulations, the U.S. company may need to report payments made to you to the IRS. If tax isn't properly withheld from your payments, the U.S. company could face penalties under FATCA.

Staying FATCA Compliant: Essential Steps for International Contractors

To ensure FATCA compliance, international contractors should:

Understand Your Obligations: Familiarize yourself with FATCA requirements relevant to your situation, which may depend on factors like tax residency, service nature, and payment type.

Ensure Accurate Reporting: Accurately report any U.S. source income on your tax return. If you're a U.S. taxpayer with foreign financial assets, report them accurately to the IRS.

Seek Professional Advice: FATCA rules can be complex, and non-compliance can result in penalties. Consult a tax professional knowledgeable about FATCA for guidance.

FATCA holds significant implications for international contractors with U.S. connections. By understanding your obligations under FATCA and ensuring accurate reporting, you can maintain tax compliance and avoid potential penalties.

Hiring contractors? Thera can save you a ton of time

If you’re hiring contractors, you’re probably spending too much time on their payroll, contracts, and tax documents. Which is why we built Thera, which saves you 90% the time you spend on contractor paperwork each month.

With Thera, you can compliantly hire your contractors in 150+ countries, onboard them in minutes, and pay them all at once (in a click). It’s global contractor payroll, finally simplified.

Sound interesting? Click here to book a demo.