A 1099-INT form is issued by banks, financial institutions, or other entities to report interest income of $10 or more earned in a tax year. A U.S. expat might need a 1099-INT for several reasons, depending on their financial activities and obligations. Here’s an explanation:
1. Interest Earned from U.S.-Based Accounts
- If the expat holds savings accounts, certificates of deposit (CDs), or other interest-bearing accounts with U.S. banks or financial institutions, any interest earned will be reported on a 1099-INT.
- U.S. citizens, including expats, are required to report worldwide income on their tax return, and this includes U.S.-sourced interest income.
2. Tax Reporting Obligations
- The interest income reported on the 1099-INT must be included on the expat’s U.S. tax return (Form 1040). Even if the income is small or the account is jointly held, it still needs to be reported.
- The IRS uses the 1099-INT to match reported interest income with what is declared on the expat’s tax return, helping ensure compliance.
3. Foreign Bank Accounts with U.S. Institutions
- Some foreign branches of U.S.-based banks may issue 1099-INT forms if the interest income is considered U.S.-sourced.
- Expats using U.S. institutions abroad should verify whether their accounts generate a 1099-INT.
4. Interest Income and Foreign Tax Credit
- If the interest income reported on the 1099-INT is taxed both in the U.S. and the expat’s country of residence, they may claim a foreign tax credit on their U.S. tax return to offset double taxation.
5. Reporting Foreign Accounts
- Expats are required to disclose foreign financial accounts through FBAR (FinCEN Form 114) or FATCA (Form 8938) if their total foreign assets exceed reporting thresholds.
- While a 1099-INT typically pertains to U.S. accounts, the interest income from foreign accounts also needs to be reported, even if no 1099-INT is issued.
6. Avoiding IRS Penalties
- Failing to report interest income can result in penalties and interest charges. The 1099-INT provides the expat with the official documentation needed to comply with U.S. tax laws.
Common Scenarios for Expats
- Maintaining U.S. Savings Accounts: Many expats keep U.S. savings accounts for convenience or investment purposes.
- Investments Generating Interest: Bonds or other interest-generating U.S. investments could result in a 1099-INT.
- Joint Accounts with U.S. Spouses or Relatives: Even if the expat isn’t the primary account holder, they may still need the 1099-INT for joint accounts.
Why a U.S. Expat Would Need a 1099-INT
- To Report U.S.-Sourced Income: The 1099-INT ensures accurate reporting of interest income on their U.S. tax return.
- To Claim Foreign Tax Credits: It helps coordinate with foreign tax liabilities and avoid double taxation.
- To Stay Compliant: Properly reporting interest income demonstrates compliance with U.S. tax laws, even while living abroad.
