Foreign Savings Accounts: Interest Reporting and FBAR

A regular foreign savings account — the kind you'd open at a local bank abroad to receive your paycheck and pay bills — is the most common foreign financial account held by US expats, and its reporting requirements are relatively straightforward. Interest earned in a foreign savings account is taxable as ordinary income on your US return, reported on Schedule B — the same treatment as a US savings account. The account must be reported on FBAR if your aggregate foreign account balances exceeded $10,000 at any point during the year. If the account is denominated in a foreign currency, you must convert both the interest and the year-end balance to US dollars for reporting purposes. If the bank withheld local tax on your interest, you can claim the Foreign Tax Credit for the withheld amount on Form 1116. Many expats don't realize that even a modest foreign checking account with $15,000 in it — which might contain just one month's paycheck — crosses the FBAR threshold and must be reported.