International money transfer laws: the IRS, limits & tax implications

Money transfer

Understanding the basics of international money transfer laws is important if you’re receiving or sending large amounts of money abroad. If transactions involve more than $10,000, you are responsible for reporting the transfers to the Internal Revenue Service (IRS). Failing to do so could lead to fines and other legal repercussions.

To avoid penalties, you should learn the international wire transfer rules and regulations, transfer limits, and tax implications.

In this guide, you’ll learn about the following:

Required documents for wire transfers
Forms you need to submit to comply with the IRS
International wire transfer limits
Penalties of non-compliance

Learn the proper way to send and receive wire transfers. All of our sources were checked on March 18, 2021.

What is FATCA?

According to the IRS, the Foreign Account Tax Compliance Act (FATCA) is a tax law that requires foreign financial institutions, as well as non-foreign financial entities, to report all foreign accounts and assets of US citizens. Whether it’s a temporary setup or a joint account, it must be declared.

Additionally, it requires individuals to report such foreign bank accounts and assets in their tax returns, especially if their value exceeds a certain threshold. You must file a Foreign Bank Account Report (FBAR) if your foreign account has at least $10,000, according to the Financial Crimes Enforcement Network. Even if you only had that amount of money for a single day, you must report it.

What is the Consumer Financial Protection Bureau (CFPB)?

The Consumer Financial Protection Bureau is a government agency tasked to enforce federal consumer financial laws and take action against violators. It is responsible for producing educational resources and tools that empower consumers to make well-informed financial decisions.

Aside from safeguarding consumers’ rights in the financial market, the CFPB is responsible for other tasks. As of March 18, 2021, these primary tasks include:

How much money can you wire without being reported?

Financial institutions and money transfer providers are obligated to report international transfers that exceed $10,000. You can learn more about the Bank Secrecy Act from the Office of the Comptroller of the Currency. Generally, they won’t report transactions valued below that threshold.

Banks, however, are required to monitor transactions and report suspicious activities. For instance, a sender may send multiple smaller payments to avoid the $10,000 mark and tax obligations.

Monitoring transactions enables authorities to protect you and the government from illegal activities and fraudulent transfers. At the same time, it makes it harder for people to use offshore tax shelters.

What requirements are needed for wire transfers?

To comply with their legal obligations, banks and money transfer providers will require you to submit the necessary information before allowing you to make any transaction.

The requirements can vary per bank or money transfer service. According to American Express, you’ll most likely be required to provide the following information:

For online transfers, service providers may have stricter rules. You might have to present other documents to verify your identity. The same goes for high-value transactions. Banks will require additional documentation for transfers that involve more than $10,000.

Depending on the amount you’re sending, you might have to provide additional information, such as proof of your source of wealth. You might have to show your monthly payslips.

Is there a limit on International Wire Transfers?

There isn’t a law that limits the amount of money you can send or receive. However, financial institutions and money transfer providers often have daily transaction limits. This depends entirely on the establishment. Some might have a $3,000 limit per day, while others might have none at all.

Wire transfer services are great for wiring smaller amounts of money internationally. Take Boss Revolution for example. This international money transfer service lets you wire a minimum of $10 and a maximum of $2,999 in the app and $10,000 in a retail store from the US to select countries across the globe. This limit, however, depends on the recipient’s country and your preferred delivery method. Generally, it is cheaper and faster than traditional bank wires. For your first transfer, you can send up to $300 for free using the app.

When you’re looking for the right wire transfer provider, remember your rights as a consumer. You have every right to know the costs of their services, including their exchange rate, fees, and taxes.

These costs aren’t always displayed upfront. However, they are very important as they help you choose a fairly-priced money transfer service.

What paperwork should be filed for transactions over $10,000?

The IRS wants to know if you have assets in foreign accounts. Receiving international wire transfers is enough confirmation of the existence of a foreign account. Thus, make sure to report your foreign accounts to the IRS because you might face penalties for non-compliance with FATCA.

Depending on your transactions and your financial circumstances, you might need to submit different types of forms for tax purposes.

Here are some international wire transfer reporting requirements:

All of the information was gathered from IRS resources online. Make sure to fill out your forms with the appropriate information. Avoid any errors to prevent an IRS audit, which can potentially lead to financial and legal repercussions.

Take note that there are other international money transfer laws besides FATCA that you would need to look into before making wire transfers. The Patriot Act and Bank Secrecy Act are a few examples.

When in doubt, get in touch with a tax attorney who can tell you which forms you need and how to fill them out correctly.

What is considered a gift?

If no goods or services are expected in exchange for the funds, then it counts as a gift. Although you have to report gifts from foreign entities to the IRS, they won’t be taxed. It is the donor’s responsibility to pay for the gift tax. However, under special circumstances, the recipient may agree to pay for the tax. You can consult a tax professional if you’re looking for this kind of arrangement.

Any gift is taxable, but there are a few exemptions to this rule, which are the following:

Tuition or medical fees
Gifts for your spouse
Funds for a political organization
Gifts for non-profit organizations

Moreover, gifts that are worth less than the annual exclusion for the calendar year are not taxable. For 2021, the annual gift-tax exclusion is $15,000, according to the IRS.

What are the penalties for non-compliance?

Non-disclosure of foreign accounts will get you in trouble with the IRS and might prompt an audit of your tax returns or a criminal investigation.

If you don’t report your account to the IRS, you would potentially face civil or criminal repercussions. This may include fines, restitution orders, and even incarceration. On Form 8938 filing requirements, the IRS says that non-disclosure of financial assets can lead to fines of up to $10,000. If you don’t file the paperwork after an IRS notice, you can incur additional $10,000 fines for every 30 days.

You can avoid penalties if you present a reasonable cause for your non-compliance. In the US, this excludes information that might be associated with illegal activity overseas.

Whether you’re receiving or sending money overseas, you should be aware of the regulations and tax implications involving these transfers. You can avoid all of these penalties by complying with FATCA and other laws from the start. Report your foreign bank accounts and file the necessary paperwork.

Sources: all third party information obtained from applicable website as of March 18, 2021

This article is provided for general information purposes only and is not intended to address every aspect of the matters discussed herein. The information in this article is not intended as specific personal advice. The information in this article does not constitute legal, tax, regulatory or other professional advice from IDT Payment Services, Inc. and its affiliates (collectively, “IDT”), and should not be taken or used as such by any individual. IDT makes no representation, warranty or guaranty, whether express or implied, that the content in this article is current, accurate, or complete. You should obtain professional or other substantive advice before taking, or refraining from, any action on the basis of the information in this article.