Is Wise Considered a Foreign Bank Account?
Clarify if your Wise account is a foreign bank for US tax reporting. Understand compliance and navigate your reporting obligations with ease.
Wise, formerly TransferWise, is a popular platform for international money transfers and multi-currency management. US users often wonder if their Wise accounts are considered “foreign bank accounts” for US reporting. This article clarifies Wise account status and outlines reporting responsibilities for US persons.
Understanding How Wise Accounts Operate
Wise operates as a financial technology company, not a traditional bank. It provides multi-currency accounts, allowing users to hold balances in over 40 currencies. Users can also obtain local bank details for regions like the UK, Eurozone, and Australia, facilitating local currency payments. Wise specializes in international transfers, offering competitive exchange rates.
Wise is regulated as a money services business, not a deposit-taking bank. Funds held with Wise are not protected by government-backed deposit insurance schemes like FDIC in the United States. Instead, Wise safeguards client money by holding it in secure liquid assets or segregated accounts with partner financial institutions.
The location where Wise holds funds varies. For non-USD balances, money might be held with a partner bank outside the United States. This operational model, with funds held in various countries, leads to questions about foreign account reporting for US persons.
Defining Foreign Financial Accounts for US Reporting
US regulations define foreign financial accounts for reporting under two frameworks: the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA). These frameworks have distinct definitions, reporting thresholds, and filing procedures.
The FBAR, filed with the Financial Crimes Enforcement Network (FinCEN) using Form 114, requires reporting by US persons with a financial interest in or signature authority over foreign financial accounts. An FBAR foreign financial account includes bank accounts, brokerage accounts, mutual funds, and certain cash-value insurance policies. Reporting is required if the aggregate maximum value of all foreign financial accounts exceeds $10,000 at any point during the calendar year.
FATCA introduced Form 8938, Statement of Specified Foreign Financial Assets, filed with the Internal Revenue Service (IRS) as part of an individual’s annual income tax return. This form requires reporting a wider array of specified foreign financial assets, including:
Foreign bank and brokerage accounts
Foreign stocks or securities not held through a US financial institution
Interests in foreign entities
Certain foreign pensions
Form 8938 reporting thresholds are generally higher than FBAR and vary by taxpayer filing status and residency. For US residents, the threshold is met if specified foreign financial assets exceed $50,000 on the last day of the tax year, or $75,000 at any time, for single filers. For married individuals filing jointly residing in the US, these thresholds are $100,000 and $150,000, respectively. US persons living abroad have higher thresholds, such as $200,000 at year-end or $300,000 at any time for single filers.
Reporting Your Wise Accounts
Wise accounts are generally considered foreign financial accounts for FBAR reporting by US persons. This is because Wise holds customer funds, especially non-USD balances, with partner institutions outside the United States. Even if a Wise account is opened from the US, foreign currency balances may be held at a non-US bank, making them reportable.
If the total maximum value of all your foreign financial accounts, including Wise balances, exceeds the FBAR threshold of $10,000 at any time during the calendar year, you must file an FBAR. This aggregate value includes balances in all currencies, converted to US dollars using the Treasury’s exchange rate. Calculate the highest balance each account reached during the year, not just the year-end balance.
Wise accounts may also be reportable on Form 8938 if they meet the specified foreign financial asset thresholds. This form requires detailed account information, including the financial institution’s name, address, and the maximum asset value held during the tax year. For reporting, you will need account numbers, the name of Wise or its underlying partner financial institution, and the address where funds are held. For non-USD balances, this may involve identifying the foreign location of the underlying funds.
Steps for Reporting Foreign Financial Accounts
After gathering information for your foreign financial accounts, including Wise accounts, file the required forms. The FBAR, FinCEN Form 114, is filed electronically through the FinCEN BSA E-Filing System. This form is submitted directly to FinCEN, a bureau of the US Department of the Treasury, not with your federal income tax return. The FBAR due date is April 15 of the year following the calendar year being reported, with an automatic extension until October 15.
For FATCA reporting, Form 8938, Statement of Specified Foreign Financial Assets, is filed with the IRS. This form must be attached to your annual income tax return, typically Form 1040. The due date for Form 8938 aligns with your income tax return due date, including any extensions.
Both forms require converting foreign currency values to US dollars. Use a consistent exchange rate for this conversion, reflecting the highest value for FBAR, or specific dates for Form 8938. Accurate reporting ensures compliance and helps avoid potential penalties.