How do I Report Foreign Interest Income?

U.S. taxpayers are required to report worldwide income, including interest earned from foreign bank accounts. This article explains how to properly report foreign interest income on your Form 1040 and when you may also need to file a Report of Foreign Bank and Financial Accounts (FBAR).

1. Reporting Foreign Bank Interest Income on Form 1040

Key Rule: Worldwide Income

The IRS taxes U.S. citizens and residents on all income earned globally, including interest from foreign bank accounts—even if:

• The money stays overseas, or
• Foreign taxes were already paid

2. Where to Report Foreign Interest on Form 1040

Step 1: Report Interest on Schedule B (Form 1040)

Foreign interest income is typically reported on Schedule B (Interest and Ordinary Dividends).

How to complete Schedule B:

1. Federal > Income
2. Select my forms
3. 1099-INT and DIV
4. Did you earn any interest or dividend income from a bank, brokerage firm or some other financial institution?
5. Interest Income (Form 1099-INT)

Important notes:

• You must report all foreign interest, even small amounts. 
• Schedule B is required if:
  • Your total interest/dividends exceed $1,500, or
  • You have any foreign financial account (even below $1,500 income). 

Step 2: Complete Foreign Account Questions (Schedule B, Part III)

Schedule B also asks about foreign accounts:

• Do you have a financial interest in or signature authority over a foreign account?
• Are you required to file an FBAR (FinCEN Form 114)?

You must answer these questions truthfully, even if no additional forms are required. To locate these questions within the program, go to:

1. Federal > Income
2. Select my forms
3. 1099-INT and DIV
4. Did you earn any interest from a foreign bank account?

3. Additional Reporting That May Apply

Depending on your situation, you may also need:

• Form 8938 (FATCA) – if foreign assets exceed certain thresholds (e.g., $50,000 for single filers in the U.S.) 
• Foreign Tax Credit (Form 1116) – to avoid double taxation if foreign taxes were paid

4. When You Must File an FBAR (FinCEN Form 114)

FBAR Filing Threshold

You must file an FBAR if:

• You are a U.S. person, and
• You have a financial interest in or authority over foreign financial accounts, and
• The combined (aggregate) value exceeds $10,000 at any point during the year 

Important Details

• The $10,000 threshold is total across all accounts, not per account. 
• It applies even if:
  • The balance only exceeded $10,000 for one day
  • The accounts earned no income 
• TaxSlayer does not support the filing of FinCEN Form 114.

FBAR Filing Basics

5. Key Differences: FBAR vs. Tax Return Reporting

6. Penalties for Non-Compliance

Failure to properly report foreign accounts or income can result in significant penalties:

• FBAR penalties:
  • Non-willful: up to ~$16,000 per year
  • Willful: up to the greater of ~$165,000 or 50% of account balance 
• Tax reporting penalties:
  • Accuracy-related penalties
  • Additional penalties for failing to disclose foreign assets

7. Practical Example

Scenario:

• You have two foreign accounts:
  • Savings account: $6,000
  • Investment account: $5,000

Result:

• Total = $11,000 → FBAR required
• Any interest earned → report on Schedule B + Form 1040

8. Best Practices

• Keep detailed records of all foreign accounts and interest earned
• Convert foreign income to USD using appropriate exchange rates
• Review Schedule B Part III carefully
• Monitor account balances throughout the year for FBAR thresholds
• Consider professional tax advice for complex international situations