Tax guidelines for sending large amounts of money to the US

What you ought to know when sending a large money transfer to the US.

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If you’re planning to send a large money transfer to the US, a money transfer service can help you save on fees — but your recipient will still need to report the transfer to the US government.

Do I have to report a large money transfer to the US?

Yes. No matter where you’re from, if you’re sending more than $10,000 to in the US, both you and your recipient will need to abide by US laws put in place to both protect both your money and the interests of the government.

By law, banks report all cash transactions that exceed $10,000 – and any transaction of any amount that alerts their suspicions. Money transfer businesses, which often solely send money between countries, sometimes have reporting thresholds as low as $1,000.

US law requires banks and money transfer companies to report:

  • Your name and contact information.
  • The name and contact information of your recipient.
  • If it’s a bank transfer, the financial details of the recipient, including the SWIFT code.
  • Your banking details, including your bank account number.
  • The amount you sent.

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Documents specific to sending a large money transfer to the US

If you’re sending someone in the US a foreign gift of money or other property, they’ll need to report it on Form 3520 – Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

US citizens and residents are required to use Form 3520 for:

  • Gifts or bequests valued at more than $100,000 from a non-resident individual or foreign estate.
  • Gifts of $15,601 or more from foreign businesses or foreign partnerships (including from people related to these businesses or partnerships).

Form 3520 is considered an “information return”, rather than a tax return, because foreign gifts are generally not subject to income tax. However, if you are required to submit Form 3520, you’ll be subject to stiff penalties if you fail to do so.

Who is responsible for filing Form 3520 – me or the recipient?

The recipient of the transfer is solely responsible for reporting the amount they received during the current tax year with their annual tax filing.

The penalties for failing to file Form 3520 on time are equal to the greater of $10,000 or the following:

  • 35% of the gross value of the distributions received from a foreign trust.
  • 5% of the gross value of the portion of the amount treated as owned by the recipient.
  • A separate 5% penalty if they fail to give the correct required information.

Why is the US government interested in how much I send?

Laws are in place to protect US citizens and the government from fraudulent activity. By monitoring transactions in and out of the US, authorities are able to:

  • Protect people’s sensitive information.
  • Lower the risk of illegal and fraudulent transfers.
  • More clearly identify money laundering schemes.
  • Inhibit the ease of sheltering taxes in untraceable offshore accounts.

Since 9/11, the US government has put even more stringent laws in place. For example, the Patriot Act allows the government to track money more carefully due to terrorism.

International money transfers that won’t break your business

What should I expect when sending a large money transfer to the US?

To prevent the US government from delaying or cancelling your money transfer, you and your recipient will need to provide proof of a government-issued photo ID – a driver’s licence or passport, for example – and proof of your address.

If you already own an account with the bank or money transfer company, you may not need to provide ID each time you send money. However, online money transfers may have stricter rules when it comes to proof of ID and could ask for additional documentation or to verify your identity by phone.

What other steps should the recipient take to avoid legal or tax problems?

To avoid the penalties that come with a failure to report a large money transfer to the US, it may be worth it if your recipient speaks to a tax lawyer to make sure that everything is above board and complies with the laws of all countries involved.

Bottom line

Anyone receiving a large money transfer to the US almost always needs to report it to the IRS. Failing to do so could lead to a fine, or worse.

It may be tempting to think you can slip through the cracks and save money, but the fines far outweigh the benefits. Instead, learn how to save money on your next transfer to help offset the overall cost of the taxes you may owe.

Read our guide to transferring large amounts of money abroad.

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