The Child Tax Credit For Expats

The Child Tax Credit is a significant tax benefit available for American families with children, and in many cases US expat parents living and residing outside of the US can take advantage of the credit, even if their US tax liability is zero. 

Written exclusively for Expat Network by John Rogers, US Expatriate Tax Accountant with Universal Tax Professionals, LLC

However, US expats with children should be aware that the US federal tax rules which commonly impact expats may limit the amount of Child Tax Credit they can qualify for, and in some cases, make them ineligible to receive a portion of it.  This article will explain when and how US expats with children can qualify for the Child Tax Credit.

How the Child Tax Credit Works

Under the American Rescue Plan Act of 2021 (ARPA), a taxpayer may claim a Child Tax Credit for a child who:

• Is age 17 or under at year-end
• Lived with the taxpayer over half of the year
• Had received a Social Security Number (SSN) by the original due date of the tax return (April 15^th of the following year); and
• Modified Adjusted Gross Income (MAGI) was less than $400,000 for a couple filing jointly, or less than $200,000 for a taxpayer using any other filing status. MAGI is essentially a taxpayer’s AGI as reported on Line 11 of Form 1040, adding back any Foreign Earned Income Exclusion (FEIE) claimed or excluded income from Puerto Rico or American Samoa.

 The Child Tax Credit amount is $3,600 for each child under the age of 7 at year-end, and $3,000 for each child between the age of 7 and 17 at year-end, and is a fully-refundable credit (explained below), provided that the taxpayer and dependents lived in the US for at least half the year.  Those credit amounts are limited to $2,000 if the taxpayer’s MAGI is above certain thresholds: $150,000 for married couples filing jointly or a surviving spouse, $112,500 for taxpayers using head of household filing status, and $75,000 for taxpayers using single or married filing separately filing status.  In addition to being limited to $2,000, the credit is only partially refundable, up to $1,400.

There is no minimum earned income requirement for claiming the Child Tax Credit.

Please note that the Child Tax Credit amounts and qualification requirements listed are based on ARPA, and may be subject to change in 2022 and future tax years.

What Is a Refundable Credit?  When Is the Child Tax Credit Fully Refundable, and When Is It Only Partially Refundable?

A refundable credit means a credit is payable to a taxpayer as a refund, even if his or her tax liability is zero.  The Child Tax Credit is fully refundable if the taxpayer and dependents lived in the US for at least half the year, and the taxpayer’s MAGI was below the thresholds listed above ($150,000 for married couples filing jointly or a surviving spouse, $112,500 for taxpayers using head of household filing status, and $75,000 for taxpayers using single or married filing separately filing status).  Above those threshold amounts, the maximum Child Tax Credit amount is limited to $2,000 and only $1,400 is refundable, as outlined above.

Limitations on the Child Tax Credit for US Expats Living Abroad for More Than Half the Tax Year

Most US expats live abroad more than half of the year, and as a result, they will not be able to claim the maximum Child Tax Credit amounts of $3,600 for a child under the age of 7, and $3,000 for a child between the age of 7 and 17.  However, they can still qualify for a Child Tax Credit of $2,000, partially refundable up to $1,400, provided that their MAGI was less than $400,000 for a couple filing jointly, or less than $200,000 for a taxpayer using any other filing status.

How Does Claiming the Foreign Earned Income Exclusion (FEIE) Affect US Expats’ Eligibility to Claim the Child Tax Credit?

A US expat who meets certain tax rules (generally, having a tax home outside of the US for a full calendar year, or being physically present in a foreign country or countries for at least 330 days in a 12-month period) may claim a Foreign Earned Income Exclusion to exclude his or her foreign earned income from US federal income tax, up to a certain threshold ($108,700 for 2021).

US expats should be aware that claiming the FEIE makes them ineligible to receive the refundable portion of the Child Tax Credit, which is $1,400 per child.  Fortunately however, many expats may still be able to significantly reduce or even eliminate their US tax liability through claiming the Foreign Tax Credit (FTC) instead of the FEI, and thereby still remain eligible for the refundable portion of the Child Tax Credit.

Does Claiming the Foreign Tax Credit (FTC) Affect US Expats’ Eligibility to Claim the Child Tax Credit?

No – claiming the FTC has no impact on a US expat’s eligibility to claim the Child Tax Credit – an expat may be able to reduce his or her US federal tax liability to zero through claiming the FTC on earned income that is subject to income tax by the US and another country, and still be able to claim the refundable portion of the Child Tax Credit, which is $1,400 per qualifying child.

I Claimed the FEIE in Prior Tax Years, Not Realizing That I Could Have Qualified for Refundable Child Tax Credits Those Years – Is It Too Late to Go Back and Claim the Credits?

No, it’s not too late to claim a refundable Child Tax Credit for the past 3 tax years, if you claimed the FEIE on those returns, but didn’t realize that that disqualified you from receiving the refundable Child Tax Credit.  A refundable Child Tax Credit may be claimed via filing an amended return, as long as it is filed within 3 years after the date the return was originally filed.

Are you wondering how much Child Tax Credit you can qualify to receive, given your personal situation as an expat?  Universal Tax Professionals, LLC can help you determine the maximum Child Tax Credit available to you and the most beneficial filing position, while keeping you compliant with the unique tax rules impacting US expats.

John Rogers is an US Expatriate Tax Accountant with Universal Tax Professionals, LLC, and a CPA and IRS Enrolled Agent.  His experience in expatriate taxation includes over 5 years working in the Big Four as a senior expatriate tax consultant, including a busy season spent in Brussels Belgium, assisting expats working in Europe. John has an MBA with a concentration in Accounting from Northeastern University in Boston Massachusetts.