If you have a family, you can save money with US taxes through the child tax credit and foreign housing exclusion.
The child tax credit allows you to get refundable credit of up to $1,400 per child. Qualified housing expenses over €16,944 may help you become eligible for US tax exemption.
The Child Tax Credit
The US provides financial assistance to parents in the form of tax credits and refunds, regardless of where they live and work.
As of 2021, The American Rescue Plan signed by President Biden includes tax benefits for US families abroad. Specifically, the President made the Child Tax Credit amount increase and make it fully refundable.
However, the latest Child Tax Credit news released in July 2021 shares:
Expats are not eligible for the $3,000/$3,600 refundable credit, if they lived more than 6 months outside the US. Instead, they can get (up to) the $1,400 refundable credit when they file their tax returns in 2022.
Starting 2022, American families living overseas can qualify for the $1,400 refundable credit, but cannot take a larger credit due to their location outside the United States.
Foreign Housing Exclusion
The Foreign Housing Exclusion allows US citizens abroad to deduct any excess of housing expenses, paid by the employer over 16% of the Foreign Earned Income Exclusion (FEIE) amount of that year ($107,600 for the 2020 tax season). Qualified housing expenses over $16,944 might be eligible for US tax exemption. However, there is a limit to how much foreign housing expenses you can deduct (more below).
In addition to foreign housing expenses, you can also get an exclusion from the following: home utilities, personal property insurance, accessory rentals, and household repairs. The exclusion does not include furniture you purchase online, domestic labor, and mortgage payments.
Qualify for the Foreign Housing Exclusion
To qualify for this expat tax benefit and save money with US taxes, you need to be qualified for the FEIE through this:
- Pass the Physical Presence Test or the Bona Fide Resident Test
- To pass the Physical Presence Test: You need to be outside of the US for 330 full days in a consecutive 12 month period, that begins or ends in the tax year.
- To pass the Bona Fide Rest Test: You need to be a resident in a foreign country and be subject to local income taxes for at least a full tax year.
Once you are certain you qualify for the FEIE, you can fill out Form 2555 informing the IRS of which test you qualify under. Or better yet, fill it out electronically through our software!
The MyExpatTaxes software can determine if you qualify for this exclusion and receive a refund. Want to learn more about the Foreign Housing Exclusion tax benefit? Read this.
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