15 Things Expats Should Know About US Child Tax Credits

January 28, 2022 | , , | 9 minute read
Expat Tax Blog. Tax Tips for US Americans abroad.

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Father and son putting money and in a piggy bank. Saving as expats thanks to the child and dependent care credit.

Many American parents benefit every year thanks to US child tax credits. 2022 is no different. However, if you’re a parent abroad this year, you’ll want to know which credits you are eligible for. Additionally, you should know about the real potential for expat parents to owe money when filing their 2021 tax returns.

As an expat abroad, you may be asking yourself questions like:

  • How much can expats claim using the Additional Child Tax Credit?
  • How much can expats deduct using the Child & Dependent Care Credit?
  • Will I owe US taxes because of Child Tax Credit advanced payments?
  • Will I receive a refund because of the US Child Tax Credit or Child and Dependent Care Credit?

MyExpatTaxes has the answers to these questions and more. To help you gain the maximum tax advantage, we’ve put together our guide to Child Tax Credits for parents abroad.

15 things to know when filing your 2021 taxes

Broken into two main categories:

—first, 8 things expats should know about the Additional Child Tax Credit

—then, 7 things expats should know about the Child and Dependent Care Credit

—plus a bonus a bit of ‘Extra Credit’ for Parents with Children Born or Adopted in 2021

All in all, there are plenty of tax-saving opportunities for expat families!

The Additional Child Tax Credit

First, let’s discuss the Additional Child Tax Credit and how changes made last year will affect Expats.

In 2020 and 2021, we saw support for American families via three rounds of stimulus payments. These payments were available to Americans abroad and Americans on US soil equally, which means that as long as you had a valid US Social Security Number and filed your US Tax Return, there was no difference in payment amounts on account of someone’s country of residency.

Unlike the stimulus payments, the amount of family support offered in the American Rescue Plan via the Additional Child Tax Credit is affected by residency. In short, some expats may not receive the full tax benefits offered by the Additional Child Tax Credit.

However, read on, as there are still tax savings for US expat families!

8 Things to Know About the Additional Child Tax Credit for Expats Abroad

If you spent more than half of 2021 living outside of the US, pay careful attention when filing your taxes this year. Significant changes may affect your US Child Tax Credit. Some changes will apply to everyone, while others will apply only to Americans who had a main home in the US for more than half of 2021.

We want to be sure you are getting the most tax savings you can. To help, we’ve put together this list of the eight most important things to know about the Additional Child Tax Credit.

1. The Age for qualifying dependents increased

Applies to Everyone – in the US and abroad

In 2022, while filing your 2021 tax return, you can claim children who were under the age of 18 by December 31st, 2021. The traditional age limit requires children to be under 17 by the 31st. This update allows you to receive the credit this year, even if your child was 17 in 2021.

2. The refundable amount stays at $1,400 per qualifying child

Only applies to those who had a main home outside the US for more than half of 2021.

If you don’t owe any US taxes or you owe less than you plan to deduct via the Child Tax Credit, you can receive the remaining sum as a tax refund. For expats abroad, you can claim up to $1,400 as a tax refund

3. The deductible amount of the Child Tax Credits has increased

As Americans abroad, you can deduct the full amount of the increased child tax credit, which is $3,600 for qualifying children under the age of 6 and $3,000 for qualifying children between 6 and 17 (under the age of 18). Only those who mainly lived abroad in 2021 won’t be able to receive more than $1,400 per qualifying child as a US tax refund.

4. You can’t claim the refundable portion of the Child Tax Credit if you use the FEIE

You read that right, Expats! If you use the FEIE, or Foreign Earned Income Exclusion, you won’t be eligible to receive any portion of the Child Tax Credit as a refund.

This doesn’t mean you have to be double-taxed, however! You can use the Foreign Tax Credit instead. If you claim the Foreign Tax Credit, you are still eligible for the US Child Tax Credit refund!

Not sure if you should use the FEIE or the Foreign tax credit? Choosing the right tax write-offs and exclusions can be complicated for expats. We build MyExpatTaxes specifically for Americans abroad. It’s created by expats, for expats! We designed it to help you get the max possible deduction or refund!

5. You might OWE taxes if you received advance Additional Child Tax Credit payments

It’s true. As an expat abroad, you may be used to filing without owing US taxes. However, this year, if you received advanced payments for the Child Tax Credit, you may find you owe US taxes. The payments, which went out monthly, were meant to equal 50% of your expected Child Tax Credit. If the estimated monthly allowance was more than your actual Child Tax Credit (because you can still only claim $1,400 as a full-time expat rather than the new $3,000- $3,600 amount), you would need to pay any difference.

EXPAT TAX TIP: You may owe US taxes in 2022! If you received advanced US Child Tax Credit payments, make sure you file by April 18th! File with MyExpatTaxes early to make sure you stay in good standing with the IRS.

For example, the sum you received may have been based on the total eligible if you live within the US, not the total eligible if you live OUTSIDE the United States. If that is the case, you’ll likely have to repay a portion of what you received.

6. Look for Letter 6419

The IRS has announced they will issue letter 6419 beginning in December 2021. If you don’t receive a letter, be sure to check the address you used to file your last tax return. If you used a US (or other former address) to file your 2020 tax returns, the letter might be delivered to that address.

Letter 6419 is intended to help American families understand their US Child Tax benefits. It will contain a summary of the total amount of advance payments issued and the number of qualifying children used to calculate the sum.

You’ll have to compare the amounts you received in advance to the amount you are due. Yup, it’s your responsibility to make sure you don’t owe US taxes for 2021.

7. Make sure your kids are qualifying children

You can claim your children, foster children, step-children, grandchildren, nieces, nephews, or other related dependents. However, they must meet the following qualifications:

  • Have a valid SSN by December 31st, 2021
  • Live with you for at least 50% of the year
  • Do not provide more than half of their own support
  • Are not claimed by anyone else
  • Are under 18 on Dec 31st, 2021
8. Higher earners will see less of the Child Tax Credit

Overall, the total support offered by the Child Tax Credit has increased for most families in 2022. However, there are still limits if you have a high adjusted gross income (AGI). The highest earners won’t receive as high of a credit as low and middle-income earners. The starting point where the total tax credit starts to phase out is:

  • $75,000 AGI for parents filing as Single
  • $112,500 AGI for persons filing as Head of Household
  • $150,000 AGI for couples who are Married filing Jointly

Once these limits are reached, the credit will begin to phase out by $50 for every $1,000 (or partial $1,000) of earned income. There is a limit to how much the credit can be reduced.

The total amount of the Child Tax Credit will not phase out below $2,000 UNLESS their income reaches:

  • $400,000 for couples who are Married filing Jointly
  • $200,000 for all other filers

If your adjusted gross income is above the highest thresholds, the Child Tax Credit will continue to phase out by $50 for every $1,000 (or partial $1,000) of earned income. The credit will phase out until it eventually reaches zero.

Did you spend more than half of 2021 living in the US?

Maybe you returned to this US because of the pandemic. Perhaps you made the exciting choice to move abroad for the first time in 2021. Whatever your reason, if you spent the majority of 2021 living within the United States, you can take advantage of the higher total tax savings offered by the American Rescue Plan.

This applies to those who lived in the US for more than six months.

The total credit amount is increased:

The new Child Tax Credit amounts are:

  • $3,600 for children under the age of 6
  • $3,000 for children 6-17

The refundable portion has also increased

Before the American Rescue Plan, the max portion of the tax credit was only refundable up to $1,400. Additionally, to qualify, you had to have a minimum earned income of $2,500.

For the 2021 tax year, persons who live in the US:

  • Can receive up to the total amount as a refund
  • The minimum income requirement no longer applies

The IRS defines living in the US for a majority of 2021 as:

If you (or your spouse if filing jointly) had a principal place of abode in the United States for more than one-half of 2021.

This means your main home was in the 50 states or the District of Columbia for more than one-half of 2021. Your main home can be any location where you regularly live. Your main home may be your house, apartment, mobile home, shelter, temporary lodging, or otherlocation and doesn’t need to be the same physical location throughout the tax year. You don’t need a permanent address.

And possibly the most important part:

If you are temporarily away from your main home because of illness, education, business, or vacation, you are generally treated as living in your main home.

So if you were abroad due to a temporary reason listed above, you can still certify in MyExpatTaxes that you were considered as living in the US (your main home) for the majority of 2021.

Also for those that are stationed abroad, no worries!

U.S. military personnel stationed outside the United States on extended active duty are considered to have a main home in the United States for purposes of claiming a child tax credit.

Source

Child and Dependent Care Credit

Despite having a similar name to the Child Tax Credit, the Child and Dependent Care Credit is entirely separate. Better yet, if you’re a parent with qualifying dependents, you can claim both. Saving you even more money on your 2021 US income taxes.

Having ‘Care’ in the title gives away the fact that this credit specifically covers costs that parents and guardians spend on care-giving.

7 Things Expats need to know about the Child and Dependent Care Credit

1. It covers money you spend on care

In contrast to the Child Tax Credit, the Child and Dependent Care Credit is intended to reimburse parents for specific expenses related to care.

Types of qualifying care expenses:

  • Daycare/Preschool
  • Before and after-school care programs
  • In-home Care Providers
  • Daycamp
2. It’s a reimbursement of up to 50% of care costs

If you have one qualifying dependent, you can claim a maximum of $8,000 in expenses. If you have two or more qualifying dependents, you can claim a maximum of $16,000 in expenses.

Once you know how much in total expenses you can claim, you need to know what percentage of those expenses you can expect to deduct.

That depends on your income:

3. You cannot be Married Filing Separately

Couples who are Married Filing Separately are not eligible for the Child and Dependent Care Credit. US expats who are married to a Non-US Citizen and pay more than 50% of their combined home expenses, can file as Head of Household rather than Married Filing Separately. It is also possible to claim the credit if you are legally separated. Otherwise, you must file as Single or Married Filing Jointly to be eligible.

4. Parents must be working or full-time students

This credit is designed to help families recoup some of the expenses they take on in order to work outside the home. If the couple is Married filing Jointly, both parents must be employed, looking for work, or full-time students.

There is no minimum definition of employment. Working parents can only claim expenses within their earned income. Students are treated as if they make $250 per month with one child or $500 per month with two or more children.

5. Know whose expenses you can claim

Parents and guardians can receive credit for expenses on care for children under 13. Additionally, if a spouse or other adult in the home cannot care for themselves, the credit can also be used to reimburse their care.

6. It’s only refundable if you have lived in the US for more than half of 2021

Yup. You can only claim up to the max as a deduction from your tax bill. You won’t receive any additional amount as a refund back to you unless you certify that you were living in the US (or had a main home there) for the majority of 2021.

7. Employer-paid expenses must be accounted for

Does your employer offer reimbursement for childcare? If that is the case, you won’t be able to claim that portion of your care costs with the Child and Dependent Care credit. If you could, you’d be receiving reimbursement for that care twice.

Extra Credit – For Parents with Children Born or Adopted in 2021

Pun intended! We know—Dad joke. We just couldn’t help ourselves.

If you welcomed a child in 2021 could be eligible to claim the Child Tax Credit, The Child and Dependent Care Credit, AND the third Stimulus check! That’s a possible additional $1,400 in the bank.

To claim your third stimulus check for your new child, file your 2021 taxes and claim them as new dependents. They will need a valid US Social Security Number before the due date, including extensions of your US Tax Return to be eligible, the children need to be under the age of 19 or students up to 24 (in the year 2021).

The third stimulus check is part of the Recovery Rebate Credit. It was since extended to include all children born in 2021, including expat families!

Written by Ellen M

January 28, 2022 | , , | 9 minute read

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