Will My Child Born Abroad be Required to File US Taxes?

The first time I took my daughter to America, she was four months old. My daughter was born abroad in Tirol, Austria, to me, her American mother, and her Austrian father on a late August afternoon. As any parent reading this knows, after you have a child, you are scrambling to think normal for a few months. Let’s blame sleep deprivation here. You may not realize the amount of paperwork that needs filling. Add to that, a child born abroad is automatically an American citizen.

A Child Born Abroad and US Citizenship

While it’s still necessary to “apply” for US citizenship, children of US Citizens technically acquire it at birth. Because of this rule, our family did not choose if we wanted her to be a dual citizen. Instead, US Citizenship is imposed on her the moment she is born. With my family all living in the US, there was no one around to remind me to apply for her American passport or inform us of our daughter’s future tax obligations. My husband’s Austrian family was also not aware of these duties, naturally.

“Looking back, I made a rookie mistake.”

– MacKenzie

Looking back, I made a rookie mistake. We applied for her Austrian passport and received it within a week. Then I booked a ticket to America and started packing. On arrival, I stood ready at passport control. I had my American passport, Austrian Visa, a notarized letter from my husband permitting me to fly abroad with our baby, and her Austrian passport. I thought we were ready.

Boy, was I shocked when the passport control guard in Seattle said, “You know she needs an American passport to enter the country, right?”

“No, no, I did not know that.”

I was unaware that because our daughter was born abroad to an American citizen, she was what is called an “Accidental American” in the tax world. And by law, can only enter the country using an American passport.

The kind officer did allow us through, albeit with a stern warning to apply for her American passport as soon as possible. And also, not to enter the US on her Austrian passport again.

Seven years later, I’ve heard from other US expat friends that they have made the same mistake. So many of us Americans living abroad are unaware of our children’s duties as US citizens.

Getting our Child Born Abroad a US Passport

Upon returning to Austria three weeks later, we quickly made an appointment at the US Embassy in Vienna to apply for our daughter’s US birth certificate, American passport, and social security number. Thankfully, the process was relatively straightforward. Soon enough, her documents arrived by mail to our apartment.

At this point, I was deep into my research. Google had become a lifeline for me trying to figure out:

• What is an accidental American?
• When do Accidental Americans have to pay US taxes?
• How to file taxes while living abroad?
• and so on

My confusion was high. Why was my daughter, born in Austria, who will grow up in Austria, receive an education in Austria, and work in Austria, be required to pay US taxes? Especially if she never even lives there? My family in the US was also surprised to learn this. It felt like a hidden-in-plain-sight secret.

Tax Reporting Obligations for US Children Born Abroad

It turns out that children born abroad to US citizens inherit not only a love for mac & cheese but also the obligation of paying US taxes the moment they enter the workforce. That’s a hefty responsibility for a newborn!

In short: yes. A child born abroad to an American parent (US citizen) or parents will eventually be responsible for US taxes. Yes, even if they have never stepped foot on US soil. This includes all forms of income such as summer jobs, interest from savings accounts that family members have opened on their behalf, or from their first job at 16, assuming they meet the filing thresholds.

Additoinal Reporting Obligations

Your child born abroad will also be required to report via FACTA just like an adult US citizen. This is also known as the Federal Account Tax Compliance Act. This federal law requires foreign financial institutions, such as banks, to report data about their American account holders’ finances to the US. When applying to open a bank account in a foreign country, the bank or financial institution must comply with FACTA. Some banks abroad will refuse to allow a US citizen (even if they have dual citizenship) to open an account with them because they simply do not wish to comply with US law, an issue I have faced here in Austria.

However, if you have already been living abroad, chances are that you have an account with a local bank and have filed out the FATCA form when opening said account. It would be best to open an account for your child at the same bank!

Here we must point out something that pro-expats are already aware of, but for us, newbies also came as a shock: the FBAR. Once known as the Foreign Bank Account Report, today it’s officially The Report of Foreign Bank and Financial Accounts. Any American, including our accidental American children, must report to FinCEN if they had more than $10,000 in accounts outside of the US at any point in the tax year.

An easy example would be: your 17-year-old has been working for the last three summers at a local farm. They have been quickly saving money from their summer job, doing odd chores around the house, and depositing the money into their Austrian bank account. They have worked hard and now have $10,160 in their account; that amount must be reported on Form 114, the FBAR to FinCEN.

Can Children Born Abroad Renounce their US Citizenship?

Many parents are shocked that their teen, working a summer job abroad, is required to file taxes and may feel incredibly frustrated, wondering how they can push a teenager to file taxes when they don’t even clean their room. Renouncing their citizenship may be a temptation, but we are here to remind you that this is only possible when they are 18 and can truly understand what that entails.

It’s okay if you are feeling overwhelmed or wondering if it’s already too late to help your teen catch up on their US tax duties. Trust me, I understand! The good news is, it’s not too late at all. The IRS has a process called, The Streamlined Procedure to help expat and accidental Americans catch up on their taxes and become ‘tax compliant’ once more! You can read more about the Streamlined Procedure here.

Set your US Citizen Child Up for Success

To avoid the stresses I went through, you’ll want to ensure your US child born abroad has all their ducks in a row. To break it down, here are the steps you should follow shortly after giving birth to your US child abroad:

1. Apply for a local passport and birth certificate (if applicable)
2. Apply for their US passport, consular report of birth abroad, and social security number at your nearest US embassy
3. Place all documents and paperwork in a safe folder, marked with a title that will best help remind you, such as: US Documents for ‘child’s name.’
4. Research US-compliant banks and financial institutions in your area
5. Wait until they have an income and remind them of their US tax obligations
6. Catch up on your own US taxes if you haven’t been tax compliant since moving abroad

The positive of this that you, as a parent, can claim US Child Tax Credits. That includes up to $1,400 per child of refundable credit!

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Let the Expat Tax Professionals Help

If you need more assistance or have tax-related questions: MyExpatTaxes are here to help! We can also help ensure you receive any Child Tax credit funds you may be eligible for! We are here to support all Americans overseas, accidental and otherwise.