Many American parents benefit every year thanks to US child tax credits. 2023 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 2022 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 2022 taxes
Broken into two main categories:
—plus a bonus a bit of ‘Extra Credit’ for Parents with Children Born or Adopted Children
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 but in 2023, they are no longer being given out.
The Additional Child Tax Credit is still being offered to families who file for it. However, 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 2022 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 2022.
Applies to Everyone – in the US and abroad
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 has decreased
In 2023, while filing your 2022 tax return, you can claim children who were under the age of 17 by December 30th, 2022. Be mindful, that in tax year 2021, they allowed for children up to 18 years old, that no longer applies in tax year 2022.
2. The refundable amount has increased to $1,500 per qualifying child
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 $1,500 as a tax refund.
3. The deductible amount of the Child Tax Credits has decreased
As Americans abroad, you can deduct the full amount of the child tax credit, which is again $2,000 for qualifying children 17 years old or younger. In tax year 2021, the amount nonrefundable amount was up to $3,600 per child, however that is no longer the case.
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
Only for those filing a 2021 tax return.
It’s true. As an expat abroad, you may be used to filing without owing US taxes. However, in 2021, 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), you would need to pay any difference.
EXPAT TAX TIP: If you think you may owe US taxes in 2023, 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
Only for those filing a 2021 tax return.
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 30th, 2022
- 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 17 on Dec 30th, 2022
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 2023. However, there are still limits if you have a high adjusted gross income (AGI).
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.
No difference between expat families vs. US families
Unlike in tax year 2021, there is no difference in the child tax credit for families who lived in or outside the US.
The total credit amount is increased:
The new Child Tax Credit amounts are:
- $2,000 for children under the age of 17
The refundable portion has also increased
Normally, 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 2022 tax year, the refundable portion increased to $1,500. However the minimum earned income amount will still apply.
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 2022 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:
- Before and after-school care programs
- In-home Care Providers
2. It’s a reimbursement of up to 50% of care costs
If you have one qualifying dependent, you can claim a maximum of $3,000 in expenses. If you have two or more qualifying dependents, you can claim a maximum of $6,000 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 no longer refundable.
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 though. In tax year 2021, if you lived a majority in the US, you could have actually seen a refund from this credit.
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 2022
Pun intended! We know—Dad joke. We just couldn’t help ourselves.
If you welcomed a child in 2022 could be eligible to claim the Child Tax Credit, and The Child and Dependent Care Credit! That’s a possible additional $1,500 in the bank.