An American family abroad has the opportunity to discover new places and create positive experiences with their children. However, when it comes to taxes, these experiences abroad can quickly go downhill.
What most families don’t realize though, is that it may be worth all the tax filing stress!
An American family abroad can claim tax benefits, like the Additional Child Tax Credit, which results in a tax refund. Yes, even when you don’t work or pay taxes in the US anymore, you could still be eligible for a US tax refund. The refundable portion is up to $1,400 per qualifying child if you lived outside the US for more than half the year.
The FEIE and American Families Abroad
Most US expats use the Foreign Earned Income Exclusion (FEIE) as it’s a common practice among US expat tax firms, however, this will prevent you from getting the refund you are due! Per the IRS regulations, those using the FEIE cannot claim the refundable portion of the child tax credit.
Don’t know what the FEIE is? It allows you as a US expat the opportunity to exclude up to $108,700 a year of foreign earned income from US taxation. We have written about a more in-depth example here if you want to read about someone living and working out of Spain!
FEIE may be a pretty straightforward way to file your tax return, but there is also a different method to reduce your US tax liability to $0 though as a US Expat! The Foreign Tax Credit (FTC) approach allows you to get a dollar for dollar (euro, pound, yen, etc.) credit from the income taxes paid to your host country against your US taxes owed.
We explain more in depth here about the FTC, but essentially, using this credit will work best for those living in higher tax countries (i.e. the European Union).
The Child Tax Credit for American Families Abroad
So what is this Child Tax Credit? American parents can get up to $3,600 credit for each child under 6 and $3,000 for each child 6-17 who have valid US Social Security Numbers (not ITINs). This means, for every child you have, you can take off as much as $3,600 off your tax bill if you owe taxes. And if you don’t owe US taxes like most expats who file correctly, then $1,400 (per child) of this credit is refundable.
Additionally, if you were only an expat for part of the year, you could get even more. Anyone who lived in the US for more than 50% of 2021, can receive the full credit amount as a refund! Not only $1,400 per child, but up to $3,600 per child can be claimed as a tax refund.
How is this possible? Well, like many other countries, the US will provide financial assistance to parents in the form of tax credits and refunds, regardless of where they live and work.
So if you have a qualifying child you might be able to get money back even if you don’t pay any income taxes to the US, MyExpatTaxes will quickly figure out if you can get this refundable credit of up to $3,600 per child per year. And if you’ve filed using FEIE, MyExpatTaxes will be happy to file the amendments for you to switch you over to the FTC.
Need a Helping Hand?
As an expat family, having a helping hand like MyExpatTaxes may be what you need during tax season. Our customer support team and software service will help you see just how much refundable credit you can earn and the kind of tax credit you can receive as an American family living abroad.
This post was originally published in The American Magazine.