The US Child Tax Credit – Guide For American Expats

The child tax credit can be a significant financial benefit for expat families abroad. Living abroad does not preclude you from claiming the child tax credit for qualifying dependent children under the age of 17.

If you don’t owe US taxes, you might even be eligible to get a refund for a portion of the child tax credit. But be aware of the impact of the Foreign Earned Income Exclusion (FEIE).

To claim the credit, you must meet the requirements and file your US tax return. Here we explain the child tax credit, who is eligible for it, and how expats can claim it.

What Is The Child Tax Credit?

The Child Tax Credit is a federal tax credit that was created to support families with qualifying children.

The maximum amount is $2,000 per eligible child under the age of 17.

In general, the child tax credit (CTC) is a non-refundable tax credit. This means that it reduces the amount of tax you owe on a dollar-for-dollar basis, but you won’t get a refund from the IRS for this amount if you don’t owe tax.

However, you might be able to apply for a refund for unused credit of up to $1,700 per qualifying child (2024 tax year). This refundable portion of the child tax credit is also called additional child tax credit (ACTC).

Child Tax Credit 2021

The American Rescue Plan Act stimulus bill of 2021 increased the credit temporarily to up to $3,600 for children under the age of 6 and $3,000 for children ages 6-17 (under the age of 18) for the 2021 tax year.

This provision was not extended to 2022.

Important for Americans abroad, only taxpayers who had a principal place of abode or residence in the United States for more than six months of 2021 were eligible.

Can Americans Still Claim The Credit When Living Abroad?

Yes, expats can still claim the child tax credit if they meet the criteria. To claim the child tax credit, you must file a US tax return and list the dependent child(ren). In addition, their names, social security number, and relationship to you, are provided on Schedule 8812.

Importantly, expats should know that they need to have taxable earned income to qualify for the credit. If they use the Foreign Earned Income Exclusion (FEIE) to exclude all their income from US income tax, they cannot claim the refundable portion of the child tax credit.

We explain in a moment how expats can reduce their US taxes without the FEIE and claim the refundable portion of the child tax credit.

Can You Claim The Child Tax Credit Retroactively?

You can claim the child tax credit for up to three years after the filing due date. So, if you were unaware of it, you can amend prior year returns.

If you haven’t file US taxes at all because you were below the filing thresholds, you can still file your last 3 years returns to claim the tax credit. Note that you need at least $2,500 total earned income (2022) to claim the refundable portion of the CTC.

However, if you exceeded the filing thresholds but didn’t know you had to file your US taxes, you can catch up on prior years using the IRS Streamlined Program. With the Streamlined Program, late filing penalties can be waived.

Who Qualifies For This Tax Credit?

US taxpayers must be a US citizen, green card holder, or resident alien to be able to claim the credit. It is not available to non-resident aliens.

They can claim the credit for each qualifying child that meets the following criteria:

• Is under the age of 17 at the end of the year (except for tax year 2021, where it was under 18).
• Is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece, or nephew).
• Has a US Social Security number that is valid for employment and was issued before the due date of the tax return (including extensions).
• Provides no more than half of their own financial support during the year, meaning you provide at least half of their support.
• Has lived with you for more than half the year.
• Is properly claimed as your dependent on your tax return.
• Does not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid.
• Is a US citizen, US national, or US resident alien.

Income Thresholds For The Child Tax Credit

The child tax credit is subject to income limits. To get the full amount of the Child Tax Credit for each qualifying child for the 2022 tax year, your modified adjusted gross income (MAGI) must be below $200,000 ($400,000 if filing a joint return).

The credit phases out above those thresholds. That means, parents and guardians with higher incomes may be eligible to claim a partial credit.

You can claim the child tax credit for up to three years after the filing due date.

Child Tax Credit And Foreign Earned Income Exclusion

As mentioned earlier, to claim the refundable portion of the child tax credit, you need unexcluded taxable income. Many expats use the Foreign Earned Income Exclusion (FEIE) to exclude all their wages from US taxation. This is not always the best approach, especially if you live in a country with high taxes.

An alternative tax optimization strategy is the Foreign Tax Credit. This gives you a dollar-for-dollar credit on your US taxes for the taxes you paid abroad. Because you don’t’ exclude the income from US taxation, you can apply for a refund of unused child tax credit. Another advantage is that you can make IRA contributions when you have unexcluded income.

Expats that previously used the Foreign Earned Income Exclusion but would’ve been eligible for a tax credit if they had unexcluded income, can amend their prior returns. There are restrictions on switching back and forth between using and not using the FEIE, so make sure you make an informed decision.

Consult with an experienced expat tax accountant to see if the FEIE or the Foreign Tax Credit is more beneficial in your specific situation.

And remember, even if you don’t owe income tax, you may still get up to $1,500 per child as a refund.