What American Expats Need to Know about the 2022 Child Tax Credit
If you are an American Expat parent, you may be eligible to claim two US Child Tax Credits, depending on your circumstances: the Child Tax Credit and the Child and Dependent Care Credit. In this article we outline when and how they can be claimed, what conditions need to be fulfilled to claim them, and also have a look at the changes introduced by President Biden in the 2021 American Rescue Plan stimulus package. Here are the things American Expats need to know about the 2022 Child Tax Credit.
US Tax Filing For American Expats
Just because you don’t live in the US doesn’t mean you are off the hook from US taxes. It all depends on how much money you earn, where you make your money, and if you have any investments or business income. American expats that earn over $12,550 in 2021, or $400 of self-employment income are required to file a US tax return. The reason for this is because the US taxes based on citizenship instead of residence. A lot of American expats also have to report their foreign bank accounts, investments, and businesses.
The expat tax rules can be very complex, but most expats can avoid double taxation either through the Foreign Tax Credit or the Foreign Earned Income Exclusion.
To determine which of these provisions would be the most beneficial to American expats would depend on certain circumstances, like their income level, which country they live in, and their residency status.
US Child Tax Credit
American expats can deduct a sizeable amount from their US tax bill thanks to the Child Tax Credit.
For an American expat’s child to qualify, the child must be 16 years old or younger at the end of the tax year and must have lived with the person claiming the credit for at least half a year. The child must also be a US citizen, and they must have a US social security number.
If your US tax liability is already zero, a refund payment can be claimed.
Can American Expats claim both the Child Tax Credit & Foreign Earned Income Exclusion?
If an American expat claims the Foreign Earned Income Exclusion, they are actually excluding their earned income from US taxation rather than eliminating or lowering their tax bill. If you qualify under the Foreign Earned Income Exclusion limit, you may have minimal or zero tax liability, depending on your tax situation and claiming the Child Tax Credit may no longer be applicable.
Child and Dependent Care Credit
The Child and Dependent Care Credit also allows American expats who pay for child care to claim a tax credit up to a certain amount. However, unlike the Child Tax Credit, the Child and Dependent Care Credit is a non-refundable credit, which means that it’s only useful to American expats in certain circumstances.
Several conditions are worth nothing though. Claiming the credit must be for childcare expenses made for children aged 12 or younger. This credit is offered in order for one of the parents could work while the child has someone looking after them. The expenses must also be paid out of your own earned income.
New expanded Child Tax Credit in 2021
President Biden passed the American Rescue Plan stimulus package in March of 2021. The package contains the Expanded Child Tax Credit for the tax year 2021 where parents can claim $3,000 per child between the ages of 6 and 17 and $3,600 for children under the age of 6. However, there is a condition that will exclude most American expats from qualifying. The provision that will prevent American expats from qualifying for the higher amount is that they need to have been a resident in the US for at least half the year.
This condition might exclude American expats from the higher credit amount but they can still claim a $2,000 credit per dependent child in tax year 2021. American expats that have eliminated their US tax bill by claiming the Foreign Tax Credit can still receive a refund per child.
Can the Child Tax Credit be claimed retroactively?
American expats can claim the Child Tax Credit for up to 3 years after the filing due date. This case is common for American expats who may have been claiming the Foreign Earned Income Exclusion as they were unaware of the refundable Child Tax Credit, who can file amended returns to claim it, as well as for expats who haven’t been filing from abroad.
Bottom line
The IRS has global reach because the US has numerous tax treaties with other nations. It is in your best interest to stay up to date with your tax compliance even if you are not in the US. There are plenty of credits and exclusions that an American expat can take advantage to avoid double taxation. The only downside is that it can get quite confusing for the common person to deal directly with the IRS regarding this matter. It would be best for you to get in touch with an experienced Enrolled Agent to help you with your American expat taxes. Lucky for you we have one of the most experienced Enrolled Agents!
