The child tax credit is a key tool for U.S. families. Its goal is to ease the tax burden on parents with dependents under 17 years old, and in some cases, it can also result in a cash refund.
In summary, this credit not only reduces the taxes you owe, but it can also refund money directly to you. Starting in 2025, the maximum credit limit will be $2,000 per child, of which up to $1,700 will be refundable, according to the Internal Revenue Service (IRS). But, as always, there are conditions to meet.
What is the Child Tax Credit and how does it work?
To apply for the child tax credit, you must meet certain income-related requirements. These are the current limits: if you file as single, your annual income must not exceed $200,000. If you file jointly with your spouse, the limit is $400,000 annually. Additionally, the child for whom you are claiming the credit must be your dependent and under 17 years old.
What if you live outside the United States?
Child Tax Credit $100 Bonus for Children Under 15: Available Only for the New Year
Here comes the key question: what happens if you are a U.S. citizen living in another country? Can you still benefit from this tax credit? The answer is yes. Your geographical location does not directly affect your eligibility for the CTC. However, there are important nuances to keep in mind.
If you work outside the U.S. and claim the Foreign Earned Income Exclusion (FEIE), your excluded income will not count toward calculating the tax credit. This could limit the amount you are entitled to.
Foreign earned income exclusion and its impact on the credit
When you choose to exclude your foreign income using Form 2555, the calculation of the CTC is affected. This is because the credit depends on your taxable income in the U.S. If you exclude a large portion of your income, you may not meet the minimum requirement to receive the refundable credit.
If you opt not to claim the exclusion and keep your income reported in the U.S., you could qualify for a higher refund. According to projections for 2025, this amount could go up to $1,400 per child.
Additional Child Tax Credit: A Refundable Extra
The Additional Child Tax Credit (ACTC) is an option for those who do not owe taxes but have earned income. This credit allows for a cash refund, even if you do not have any tax liability to reduce.
The ACTC is designed to support families with lower taxable incomes. If you work and earn income, you could qualify for this benefit even if your taxes are zero.
The Importance of Consulting an Expert
U.S. tax laws are complex, and when factors like living abroad come into play, things can become even more complicated. If you have doubts about your eligibility for the child tax credit or how to report your income, it’s best to consult with an international tax specialist.
An accountant experienced in expatriate cases can help you maximize your tax benefits while complying with IRS regulations. Additionally, they will guide you in the decision of whether or not to claim the foreign earned income exclusion.