For many Americans, the 2021 Child Tax Credit will be an improvement over the standard credit of other years. But is the Child Tax Credit available for expats? Let’s find out!
What Is the Child Tax Credit?
The Child Tax Credit lets parents deduct a certain amount from their US tax bill for every qualifying child they have—typically $2,000 per child. For example, if a couple has two children that qualified for the Child Tax Credit, they could reduce their US tax obligation by $4,000.
The standard Child Tax Credit is partially refundable, as well. Even if you don’t owe taxes, you can receive up to $1,400 per child as a tax refund.
That means that if a couple owes no US taxes and has two children that qualify for the Child Tax Credit, they would be eligible for a tax refund of $2,800.
So how do you know if your child qualifies? In most cases, they must:
- Be a US citizen
- Have a valid Social Security number
- Be 16 years or younger at the end of the tax year in question
- Live with the parent claiming the credit for at least half of that year
Those are the usual parameters for the yearly Child Tax Credit. But what’s changing this year?
How Is the 2021 Child Tax Credit Different From Other Years?
In March of 2021, President Biden signed the American Rescue Plan, a $1.9 trillion stimulus package designed to help ease the economic burdens of the COVID-19 pandemic. One of the ways in which the American Rescue Plan does this is by making temporary changes to the Child Tax Credit for some parents.
These changes include:
- Raising the maximum age for a qualifying child from 16 to 17
- Increasing the Child Tax Credit amount to $3,600 for each qualifying child ages 0–6 and $3,000 for each qualifying child ages 7–17
- Making the Child Tax Credit fully—rather than partially—refundable
- Allowing parents to receive up to half of their Child Tax Credit in advance through six monthly payments from July 2021 to December 2021
As you can see, there are quite a few upgrades involved. However, while many American families will qualify for the full benefits of the 2021 Child Tax Credit, not everyone will. For example, if your Modified Adjusted Gross Income (MAGI) is higher than:
- $150,000 when filing jointly as a married couple or surviving spouse
- $112,500 when filing as head-of-household
- $75,000 when filing as single
…then the maximum amount you can claim will be reduced.
Still, even if your MAGI is well above the threshold for the 2021 Child Tax Credit, you may still be eligible for the standard amount of $2,000 per qualifying child.
Can You Claim the Child Tax Credit While Living Abroad?
American expats living abroad are generally able to claim the Child Tax Credit—and possibly even the 2021 upgrades. Some caveats may apply, however.
To be clear, all expats can claim the standard Child Tax Credit for their qualifying children. However, to get the benefits that the American Rescue Plan adds to the 2021 Child Tax Credit, you must have lived in America for at least half of the year.
This means that unless your main residence was in the US for six months in 2021, you will not be eligible for the increased credit amounts or advance monthly payments. Furthermore, any credit you can claim will only be partially refundable.
Can You Claim the Child Tax Credit if Your Child Lives Abroad?
We already know that American parents living abroad may be eligible for at least the standard Child Tax Credit. But what if your children are living abroad instead of you?
Well, in order for a child to qualify, you must be able to claim them as a dependent. Among other factors, this requires that:
- They are a close relative, such as a son, daughter, stepchild, foster child, grandchild, sibling, niece, or nephew
- They lived with you for more than half of the year
- They provided less than half of their own support
If these are true for your child living abroad, you may be able to claim a Child Tax Credit on their behalf. Otherwise, it won’t be an option for you.
Can US Expats Also Claim the Foreign Earned Income Exclusion?
Many expats use the Foreign Earned Income Exclusion (FEIE) when filing their US taxes. The FEIE lets Americans living abroad exclude their foreign-earned income up to a threshold. For 2021, that threshold is $108,700.
But if you use the FEIE, you will not be able to claim the refundable portion of the Child Tax Credit. If you have children that qualify for the Child Tax Credit, you may be better off using the Foreign Tax Credit rather than the FEIE. In some cases, this will allow you to erase your US tax obligations while still receiving the Child Tax Credit as a refund.
If you’re not sure what options are best for you, speak to a professional.
Still Have Questions About the Child Tax Credit for Expats?
Hopefully, this article has helped give you a better understanding of the Child Tax Credit for expats. It can be a complicated topic, however. If you still have questions about the Child Tax Credit—or anything else related to taxes for Americans living abroad—we’d be happy to answer them.
At Greenback Expat Tax Services, we’ve spent years helping expats file their taxes correctly and on time. Just contact us, and we’ll optimize your tax strategy so you only pay what you truly owe—and not a penny more. Get started on your Expat Taxes with Greenback.