The Child Tax Credit for Expats: Are You Eligible?

The Child Tax Credit for Expats: Are You Eligible?

The Child Tax Credit can help parents reduce their US tax bill while living abroad. The credit helps offset the cost of raising children, including everything from food and clothing to school expenses and childcare.  But is the Child Tax Credit available for expats? Let’s find out! 

Key Takeaways

  • The Child Tax Credit is a tax credit that parents can use to deduct a certain amount from their taxes. 
  • While the American Rescue Plan changed the terms of the Child Tax Credit for tax year 2021, it has reverted to its standard terms since 2022. 

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 qualify for the Child Tax Credit, they could reduce their US tax obligation by $4,000. 

The 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. However, in 2021, the rules were temporarily changed. For many Americans, the 2021 Child Tax Credit was an improvement over the standard credit of other years. But do those changes still apply? 

Do the Rules of the 2021 Child Tax Credit Still Apply?

Unfortunately, the American Rescue Plan’s temporary changes to the Child Tax Credit expired at the end of 2021. Since 2022, the Child Tax Credit has reverted to the standard parameters. 

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 qualified for the full benefits of the 2021 Child Tax Credit, not everyone did. For example, if your Modified Adjusted Gross Income (MAGI) was 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
Important

The standard parameters apply for Child Tax Credit for the 2022 tax year.

Can You Claim the Child Tax Credit While Living Abroad?

Yes, expats can claim the Child Tax Credit for qualifying children. The rules for eligibility are the same regardless of where you live. However, if you claim the Foreign Earned Income Exclusion (FEIE), you may not be eligible to claim the full Child Tax Credit. (More on this below.) 

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Can You Claim the Child Tax Credit if Your Child Lives Abroad?

We 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, 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 FEIE when filing their US taxes. The FEIE lets Americans living abroad exclude their foreign-earned income up to a threshold. For income earned in 2022, that threshold is $112,000; for income earned in 2023, the threshold increases to $120,000.   

However, you must show taxable earned income on your US tax return to qualify for the Child Tax Credit. If you use the FEIE to exclude your entire income from US taxation, you will not be eligible to claim the Child Tax Credit. If you use the FEIE but do not exclude your entire income, you can claim the Child Tax Credit but cannot receive the refundable portion of the 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 many cases, this will allow you to erase your US tax obligations while still receiving the Child Tax Credit as a refund. 

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— Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.

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