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Tag Archive for Child Tax Credit

What Is Child Tax Credit And How To Claim It On U.S. Expat Tax Return

Olivier Wagner On Child Tax Credit

As a U.S. expat parent, you can claim The Child Tax Credit available for individuals with a qualifying child. A tax credit is better and more valuable than a deduction. Are you wondering why? Because it creates a dollar-for-dollar reduction of your tax bill as a subtraction from actual taxes you owe. Another advantage of Child Tax Credit is a refund. It means you can get your money back and not just a subtraction of taxes owed. The story of CTC starts back in 1998 when it was introduced as a small non-refundable credit of 400 USD. Read further to learn what CTC is in 2019 and who can benefit from it. 

What are the changes to the Child Tax Credit in 2018-2019?

Tax Cuts and Jobs act introduced a few important changes to the Child Tax Credit in 2018-2019. Generally speaking, Uncle Sam has been generous to taxpayers who have children and have U.S. tax filing obligation. Trump’s tax reform actually sort of merged Child Tax Credit and Additional Child Tax Credit. It also decreased the earned income threshold and even introduced new credit for other dependents. 

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How To Determine If You Are Eligible For A Child Tax Credit

You are eligible for the Child Tax Credit if you have a qualifying child/children and you have earned income, according to the IRS requirements, which are:

  1. Your child is aged 16 years or younger, as of December 31 of the tax year.
  2. Your child is a U.S. citizen, U.S. National or U.S. Resident Alien and has a social security number. There is an exception for an adopted child.
  3. You have $2,500 of earned income as an employee or from self-employment. This is down from $3,000 prior to the new Tax Cuts and Jobs Act (TCJA).
  4. The amount of the credit is tied to the amount of your earned income.
  5. The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies, depending on your filing status.
  6. For individual filers, the phase-out begins at $200,000 ($400,000 for joint filers).

Starting with tax year 2018, the Child Tax Credit will allow you to reduce your federal income tax by up to $2,000 for each qualifying child.

$1,400 of which is a refundable credit, expats who managed to bring their tax owing down to zero by using the foreign tax credit would therefore receive a refund of $1,400. This amount will be adjusted for inflation after 2018.

Your child must be your son, daughter, stepchild, foster child, sibling, stepsister/brother or a descendant of any of these individuals. A legally adopted child is treated as your own child. The child must not have provided more than half of their own support and you need to claim them as a dependent on your federal tax return. The qualifying child should have lived with you for more than half of the tax year, and there are some exceptions to the residence test.

Have a tax question? Contact Olivier Wagner.

 

How To Prepare Taxes For Deferred Action For Childhood Arrivals (DACA) Recipients

On June 15, 2012, the U.S. Department of Homeland Security (DHS) announced that it would not deport certain undocumented youth who came to the United States as children. Under a directive from the DHS secretary, these youths may be granted a type of temporary permission to stay in the U.S. called “deferred action.” The Obama administration called this program Deferred Action for Childhood Arrivals, or DACA. This article is designed to provide guidance for tax professionals preparing and filing tax returns for DACA recipients.

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The Child Tax Credit For Americans Living Abroad

American Expat parents can potentially take advantage of not just one but three U.S. Child Tax Credits, depending on their circumstances: the Child Tax Credit, the Additional Child Tax Credit, and the Child and Dependent Care Credit. In this article we outline when and how all three can be used, and what conditions need to be fulfilled to claim them. Read more

Tax Changes Coming In 2017: What U.S. Expats Need To Know

Ephraim Moss

While the past year did not produce any monumental changes to U.S. tax law, there are a number of noteworthy changes that expats should keep in mind as we enter 2017. We also share a few highlights from President-elect Trump’s current tax plan.

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Earned Income Credit & Other Credits

Debra Thompson

Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

Last year, an estimated 21 million taxpayers received approximately $37.5 billion in EITC. However, the IRS estimates Read more

Claiming The Additional Child Tax Credit

Child Tax Credit - Milton Boothe

If you cannot claim the entire amount of your child tax credit because it exceeds your tax, don’t be discouraged, because you may be able to claim the unused portion as an additional child tax credit. The additional child tax credit is a refundable credit, and is available to you whenever you cannot claim the entire amount of the child tax credit.

The amount of the refund, however, may differ depending on your total earned income. It may also be affected by the amount of Social Security and Medicare taxes that were paid.

Figuring and Claiming the Credit:

The amount of the additional child tax credit that you can claim on your income tax is the lower of: Read more

Claiming The Child Tax Credit

The child tax credit is a credit given for each dependent child on your tax return, who is under the age of 17 at the end of the tax year. The child tax credit is a nonrefundable credit, and is intended to provide an extra measure of tax relief for taxpayers with qualifying children.
To qualify for this credit, you must have a qualifying child on your tax return. The rules for determining if your child is a qualifying child for the purpose of this credit are as follows:

• The child must be your son, daughter, adopted child, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them. (This includes your niece, nephew, grandchild, great-grandchild, etc.)
• The child must not provide for over half of his or her own support for the year. Read more

Expatriates And New Trade Law

New trade laws were recently enacted after President Obama signed them into law recently.

One of the provisions is affecting child tax credit claimed by certain expatriates. Under the provisions of new law, expatriates claiming foreign earned income exclusion under IRC 911 will no longer be entitled to claim refundable child tax credit. The change is effective from the tax years beginning after December 31, 2014.

Pertinent to note here that IRC 911 exclusion limit for 2015 tax year is $100,800.

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Are You Leaving Tax Money On The Table?

Each year the IRS reports about $1 billion in unclaimed refunds for individuals who did not file a tax return. The IRS estimates that approximately half of the unclaimed refunds are for amounts greater than $600. You may not have filed, thinking that because you don’t itemize and your employer is withholding tax that you don’t need to file. But there is a good chance you are leaving money on the table by not filing. Consider the following:

• Over-Withholding – Your employer may have withheld more than you owe, as withholding is not an exact science. But you have to file to get the excess back.

• Earned Income Tax Credit (EITC) – An EITC is a credit for lower-income taxpayers. If you worked and earned less than $52,427 last year, you could receive the EITC as a refund if Read more

Nonrefundable Tax Credits vs. Refundable Tax Credits

A nonrefundable tax credit is a credit that can reduce the amount of an individual’s tax liability to zero, but cannot exceed the total amount of income taxes owed. In other words, you would not receive a tax refund if the credit exceeds the amount of your tax liability. For example, if you have a nonrefundable tax credit of $5,000 and a tax liability of $3,000, the credit will eliminate the tax liability, that is, reduce it to zero. The remaining $2,000 of the credit, however, will be lost, because the IRS will not send you a refund for this amount.

Nonrefundable credits for tax year 2014 include the following:

• Credit for child and dependent care expenses.
• Child tax credit. Read more

2014 Tax Fears & Advice

With my family snugly content amidst a long holiday season I felt compelled to pen some thoughts regarding the ubiquitous United States Tax Code and all its myriad of seemingly scary changes looming around the proverbial corner. This post lists ten tax matters to be aware of in the new year that have come up in conversations with clients. It also offers four recommendations to minimize tax obligations that I’ve found myself repeatedly trumpeting whenever asked. And finishes with some quick reference tax facts.

Be Aware:

1. For 2013 the self-employment tax has reverted back to its normal 15.3% rate, and the limit for the Social Security portion of the tax has increased to $113,700. Read more