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.

The Child Tax Credit

The Child Tax Credit allows parents to deduct $1,000 from their U.S. tax bill for each of their children. To qualify, the children must be 16 years old or younger at the end of the relevant tax year, they must be U.S. citizens and they must have a U.S. social security number or ITIN (Individual Taxpayer Identification Number).

So an expat with a U.S. tax bill of $5,000 and three qualifying children could reduce their tax bill by $3,000 using the Child Tax Credit.

However, expats who claim the Foreign Earned Income Exclusion can’t also claim the Child Tax Credit, so expat parents paying taxes abroad and currently claiming (or thinking of claiming) the Foreign Earned Income Exclusion should consider whether they would be better off claiming the Foreign Tax Credit and the Child Tax Credit instead.

The Additional Child Tax Credit

The Child Tax Credit is nonrefundable however, meaning that if after you claim it your U.S. tax liability becomes less than zero, so that a refund payment is due, you won’t in fact receive this refund.

In this situation you can claim the Additional Child Tax Credit. (The ‘Additional’ part of ‘Additional Child Tax Credit’ doesn’t refer to additional children, but means additionally to the regular Child Tax Credit).

The Additional Child Tax Credit helps expat parents to claim the refund payment that they miss out on because the regular Child Tax Credit isn’t refundable. The amount that can be claimed also depends on the amount of the parents’ earned income.

The Child and Dependent Care Credit

The Child and Dependent Care Credit allows parents who pay for child care to claim a tax credit of up to $600 per child (i.e. they can reduce their tax bill by this amount). Again it cannot be claimed as well as the Foreign Earned Income Exclusion, however it can be a useful addition to the Foreign Tax Credit, Child Tax Credit, and Additional Child Tax Credit.

There are several conditions worth noting though: the child care claimed for must have been for a child aged 12 or younger who is your dependent; it must have been provided so that one or both parents could work (or look for work); and it must have been paid for out of your earned income.

Catching up with your U.S. expat taxes

Since FATCA, the IRS now has global reach, so we strongly recommend that expats who weren’t aware that they are required to file U.S. taxes should consider the Streamlined Procedure, an IRS amnesty program that allows Americans living abroad to catch up on their U.S. tax and FBAR filing without facing any penalties.