Child Tax Credit for U.S. Expats: How to Qualify for Refund

Estimated reading time: 10 minutes

Table of Contents

• What is the Child Tax Credit for U.S. Expats?
• Eligibility Rules for U.S. Expats Claiming the Child Tax Credit
• Understanding the Refundable Additional Child Tax Credit (ACTC)
• How the Foreign Earned Income Exclusion (FEIE) Impacts the Credit
• Filing Requirements—Getting it Right: Form 1040 & Schedule 8812
• Common Mistakes U.S. Expats Make When Claiming the Child Tax Credit
• Practical Tips to Maximize Your Child Tax Credit as a U.S. Expat
• How Our Tax Consulting Services Help U.S. Expats Claim the Child Tax Credit
• Frequently Asked Questions About the Child Tax Credit for U.S. Expats
• Conclusion - Make the Most of the Child Tax Credit for U.S. Expats

What is the Child Tax Credit for U.S. Expats?

The Child Tax Credit (CTC) is a powerful tax benefit designed to reduce the tax burden on families with qualifying children. As of the 2023 tax year, eligible taxpayers can claim up to $2,000 per qualifying child under the age of 17. The IRS: Child Tax Credit (CTC) details explain that the CTC is partially refundable, meaning, even if your tax liability is less than the credit, you may receive a portion as a refund.

For U.S. expats, claiming the CTC is possible but comes with specific rules and challenges. Understanding how to qualify and maximize the credit can result in significant savings when you’re living and working abroad.

Eligibility Rules for U.S. Expats Claiming the Child Tax Credit

1. Qualifying Child Requirements

Your child must meet all of the IRS criteria, which include:

• Age Test: The child must be under 17 at the end of the tax year.
• Relationship Test: The child must be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of these.
• Dependent Test: You must claim the child as a dependent on your tax return. The child cannot provide more than half of their support.
• Citizenship Test: The child must be a U.S. citizen, U.S. national, or U.S. resident alien. Many expats mistakenly believe residency abroad disqualifies them, but this isn’t true if the child has the correct status.
• Residency Test: The child must have lived with you for more than half the tax year, although exceptions exist for certain temporary absences due to education, illness, or travel.

More information is available in the IRS, "Who Qualifies - Child Tax Credit?"

2. Income Requirements and Phaseouts

To claim the CTC, your modified adjusted gross income (MAGI) must be below certain thresholds:

• Single Filers: Less than $200,000
• Married Filing Jointly: Less than $400,000

The credit begins to phase out above these levels at a rate of $50 for each $1,000 above the threshold.

3. Social Security Number Requirement

Each child you claim for the CTC must have a valid Social Security Number before the due date of your return. Individual Taxpayer Identification Numbers (ITINs) do not qualify for the main CTC (but may for the Credit for Other Dependents).

Understanding the Refundable Additional Child Tax Credit (ACTC)

If your tax owed is less than the total allowable Child Tax Credit, you may be eligible to receive the balance as a refund, thanks to the Additional Child Tax Credit (ACTC).

Key points:

• The refundable portion is worth up to $1,500 per qualifying child for the 2023 tax year.
• Unlike the nonrefundable CTC, the ACTC puts real dollars in your pocket, even if you owe no U.S. tax.

To determine the refundable amount, complete Schedule 8812 (Credits for Qualifying Children and Other Dependents) with your Form 1040 return.

IRS, "Instructions for Schedule 8812 (Form 1040)"

How the Foreign Earned Income Exclusion (FEIE) Impacts the Credit

One of the most common complications for U.S. expats involves the interplay between the CTC/ACTC and the Foreign Earned Income Exclusion (FEIE). The FEIE, claimed on Form 2555, allows Americans abroad to exclude up to $130,000 per person (for 2025) in foreign earned income from their U.S. taxable income.

However, here is the crucial catch:

• When you use the FEIE to reduce your taxable income to zero (or below your tax liability), you may become ineligible for the refundable ACTC. That’s because to claim the ACTC, you must have tax liability left after applying credits and exclusions.

In detail:

• If all your foreign-earned income is excluded under FEIE, you may have no earned income left for CTC calculations.
• The Additional Child Tax Credit is only available to taxpayers who have earned income, so claiming the entire FEIE may erase eligibility for both the CTC and ACTC.

For more in-depth information on the FEIE and its implications, see the IRS Foreign Earned Income Exclusion Overview.

Practical Example

Suppose you're an expat family with $100,000 in earned income and three qualifying children. If you use the FEIE to exclude all $100,000, your taxable income and thus your ability to claim the refundable credit could be wiped out. In such situations, it may be better to forgo or reduce the FEIE or consider the Foreign Tax Credit to maximize the value of the CTC/ACTC.

Filing Requirements—Getting it Right: Form 1040 & Schedule 8812

Step 1: File with Form 1040

All U.S. citizens and resident aliens are required to file a U.S. tax return on Form 1040, regardless of where they live. This annual return is your starting point.

• Indicate your expat status and provide all required income information, including worldwide income.

Step 2: Complete Schedule 8812

Schedule 8812 determines the amount of both the nonrefundable CTC and any potential refundable ACTC. Make sure to:

• List all qualifying children with valid Social Security Numbers.
• Enter your earned income carefully, ensuring accurate treatment of any exclusions or credits.
• Calculate the nonrefundable credit first, then determine any refundable portion.

Detailed filing instructions are available from IRS: "Instructions for Schedule 8812 (Form 1040)"

Step 3: Attach Other Relevant Forms

If you’re claiming the FEIE, file Form 2555. If claiming the Foreign Tax Credit, include Form 1116. Ensure every relevant adjustment is reported, as missing information could raise IRS red flags.

Common Mistakes U.S. Expats Make When Claiming the Child Tax Credit

1. Selecting the Wrong Exclusion or Credit

Choosing FEIE or the Foreign Tax Credit (FTC) without careful analysis can inadvertently eliminate your CTC or reduce its value. Always compare scenarios.

2. Claiming Ineligible Children

All claimed children must have valid Social Security Numbers and meet qualifying criteria. Many expats incorrectly assume a dependent with an ITIN is sufficient.

3. Misunderstanding 'Residency' for Children

Being an expat may complicate the residency requirement. Temporary absences (school, medical, business) can count towards “time lived with you,” but documentation is key.

4. Filing Incorrect Forms or Missing Schedules

Forgetting to attach Schedule 8812 or incorrectly completing Form 1040 is a common error among self-preparers.

5. Missing Out on Retroactive Credits

Unaware that the CTC/ACTC can sometimes be claimed retroactively within the statute of limitations (three years from the filing deadline), some expats miss out by never amending past returns when they become eligible.

6. Incomplete or Disorganized Records

Failing to keep organized documentation of income sources, residency, and dependent status may slow or jeopardize your refund.

Practical Tips to Maximize Your Child Tax Credit as a U.S. Expat

1. Weigh FEIE vs. Foreign Tax Credit Carefully

Before excluding your entire income with FEIE, calculate the value of the CTC and ACTC you may lose. Sometimes, using the Foreign Tax Credit (FTC), which directly offsets U.S. tax liability for foreign taxes paid, may yield a better net refund or lower tax bill.

• Tip: Prepare your return both ways (with FEIE and with FTC) or consult an expat tax professional to calculate optimal results.

2. Review Children’s Social Security Numbers

Submit applications for U.S. Social Security Numbers well before the filing season if your qualifying children do not have them.

3. Maintain Detailed Records

Keep copies of:

• Foreign and U.S. income statements
• Housing, school, or medical records showing your child’s residency
• Proof of tax payments in both countries (if using FTC)
• Travel documents to verify presence abroad and time with your child

4. File On Time Or Request Extensions

For expats, the regular filing deadline is June 15, with the option to request further extensions. However, interest still accrues after April 15. Timely filing helps maximize refunds and avoid penalties.

5. Examine Past Returns

If you believe you were eligible for the CTC in previous years but did not claim it, consider amending older returns for up to three years back.

6. Stay Informed on Tax Law Changes

The CTC rules (like phaseouts, refundability, thresholds) have changed repeatedly in recent years, especially due to COVID-era tax law shifts. Follow updates from the IRS or reputable expat tax consultants.

How Our Tax Consulting Services Help U.S. Expats Claim the Child Tax Credit

Navigating the intersection of U.S. and foreign tax laws can be daunting, especially when valuable credits like the CTC are on the line. As specialists in individual tax and small business tax planning, we support expats in the following ways:

• Comprehensive Tax Analysis: We’ll assess your eligibility for the CTC and ACTC, considering your unique family and income situation.
• FEIE vs. FTC Optimization: Our tax experts can model both scenarios (using FEIE or FTC) to find your maximum refund and minimize your global tax bill.
• Precise Filing: Our experienced preparers complete Form 1040, Schedule 8812, Form 2555, and all required attachments to eliminate costly mistakes and IRS delays.
• Ongoing Education: We provide timely updates and personalized advice on changing laws to keep you compliant and optimize your returns year after year.

Frequently Asked Questions About the Child Tax Credit for U.S. Expats