Guest post by John Ohe, IRS Enrolled Agent and chartered Financial Analyst.
For many expat families with children under 17 years of age, it is possible to get a “refund” from the IRS without having paid any U.S. taxes. This wonderful subsidy is called the Child Tax Credit. Basically, it’s money that the U.S. government provides to middle income families to help with the cost of raising kids. The Child Tax Credit can be worth as much as $1,000 per child.
Let’s take a look at a couple of examples:
Nancy and John – Nancy works, and John is a stay-at-home dad
Nancy and John have 3 children, all under the age of 17. Nancy earns $30K per year. The family does not have any additional income. At this level, Nancy and John do not owe any income tax (because their income level falls below standard deduction and exemptions). However, they can expect a check (or direct deposit) from the IRS in the amount of $3,000 – assuming Nancy and John file their tax return.
Susan and David – Both Susan and David work
Susan and David also have 3 children, all under the age of 17. Susan earns $100K per year as a consultant. David works at a non-profit and earns $30K per year. With a combined income of $130K, this family is earning well above middle class income. The Child Tax Credit normally begins to phase out at $110K in income. However, many U.S. expats have the advantage of exercising the foreign earned income exclusion (FEIE).
Susan qualifies for the FEIE, and will basically wipe out all of her income on their tax return. David will purposely not exercise the FEIE, so that his income will qualify the family to receive the Child Tax Credit. Same as with Nancy and John, Susan and David can expect a check (or direct deposit) from the IRS in the amount of $3,000.
Can I get money back from past years?
Yes. However, there is a 3-year statute of limitation, after which one cannot claim a refund. Therefore, one has until April 15, 2015 to file a 2011 tax return (which was originally due on April 15, 2012).
Tax Deadline Reminder
• April 15th – interest on any taxes owed begin accruing
• June 15th – due date for filing without the risk of a late penalty
• October 15th – due date if you filed an extension
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All responses are provided by John Ohe (IRS Enrolled Agent and Chartered Financial Analyst).
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Disclaimer: The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved.