How do I receive $1,400 back per dependent, even overseas?
Updated: Jul 19, 2019
Let's say you've spoken to other tax preparers, and you were told that if you have no taxable income, which would be the case if you use the Foreign Earned Income Exclusion (IRS Form 2555), you are no longer eligible for this credit.
While it is indeed true that you cannot receive the Additional Child Tax Credit if you use the Foreign Earned Income Exclusion (FEIE) on your US federal income tax return, there are other ways for you to reduce or eliminate your US tax liability while living abroad in addition to the FEIE.
If you are living and working in a country with a higher income tax rate than the United States, you may also be eligible to use the Foreign Tax Credit method (IRS Form 1116). For the 2018 tax year, the cutoff for the phase-out of the credit has also been dramatically increased, and is now $200,000 USD for single filers and $400,000 USD for joint filers.
So if your income is be below USD$400,000 for joint filers, and you have paid taxes to Thailand (or another foreign nation) on this income, you can still receive the full $1,400 credit per child. When you use the Foreign Tax Credit, your tax return will show a taxable income (instead of the zero income you would show under FEIE), thus generating a refundable tax credit.
This method should be used for most families or single filers with dependent children under the age of 17 who have US Social Security numbers. It is essential that all dependent children have been issued US Social Security numbers prior to the year’s filing deadline (including extensions).
If the Social Security numbers have not yet been applied for, Americans residing in Thailand or elsewhere in Southeast Asia will need to contact the Social Security Administration at the US Embassy in the Philippines. Keep in mind that Americans residing abroad receive an automatic filing deadline extension until June 15th, and are also eligible to apply for an additional four-month extension, extending the deadline to October 15th. This should allow for enough time to apply for any numbers that have not yet been received.
Keep in mind that use of the FEIE is voluntary, and the IRS allows you to file using the method that results in the most desirable outcome for your circumstances. Using the Foreign Tax Credit instead of the FEIE is fully above board with the IRS and will likely be the best solution for American taxpayers who are working abroad and who have dependent children, if it is filed correctly and future moves or career changes are taken into consideration. It's recommended that a US taxpayer with dependents looking to use the Foreign Tax Credit method to receive the refundable Additional Child Tax Credit should first discuss his or her personal tax situation and plan accordingly with an experienced tax professional.