Claiming refundable US credits while living abroad.
As a US expat, you may be eligible for a tax refund, without paying anything to Uncle Sam. The Additional Child Tax Credit and American Opportunity Credit are both refundable US income tax credits eligible to be claimed by US citizens living abroad.
Child Tax Credit-Additional Child Tax Credit
The child tax credit is a tax credit received of up to $1,000 per qualifying child used to offset your US income tax liability. If the amount of US taxes due is less than the child tax credit, you may be eligible to receive a refund of the unused portion of your child tax credit, known as the Additional Child Tax Credit. Because many ex-pats live in countries with higher tax rates than US tax rates, foreign taxes paid to their country of residence is many times higher than their US tax liability. In such instances, the foreign tax credit received for foreign taxes paid will fully offset their US tax liability; thus enabling them to receive the full refundable Additional Child Tax Credit of $1,000 per qualifying child.
Additional Child Tax Credit eligibility requirements and additional information:
- The child must be 16 or under as of the end of the tax year (December 31st).
- The child must be a U.S. Citizen or resident alien with a valid US social security number.
- You must have at least $3,000 of earned income (from wages or self-employment income). You can receive a maximum of up to 15% for amounts earned above $3,000.
- The credit begins to be limited when a person’s adjusted gross income is more than $110,000 for married filing jointly taxpayers. (Lower thresholds apply for head of household, single and married filing separately taxpayers.)
- You cannot claim the refundable credit if you utilize the foreign earned income exclusion.
American Opportunity Credit
The American Opportunity Credit is a credit for qualifying education expenses paid. The maximum amount of the credit is $2,500 per eligible student completing their first four years of post-secondary education. If your US tax liability is less than the American Opportunity Credit, up to $1,000 of this credit is refundable. The credit is 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000 of education expenses paid for that student.
American Opportunity Credit qualifications:
- The student must be pursuing a degree that leads to a degree, certificate or other credentials.
- The student must be enrolled in an eligible education institution. Many foreign universities that participate in US federal loan programs, may be considered eligible institutions.
- The student must take at least one half of the normal full time workload for an academic period and cannot be convicted of a felony for possession or distribution of controlled substances.
- Qualified education expenses include amounts paid for tuition and mandatory education books or other supplies. Room and board amounts paid are not qualified expenses.
