US expats: There’s still time to qualify for the Child Tax Credit

Child Tax Credit (CTC) was first introduced in the 2017 JOBS Act. President Joe Biden revamped the CTC in 2021, as part of the American Rescue Plan (ARPA) stimulus package. Brittany from Bright!Tax explains what CTC is, and what it means for US expats in the Netherlands

Changes to the CTC temporarily allowed Americans to receive this credit in the form of advanced monthly payments, increased the credit amount and modified age requirements. Are you and your family eligible for Child Tax Credits? Here’s what you need to know.

What is the Child Tax Credit?

The CTC lets US taxpayers credit 3.600 dollars for dependent children under six and 3.000 dollars for children aged six to 17 on their 2021 tax bill. So, if you have a US tax bill of 5.000 dollars and one qualifying child under six, you could reduce your tax bill by 3.600 dollars.

To qualify, your children or dependents must be under 18 years old through the end of 2021 and live with you for at least half the year. Qualifying children must also be US citizens with a Social Security number.

US expats may have received advanced monthly payments for the CTC. Regardless of whether you did or not, you could have more money left to claim through this credit.

Is the Child Tax Credit refundable?

The CTC is refundable, which means if your tax bill is zero dollars, you can apply it to your refund. Unfortunately, it’s not fully refundable for most US expats because a requirement for receiving the full refund is living in the US for more than half of the year.

US expats who live outside of the US for most of the year and don’t use the Form 2555 Foreign Earned Income Exclusion on their tax return can still receive the full CTC to lower their tax bills - but can only receive up to 1.400 dollars per child in the form of a refund. Those who use Form 2555 aren't eligible at all.

For example, if you lived in Europe for more than half of 2021, your tax bill is zero, and you have a qualifying child who is eight, you will receive 1.400 dollars of the CTC as a refund. However, if you only lived in Europe for four months out of the year and lived in the US the rest of the time, you could receive 3.000 dollars as a refund.

What does this mean for US expats living in the Netherlands?

If you’re a US expat living in the Netherlands, you need to file two sets of taxes. That’s because you owe taxes based on your residence status, and not your citizenship, like in the US.

The good news is that US citizens in the Netherlands can often eliminate their tax bills by claiming the Foreign Tax Credit. You’re able to claim the FTC and the CTC together, which can help you lower your tax bill or, for many expats, receive a refund of up to 1.400 dollars per child.

There’s still time to claim the Child Tax Credit. Bright!Tax CPAs are experts in helping you navigate what can be a confusing tax system to find the best possible outcome. Connect with one of their experienced team members to get started.