Child tax credit vs foreign tax credit

4 posts in this topic

Hi all,

 

Haven't read anything on this previously.

 

If my taxable income exceeds the foreign earned income exclusion (FEIE), should I first reduce it by my child tax credit and then remove the excess with the foreign tax credit (FTC) or am I fine to just ignore the child tax credit and reduce my tax via FEIE and FTC.

 

Saying ignore, does it have any impact either way? Do I in either case tick the "child qualifies for child tax credit" box on page 1 of my 1040?

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1 hour ago, smojim said:

If my taxable income exceeds the foreign earned income exclusion (FEIE), should I first reduce it by my child tax credit and then remove the excess with the foreign tax credit (FTC) or am I fine to just ignore the child tax credit and reduce my tax via FEIE and FTC.

 

Saying ignore, does it have any impact either way? Do I in either case tick the "child qualifies for child tax credit" box on page 1 of my 1040?

 

Not sure what "it" refers to but the following assumes "it" in your first sentence refers to "tax" as opposed to "income".

 

Claiming the FEI will have no effect on your child tax credit since the income limitation depends on MAGI (Modified Adjusted Gross Income) which essentially adds back to your AGI whatever you excluded as FEI.

 

The foreign tax credit and the child credit are independent.  If, however, your US tax liability is eliminated by the foreign tax credit you will get no benefit from the REGULAR child tax credit which will kick in only if there is still some residual US tax liability after the FTC has worked its magic or you qualify for the refundable ADDITIONAL Child Tax Credit (ACTC).

 

The availability to you of the ADDITIONAL (and refundable) Child Tax Credit will depend in the first instance upon whether you have at least $2,500 of qualifying income.  For a person claiming the FEI that will be earned income in excess of the FEI exclusion limit because any income excluded as FEI will not "qualify" towards the $2,500 minimum income threshold.

 

The refundable ACTC has the same phase-out/income limitation amounts as the REGULAR child credit.

 

For 2020 the maximum of the $2,000 ACTC that can be refunded is $1,400 per qualifying child.

 

Do check the box for qualifying child if the child qualifies.  (You won't necessarily get the credit because that will depend upon having qualifying income as well as a qualifying child.)

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2 hours ago, Straightpoop said:

 

Not sure what "it" refers to but the following assumes "it" in your first sentence refers to "tax" as opposed to "income".

d

Claiming the FEI will have no effect on your child tax credit since the income limitation depends on MAGI (Modified Adjusted Gross Income) which essentially adds back to your AGI whatever you excluded as FEI.

 

The foreign tax credit and the child credit are independent.  If, however, your US tax liability is eliminated by the foreign tax credit you will get no benefit from the REGULAR child tax credit which will kick in only if there is still some residual US tax liability after the FTC has worked its magic or you qualify for the refundable ADDITIONAL Child Tax Credit (ACTC).

 

The availability to you of the ADDITIONAL (and refundable) Child Tax Credit will depend in the first instance upon whether you have at least $2,500 of qualifying income.  For a person claiming the FEI that will be earned income in excess of the FEI exclusion limit because any income excluded as FEI will not "qualify" towards the $2,500 minimum income threshold.

 

The refundable ACTC has the same phase-out/income limitation amounts as the REGULAR child credit.

 

For 2020 the maximum of the $2,000 ACTC that can be refunded is $1,400 per qualifying child.

 

Do check the box for qualifying child if the child qualifies.  (You won't necessarily get the credit because that will depend upon having qualifying income as well as a qualifying child.)

 

Apologies for not being clear on "it". I meant the income, so any taxable income after FEIE and standard deductions.

 

Many thanks for your quick reply. So if I understand correctly.

 

1) Take FEIE

2) Reduce the rest by my standard deduction

3) If I still have taxable income make use of the FTC

4) Only if I then still have taxable income, look into the CTC

 

I'll have to look into the IRS documentation on possible qualifying salary. There is probably a worksheet for this, I overlooked.

 

Maybe I am oversimplifying?

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39 minutes ago, smojim said:

Maybe I am oversimplifying?

 

Nope. You got it.

 

Just add:

 

5) And if there is any unused CTC check to see if qualified for refundable ACTC

 

For (FEI) "qualified salary" consult the instructions to Form 2555 or see Pub 54.

 

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