Tax Department- Child Tax Credit

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FOR DISCUSSION ONLY                    

SUMMARY OF CHILD TAX CREDIT 2017 & 2018 

As U.S citizens living in Israel you can generally benefit from the additional child tax credit because in most cases, taxes paid to Israel can offset your U.S. tax liability. This REFUNDABLE credit can be worth up to $1,000 per child for 2017 and up to $1,400 per child can be received by you in the form of a U.S. Treasury check, direct deposit into your U.S. bank account, or a credit to a subsequent tax year.
 
For 2018 the credit increases to $2,000 but the refundable portion is limited to $1,400.  The phase-out ceiling increases significantly to $200,000 for singles and $400,000 for marrieds.
 
Please Note:  The IRS conducts periodic audits and requires strict verification of earned income and other details.
 
Some particulars of the law are as follows:

1. Dependents
   1. Must be age 16 or under.
   2. Must be U.S. citizens or resident aliens. If the child is a NATURALIZED U.S. citizen (receiving citizenship thru a grand-parent), the IRS stipulates that the child is only eligible for the tax credit from the year of naturalization.
   3. Must have a Social Security number issued before the tax return is due, including extension.
2. Income
   1. Income must be earned from wages or self-employment.
   2. You begin to qualify for the credit if you've earned above $3,000. (In 2018, 2017, 2016 & 2015, you potentially receive a maximum of up to 15% above this amount.)
   3. The credit starts to be limited when the Adjusted Gross Income is over $110,000 for married taxpayers filing jointly in 2017, and over $400,000 starting in 2018. There are lower amounts for single, married filing separate, or head of household filing status.
3. Non-Resident Alien (NRA) spouses of U.S. citizens can generally elect to be treated as Resident Aliens and file a joint return in order to combine their incomes.  An NRA spouse must receive the ITIN prior to the Tax return due date including extensions. The W-7 can be submitted with the tax return.
4. A refund is received only if a tax return is filed. All income must be reported. This is not an automatic request for $1,000 per child. It is a refundable credit against tax.
5. For those who have been filing returns and have been using the $103,900 per year Foreign Earned Income Exclusion, you would have to revoke the exclusion in order to claim the additional child tax credit. If both spouses have earned income, it is possible for only one to revoke, while the other can continue to exclude his wages; to do this you have to file separately. The revocation is effective for 5 years, and can only be reinstated with written permission from the Internal Revenue Service. A tax advisor should be consulted before making this revocation.

 
There are other variables that might limit/reduce the Additional Child Tax Credit refund, such as self-employment tax on self-employment earnings, large U.S. source passive income (interest, dividends, capital gains, rentals, etc.), alternative minimum tax, amount of foreign tax paid, etc. A tax advisor should be consulted regarding these matters.
 
 
When organizing your data for tax return preparation, it is essential to have the following:

1. Social Security numbers and copies of cards for all family members.
2. Year-end wage statement forms from your employer (Form(s) 106 in Israel).
3. If self-employed your Income/Loss statement from your Israeli tax return.
4. Statements of interest, dividends, capital gains, rental income, pensions and other income that you have received from U.S and Israeli sources.
5. Amounts of foreign tax paid on your income.

 
Please contact our office anytime for further information or if you have any questions.