How to adjust your taxes after losing the child tax credit

What other popular tax deductions can US expats with children use?

1. Child and Dependent Care Credit

What expenses qualify?

• Kindergarten & Infant Nursery Fees (if primarily for care, not education)
• Daycare centers
• Babysitters
• After-school programs
• Nannies

This applies only for children under age 13.

How much can you claim?

• The credit covers up to 35% of qualifying childcare expenses, depending on your income.
• You can claim up to US$3,000 in expenses for one child or US$6,000 for two or more children.
• The credit reduces your US tax bill directly but is not refundable—meaning it won’t give you extra money if you don’t owe taxes.

What is the eligibility requirement?

1. Qualifying Person:
   • The care must be for a dependent child under age 13, a spouse, or a dependent who is physically or mentally incapable of self-care.​
2. Work-Related Expenses:
   
   • Expenses must be incurred to allow you (and your spouse, if filing jointly) to work or actively look for work.
3. Earned Income Requirement:
   
   • You (and your spouse, if filing jointly) must have earned income during the tax year.​
4. Care Provider:
   
   • Payments for care cannot be made to:​
     
     • Your spouse.
     • The parent of the qualifying person (if the qualifying person is your child under age 13).
     • Your child under age 19.
5. Filing Status:
   • Generally, married couples must file jointly to claim the credit. Exceptions apply if you are legally separated or living apart.​
6. Provider Identification:
   
   • You must identify the care provider on your tax return. For foreign care providers, a US taxpayer identification number isn’t required; instead, write “LAFCP” (Living Abroad, Foreign Care Provider) in the provider identification section.

2. Earned Income Tax Credit (EITC) for Families with Children

The Earned Income Tax Credit (EITC) is a tax break for low- and moderate-income families. If you have at least one child, you may qualify for a larger credit.

• You must have earned income from a job or self-employment.
• Your income must be below the yearly IRS limits (these limits change each year).
• Your child must:
  • Be under 19 (or under 24 if a full-time student).
  • Live with you for at least half the year.
  • Have a valid Social Security Number (SSN).

The EITC is refundable, so even if you don’t owe taxes, you can still get a refund.

However, there are specific eligibility requirements in order to claim the EITC as an expat.

• Residency Requirement:
  
  • To claim the EITC, you must have lived in the US for more than half the tax year (at least 183 days).
  • If you live outside the US for more than 6 months, you are not eligible for the EITC.
• Foreign Earned Income Exclusion (FEIE) Restriction:
  
  • If you exclude foreign-earned income using the Foreign Earned Income Exclusion (FEIE), you cannot use that income to claim EITC.
  • The IRS considers FEIE-excluded income as not earned for EITC purposes.
• Military Exception:
  
  • If you are a US military member stationed abroad, you can still claim the EITC, because foreign military bases are considered US territory for tax purposes.

3. Adoption Tax Credit

If you adopted a child, you may be eligible for the Adoption Tax Credit, which helps cover adoption-related expenses.

• The credit is worth up to US$16,810 per child (for 2024).
• It covers costs like adoption fees, court costs, and travel expenses.
• This credit is non-refundable, meaning it can lower your tax bill to zero, but won’t give you extra money back.

If you adopted a child with special needs, you may qualify for the full credit amount even if you didn’t have adoption-related expenses.

Eligibility Criteria

• Qualified Adoption Expenses: These include reasonable and necessary expenses directly related to the legal adoption of an eligible child, such as adoption fees, court costs, attorney fees, and travel expenses (including meals and lodging) while away from home.
• Eligible Child: An individual under age 18 or a person physically or mentally incapable of self-care.​
• Income Limits: For the 2024 tax year, the credit begins to phase out for taxpayers with a modified adjusted gross income (MAGI) above US$252,150 and is completely eliminated for those with a MAGI over US$292,150.
• Filing Status: Generally, married individuals must file jointly to claim the credit. However, there may be exceptions for certain married individuals filing separately.

4. Student Loan Interest Deduction

If you’re paying off student loans while raising a child, you may be able to deduct up to US$2,500 in student loan interest from your taxable income.