| |
For Discussion Only
U.S citizens living in Israel can benefit from the additional child tax credit because in most cases, taxes that they pay to Israel can offset their U.S. tax liability. The unused portion of their regular child tax credit can, in most cases, depending on their level of earned income as mentioned above, be refunded up to $1,000 per child.
Some particulars of the law are as follows:
-
Dependents
- Must be age 16 or under.
- Must be U.S. citizens or resident aliens.
- Must have a Social Security Number.
-
Income
- Income must be earned from wages or self-employment.
- Earned income must be over $11,750 (for 2007) per year to qualify. You begin to qualify for the credit if you've earned above $11,000, and can potentially receive a maximum of up to 10% - 15% above this amount.
-
The credit starts to be limited when the Adjusted Gross Income is over $110,000 for married taxpayers, and lower amounts for single, married filing separate or head of household filing status.
-
Non-Resident Alien 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.
-
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.
-
For those who have been filing returns and have been using the $85,700 per year Foreign Earned Income Exclusion, they would have to revoke the exclusion in order to claim the additional child tax credit. If both spouses have earned income, only one can revoke, while the other can continue to exclude his wages. 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.
-
Refunds can be claimed up to 3 years from the due date of the original return. One can file for 2004 until April 15, 2008. (The deadline for 2003 has passed.)
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 taxes, 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:
- Social Security Numbers for all family members.
- Year-end wage statements forms from your employer (Form 106 in Israel).
- If self-employed your Income/Loss statement from your Israeli tax return.
- Statements of interest, dividends, capital gains, rental income, pensions and other income that you have received from U.S and Israeli sources.
- Amounts of foreign tax paid on your income.
You may refer to our 'What We Need' checklist for more details.
Please contact our office at 02-999-2104 if you require any further information or have any questions regarding these matters.
|
