updated 4:56 PM CET, Feb 3, 2023

Most expat Americans ineligible for expanded Child Tax Credit amounts: IRS

American expatriates with children under the age of 17 "generally won't" be eligible to receive the expanded monthly Child Tax Credit payment amounts about to begin being provided under the Biden Administration's so-called American Rescue Plan, although they should be able to continue to receive the amount that has been available to them until now under the program, a spokesperson for the Internal Revenue Service has said.  

Either way, exactly how much a taxpayer or taxpaying couple will be eligible to receive per child will be dependent on their income.

"The law says you have to have a main home in the U.S.," the IRS spokesperson told the American Expat Financial News Journal on Monday.

"Members of the military, stationed abroad, normally meet this requirement, but others typically don't." 

The policy is officially spelled out in more detail in a federal tax document (Rev. Proc. 2021-23), where it says, on page 3, "a taxpayer is eligible for the increased refundable amount only if [they], or the spouse of a taxpayer filing a joint return, had a main home in the United States for more than half of the taxable year beginning in 2021, or was a bona fide resident of Puerto Rico for the taxable year beginning in 2021.

"For all other taxpayers, the refundable portion of the credit is limited to $1,400."

The maximum potential increased amount of the Child Tax Credit, according to this document, is US$3,000 annually "for each qualifying child aged 6 or older, and US$3,600 for each qualifying child who has not [turned] 6." 

The IRS spokesman was responding to a question after the IRS and U.S. Treasury announced on Monday that the first monthly payments of the "newly advanceable Child Tax Credit (CTC)" would be made on July 15, and that "roughly 39 million households, covering 88% of children" in the U.S., were slated to begin receiving them, "without any further action required."

The American Rescue Plan, the IRS/Treasury statement went on, "is projected to lift more than five million children out of poverty this year, cutting child poverty by more than half." 

More than 20 years of CTCs

Child Tax Credits have been around in the U.S. since 1998, when they were introduced in an effort to help struggling families to cope better with the costs of raising children.

At that point the per-child amount was capped at US$400, but it has been capped at US$2,000 since 2018, and child welfare advocacy groups have been calling for the program to be improved in such a way as to both provide more money to those families that need it as well as to ensure it gets to the poorest families, which some have argued it isn't under the current system. 

Many of those advocating a change to the CTC program in the U.S. have pointed to the way similar programs are implemented in Europe, such as the UK's Child Benefit regime.

For Democrats, the CTC is seen as a key component of a package of measures aimed at reducing poverty and income inequality in the U.S. 

On Thursday morning (tomorrow), the Democrats Abroad is hosting an online webinar on the subject of "Helping American Families Abroad receive the Child Tax Credit," featuring such speakers as Bright!Tax’s Katelynn Minott, London-based Regional Federal Benefits Officer at Social Security Jack Leuchtman, and U.S. Embassy in London consular official Amy Delamaide. Information about this event may be found by clicking here.

'Clear and powerful message'

In a speech on Monday, President Biden called the CTC "a tax cut" that he said would send "a clear and powerful message to American working families with children. Help is here." 

Some American expats may see the message being sent by the Homeland-Americans-only-need-apply changes to the CTC regime rather differently, though, London-based U.S. tax expert David Treitel suggested.

"They are likely to see it as yet another example of how they are being excluded from receiving benefits that those Americans who live at home receive, even though they are expected to file tax returns and pay taxes from abroad, as long as they live overseas, unless they give up their American citizenships, which is itself a costly procedure," Treitel, founder and managing director of American Tax Returns Ltd., said.

In other U.S. government news concerning children of American expatriates, the State Department issued a statement on Tuesday  in which it said it would grant U.S. citizenship to babies born abroad to married couples with at least one American parent – no matter which parent was biologically related to the child. 

The announcement was seen as a victory for same-sex couples in particular, as well as couples in which one of the parents isn't American, as it would enable all couples who use assisted reproductive technology to give birth overseas – such as surrogates or sperm donations – to pass along their U.S. citizenship to such children.

In its statement, the State Department said the change was in response to its recognition of "the advances" that have been made in "assisted reproductive technology," and that it would "allow increased numbers of married couples to transmit U.S. citizenship to their children born overseas, while continuing to follow the citizenship transmission requirements established in the Immigration and Nationality Act." 

Requirements for children born to unmarried parents "remain unchanged," the State Department statement added.

Rise in CTC coincides with birthrate plunge 

The announcement of the boost in the potential CTC amount U.S. parents receive came almost exactly two weeks after the U.S. government announced that the country's birthrate had declined for the sixth straight year in 2020, which media commentators said showed that the coronavirus pandemic had accelerated an already-existing trend among American women to delay having children. 

In its story on the release of the 2020 birthrate data, the New York Times noted that there had been "3,605,201 births in the United States last year, the lowest number since 1979," and that the birthrate – as measured as the number of babies per thousand women ages 15 to 44 – was therefore down "by about 19% since its recent peak in 2007."

The article went on: "The declining birthrate is just one piece of America’s shifting demographic picture. Combined with a substantial leveling-off of immigration, and rising deaths, the country’s population over the past decade expanded at the second-slowest rate since the government started counting in the 18th century.

"The pandemic, which pushed the death rate higher and the birthrate even lower, appears to have deepened that trend."