Raising children outside the United States brings exciting opportunities, but it also introduces complex legal and tax considerations for American families. US citizenship laws, tax obligations, and financial planning can be challenging to navigate, especially when ensuring that children born or raised abroad retain their US citizenship rights while complying with US tax rules.
Many expat parents wonder about their child’s tax filing responsibilities, eligibility for financial benefits like the Child Tax Credit, and the implications of dual citizenship. Let’s tackle the key issues American parents should be aware of when raising children overseas.
Does My Child Automatically Have US Citizenship If Born Abroad?
If you are a US citizen and have a child abroad, your child may be eligible for US citizenship at birth. However, this depends on several factors, including your length of time residing in the US before their birth.
Citizenship Transmission Requirements
- Two US Citizen Parents: If both parents are US citizens and one has lived in the US at some point before the child’s birth, the child generally acquires US citizenship automatically.
- One US Citizen Parent: If only one parent is a US citizen, that parent must have lived in the US for at least five years, with at least two of those years after age 14, to pass citizenship to their child.
- Children Born in US Territories: A child born in US territories like Puerto Rico, Guam, or the US Virgin Islands is automatically a US citizen.
How to Obtain Proof of Citizenship
Parents should apply for a Consular Report of Birth Abroad (CRBA) at the nearest US embassy or consulate. This document serves as proof of US citizenship and is required for obtaining a US passport.
Does My Child Need a US Passport?
Yes, a child who is a US citizen must have a US passport when entering or leaving the United States, even if they hold a passport from another country. Dual citizenship is allowed under US law, but the US government expects its citizens to use their US passport for travel.
Tax Obligations for US Citizen Children Living Abroad
US tax laws apply to all US citizens, no matter where they reside. This means that children who hold US citizenship are subject to US tax filing requirements if their income exceeds certain thresholds. Parents should be aware of these obligations, including potential reporting requirements for foreign financial accounts and investment income.
When Does a Child Need to File a US Tax Return?
A child must file a tax return if they have earned or unearned income exceeding IRS thresholds:
- Earned Income (Wages, Self-Employment, etc.): If over $13,850 (2024).
- Unearned Income (Investments, Dividends, Interest, etc.): If over $1,250 (2024).
- Self-employment Income: If over $400, the child must file a Schedule C and Schedule SE for self-employment tax.
Foreign Bank Account Reporting (FBAR) for Minors
If a US citizen child has a foreign financial account (such as a bank or investment account) that exceeds $10,000 at any point during the year, they must file a Foreign Bank Account Report (FBAR) using FinCEN Form 114.
However, if the account is in the child’s name but the parent has signature authority over it, both the child and the parent may have an FBAR filing requirement. The child, as the account holder, is responsible for filing, but if they are unable to do so, the parent may file on their behalf. Additionally, the parent must also report the account on their own FBAR if they have signature authority or any form of control over it.
Does My Child Owe US Taxes?
Most expat families can avoid double taxation through:
- Foreign Earned Income Exclusion (FEIE): If a child earns foreign wages, they may exclude up to $126,500 (2024) from US taxes.
- Foreign Tax Credit (FTC): If foreign taxes were paid on the child’s income, they may receive a tax credit.
- Tax Treaties: Some countries have agreements with the US to prevent double taxation.
Child Tax Credit (CTC) for Americans Abroad
One key benefit available to US citizens with children is the Child Tax Credit (CTC). This credit can reduce a parent’s US tax liability and may even result in a refund.
Eligibility for the Child Tax Credit
- The child must be a US citizen or resident alien.
- The child must be under age 17 at the end of the tax year.
- The parent must have earned income to claim the refundable portion.
- The child must have a valid Social Security Number (SSN).
The Child Tax Credit is worth up to $2,000 per qualifying child, but expats who claim the Foreign Earned Income Exclusion (FEIE) may not be eligible for the refundable portion of the credit. If you do not exclude foreign income, you may qualify for the Additional Child Tax Credit (ACTC), which allows up to $1,700 per child as a refundable credit.
To claim the credit, parents must file Form 1040 and complete Schedule 8812 (Credits for Qualifying Children and Other Dependents).
Can My Child Renounce US Citizenship?
If a US citizen child does not want to maintain their US citizenship, they must wait until age 18 to renounce. The process is irreversible and requires proof that the decision is made voluntarily.
Raising children abroad as US citizens comes with both opportunities and responsibilities. While living outside the US can provide valuable cultural experiences, parents must stay informed about US tax obligations, financial reporting requirements, and citizenship considerations. Ensuring compliance with US tax laws, including filing requirements for children, FBAR obligations, and potential tax benefits like the Child Tax Credit, can help families avoid complications. If you have concerns about your child’s tax status or citizenship documentation, consulting a tax professional or legal expert can provide clarity and peace of mind.
