#Americansabroad denied child tax credit for children who are NOT US citizens – Benefit or burden?


Introducing the “FBAR Marriage”

The “FBAR Marriage” is a marriage between a U.S. person abroad and a non-U.S. person. The most important partner in the “FBAR Marriage” is the U.S. government. The most likely result of the “FBAR Marriage” is the “FBAR Divorce”.

American Exceptionalism = Exceptional Strains on the FBAR Marriage

We have seen discrimination in the following aspects of  the “FBAR Marriage”:

– requirement that the the U.S. spouse report on bank and financial accounts held with the non-U.S. spouse (FBAR, Form 8938, etc.) in the FBAR marriage;

– different and restrictive rules governing the transfer of assets from the U.S. spouse to the non-U.S. spouse (the transfer is a taxable event if the non-U.S. spouse is a “non-resident alien”;

– different and restrictive rules governing making of gifts by the U.S. spouse to the non-U.S. citizens spouse (regardless of residence);

– the considerations governing transfers of property and making gifts are a problem in the FBAR marriage, and they make divorce for U.S. citizens abroad far more difficult;

the tax penalty paid by the U.S. citizen spouse for taking the filing status of “filing separately” (instead of “married filing jointly”). Obviously the “non-resident alien” spouse cannot enter become a “U.S. person” for tax filing purposes. Note that this is going to become a bigger problem as the Obamacare tax kicks in;

On a more general level, there are the problems of :

– the family unit formed by the U.S. spouse and the non-U.S. spouse being unable to engage in responsible financial planning (no normal retirement planning products, mutual funds, etc.);

– the problems of the U.S. taxation of the principal residence of the family house;

– the possible problems of U.S. citizenship transmission if a child is born to the U.S. person and the non-U.S. spouse (interesting and complex area discussed on other posts). More on this in a moment.

And now, I draw your attention to another interesting fact:

U.S. taxpayers abroad are denied the child tax credit for children who are not one of:

1. U.S. citizens

2. U.S. nationals

3. U.S. resident aliens.

Note that one can take the child tax credit for children who  ARE “U.S. resident aliens”. This fact makes it clear that this is deliberate discrimination and punishment for living outside the United States.

But, if you are a U.S. citizen abroad with a child who is NEITHER a U.S. citizen NOR U.S. national you are denied the child tax credit.

This is  discrimination against U.S. citizens abroad!

Now, you ask who might this affect? Isn’t the the child of a U.S. citizen abroad a U.S. citizen anyway? No, not necessarily. Consider the situation of Senator Cruz who was born in Calgary, Alberta. Mr. Cruz was clearly born a Canadian citizen. He claims his mother was a U.S. citizen. Assuming this to be so, more is required. The mother would have to meet certain additional requirements to transmit U.S. citizenship to Senator Cruz.

Consider the following scenarios:

Group A – A marriage between a U.S. citizen abroad and a non-U.S. citizen

1. U.S. citizen marries non-U.S. citizen. Non-U.S. citizen has a child from a previous marriage who is not a U.S. citizen.

Result: Tax credit denied

2. U.S. citizen born abroad who did not live in the U.S. long enough to transmit U.S. citizenship to child.

Result: Tax credit denied

3. U.S. citizen and non-U.S. spouse adopt a U.S. citizen child. (Interestingly adoption agencies are actually warning people about the FBAR implications of adopting a child born in the U.S.).

Result: Tax credit allowed.

Group B – Child of single parent family

1. U.S. citizen mother who did not live long enough in the U.S. to transmit U.S. citizenship to child.

Result: Tax credit denied

How this rule can be used to the advantage of U.S. citizens abroad

For most people, this topic is of more theoretical interest than practical interest. It is interesting because it demonstrates a clear attempt to discriminate against U.S. citizens abroad who attempt to form a family outside the United States.

This rule can be used to your advantage. We are now living in a world where many believe that U.S. citizenship is to be avoided at all costs. In fact a recent blog post focussed on the fact that fewer U.S. citizens abroad, who have children born abroad are registering their birth with the U.S. government. The first commenter to this post said:

I did not register the birth of my child born outside the USA. (I am American, but my partner is not.) I also have absolutely no intention of doing so either. Why saddle the kid with the hell that comes with having an American passport? If the kid wants it later, it can be obtained.

What is the citizenship status of a child born to a U.S. person outside the United States? There are differing perspectives on this topic. Since the child is born outside the United States, I believe there should be a presumption of non-U.S. citizenship. Of course as this commenter suggests, the right of citizenship may be exercised later.

There’s no need at all to register a birth overseas. The parent, or later on the adult child, can assert a claim to US citizenship at some future point, or not as the case may be.

Some obvious thoughts …

By NOT attempting to take the child tax credit for children born outside the United States, you are clearly NOT taking the position that the child is a U.S. citizen!

This may be the greatest gift you can give to your child!

Advice for non-U.S. citizens who are considering marriage to a U.S. citizen

Tina Turner recently renounced her U.S. citizenship. One of her greatest songs was:

What’s love got to do with it?”

One might ask:

What’s FBAR got to do with it?”

If you don’t want to be married to the IRS, then avoid the “FBAR Marriage”.  (But, if you are a tax geek then a U.S. citizen could be an interesting marriage partner.)

The  rules governing the child tax credit  are at:


Ten Facts about the Child Tax Credit

IRS Tax Tip 2011-29, February 10, 2011

The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. Here are 10 important facts from the IRS about this credit and how it may benefit your family.

  1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
  2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
  3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.
  4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
  5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
  6. Dependent Test – You must claim the child as a dependent on your federal tax return.
  7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
  8. Residence Test – The child must have lived with you for more than half of 2010. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
  9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
  10. Additional Child Tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

1 thought on “#Americansabroad denied child tax credit for children who are NOT US citizens – Benefit or burden?

  1. mjh49783

    I know one way to ‘fix’ this problem.

    Canada also offers a child tax benefit. My Canadian wife claims it because of her son, whom is also Canadian. Why bother applying for a US tax credit that I know I’m not going to get?

    Also, because she claims the tax credit and not I, plus the fact that our bank accounts are separate, I don’t need to report this tax credit to the IRS, as it’s her money.

    Sure, it should be our money, but since the US government’s ridiculous, and Byzantine policies are the problem in this situation, then this is the way that the problem needs to be dealt with for the time being.

    Ultimately, the only real solution to this FBAR Marriage is the FBAR Divorce, but I intend to divorce myself from the US government. I have 238 days left to go before I can apply for Canadian citizenship, and begin the process.


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