Refundable CTC, $1,400 vs. $2,000

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Refundable CTC, $1,400 vs. $2,000


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Old 12th July 2019, 12:02 PM
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Default Refundable CTC, $1,400 vs. $2,000

I realize that the highest child tax credit refund is $1,400 per child, but I'm having some trouble understanding how the nonrefundable $600 portion of the credit works.

Here's my assessment based on my (limited) understanding of the issue...

For someone who would otherwise receive the entire $2,000 CTC, it would seem like a sensible strategy to try to generate income that would incur exactly $600 in taxes in order to fully utilize this nonrefundable portion of the credit. This would effectively make that income tax free. Otherwise this portion of the credit would be going to waste.

Now, if a person qualifying for the full $2,000 credit makes financial investments that give rise to $600 in taxes, would those taxes be canceled out by the nonrefundable credit, and the person would then receive the full $1,400 payout?


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Old 12th July 2019, 12:31 PM
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Quote:
Originally Posted by Alltimegreat1 View Post
I realize that the highest child tax credit refund is $1,400 per child, but I'm having some trouble understanding how the nonrefundable $600 portion of the credit works.

Here's my assessment based on my (limited) understanding of the issue...

For someone who would otherwise receive the entire $2,000 CTC, it would seem like a sensible strategy to try to generate income that would incur exactly $600 in taxes in order to fully utilize this nonrefundable portion of the credit. This would effectively make that income tax free. Otherwise this portion of the credit would be going to waste.

Now, if a person qualifying for the full $2,000 credit makes financial investments that give rise to $600 in taxes, would those taxes be canceled out by the nonrefundable credit, and the person would then receive the full $1,400 payout?

And people wonder why we have FATCA...

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Old 12th July 2019, 12:36 PM
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I see nothing wrong with someone attempting to lower his taxes as much as possible as long as he does nothing illegal.

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Old 12th July 2019, 02:03 PM
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I suffer from some cognitive dissonance on this question.

US tax obligations for citizens outside the country are so fundamentally stupid that I personally see nothing wrong with doing the absolute maximum to gouge money out of the US government, if it's dumb enough to send cheques overseas.

I also don't think it's worth entering the system or betraying a child's anonymity to get that money.
Bevdeforges and shony like this.

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Old 13th July 2019, 05:33 PM
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Quote:
Originally Posted by Alltimegreat1 View Post
I realize that the highest child tax credit refund is $1,400 per child, but I'm having some trouble understanding how the nonrefundable $600 portion of the credit works.

Here's my assessment based on my (limited) understanding of the issue...

For someone who would otherwise receive the entire $2,000 CTC, it would seem like a sensible strategy to try to generate income that would incur exactly $600 in taxes in order to fully utilize this nonrefundable portion of the credit. This would effectively make that income tax free. Otherwise this portion of the credit would be going to waste.

Now, if a person qualifying for the full $2,000 credit makes financial investments that give rise to $600 in taxes, would those taxes be canceled out by the nonrefundable credit, and the person would then receive the full $1,400 payout?
There is no need to generate income to make the $600 tax due, you can have $0 U.S. tax due and just receive the $1,400 refundable part.

You need to make sure you don't just the Foreign Earned Income Exclusion.
Then use Schedule 8 (Form 8812) to claim the Additional Child Tax Credit.

I don't think Turbotax makes it easy to do that, but MyExpatTaxes does.

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Old 13th July 2019, 06:15 PM
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There is no need to generate income to make the $600 tax due, you can have $0 U.S. tax due and just receive the $1,400 refundable part.

Thanks for your response and that information. I realize that it's possible to get the $1,400 refund without making use of the $600 nonrefundable portion.

However, I'd like to know how to legally receive the $1,400 refund paid out AND make use of the $600 nonrefundable portion by having it cancel out $600 of taxes owed.

Thanks.

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Old 14th July 2019, 08:40 AM
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Quote:
Originally Posted by Alltimegreat1 View Post
Thanks for your response and that information. I realize that it's possible to get the $1,400 refund without making use of the $600 nonrefundable portion.

However, I'd like to know how to legally receive the $1,400 refund paid out AND make use of the $600 nonrefundable portion by having it cancel out $600 of taxes owed.

Thanks.
Sure! You will need U.S. sourced income and Foreign sourced EARNED income.

Imagine:

1. Foreign Salary with Foreign Taxes Paid (contributes to earned income requirement for Child Tax Credit)
2. U.S. sourced income (can be passive or general)
3. You will use Foreign Tax Credit (FTC) to cancel out all the tax due on the Foreign Income portion
4. You will have remaining tax due from the U.S. sourced income
5. Use the Child Tax Credit to cancel the tax due
6. Take the refundable Additional Child Tax Credit

It's a bit hard to describe without actual figures, but the easiest way is to have U.S. investment income, which will then result in U.S. tax owed after using FTC to cancel out the Foreign Salaried Income.

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Old 14th July 2019, 02:04 PM
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Default Refundable CTC, $1,400 vs. $2,000

Let's say I make $75,000 in the UK in earned income, and offset all taxes owed to the IRS on this income using the FTC.

Then I make financial investments in the US that give rise to taxes such that I would owe the IRS $600.

In this situation, if I claimed the child tax credit, would I receive a check from the IRS for the full $1,400 refundable portion of the credit?

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Old 14th July 2019, 02:34 PM
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Originally Posted by Alltimegreat1 View Post
Let's say I make $75,000 in the UK in earned income, and offset all taxes owed to the IRS on this income using the FTC.

Then I make financial investments in the US that give rise to taxes such that I would owe the IRS $600.

In this situation, if I claimed the child tax credit, would I receive a check from the IRS for the full $1,400 refundable portion of the credit?
Ideally, yes. You would see it flow through on your 1040 Form.

Tax Owed
- Foreign Tax Credit
- $600 Child Tax Credit

=$0 Tax Owed

Then you would see another line for 8812 Credits of $1,400, which will be considered a payment and thus eligible to be fully refundable either via check or bank deposit.

Make sure your child is qualifying with a U.S. social security number & under age 17.
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Old 14th July 2019, 04:32 PM
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Much appreciated, thanks.

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