The Child Tax Credit and Earned Income Credit

The enhanced Child Tax Credit, passed in the American Rescue Plan legislation of 2021,and the Earned Income Credit require that those eligible to receive them live at least six month during the year in the United States. This excluded many Americans overseas who may have qualified for the tax benefits.

Independent studies show that Americans overseas are similar demographically to Americans living in the United States and that those in need of the Child Tax Credit and the Earned Income Credit (which has similar restrictions) face the same issues overseas as domestic Americans. ACA wrote to the tax writing committee to have them investigate why Americans overseas were left out of this important legislation.

A similar requirement is in place for the Earned Income Credit.  The Earned Income is provided for in IRC Section 32. 32(C)(1) defines an Eligible Individual for purposes of the credit as, an individual with a qualifying child, or an individual without a qualifying child who either lives in the US for more than half of the year, or is 25 to 65 years old, and is not another's dependent.

"Qualifying Child" is generally defined in Section 152 and includes a child (or other close younger relative) of the taxpayer who, lives with the taxpayer for more than half the tax year and is younger than 19, or 24 if a student, or disabled, and who has not provided more than half the child's own support and has not filed a joint return with a spouse.

Section 32 removes requirement 4, but adds the condition that the abode in requirement 2 must be within the United States. IRC 32(c)(3)(C). That requirement has an exception for active duty military. IRC(c)(4).

In 2023 the Child Tax Credit (CTC) proposal was again introduced in S. 1992 – Working Families Relief Act of 2023 (as well as H.R. 3899 - American Family Act) and replicates the CTC provisions in the American Rescue Plan Act that deny CTC beneficiaries living abroad access to full refundability and advance payments.  ACA wrote to the Senate Finance Committee advocating for US citizens living overseas to be eligible for the full CTC.  Currently there is legislation in Congress, H.R.7024 - 118th Congress (2023-2024): Tax Relief for American Families and Workers Act of 2024 | | Library of Congress which once again addresses the Child Tax Credit and eligibility requirements.  ACA is working with offices in the Congress to investigate if US citizens overseas will be included or excluded from this legislation.