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Child Tax Credit Rebate

The U.S. government gives away money?

child tax credit rebate Indeed it does! The 'Child Tax Credit' (CTR) and 'Additional Child Tax Credit' (ACTR) have been on the books since 1998. The CTR reduces the parents' tax liability, while the ACTR is considered to be a refundable payment.
Prior to 2001, the ACTR was limited to individuals who paid social security taxes. Beginning in tax year 2001, the tax code was liberalized to allow the ACTR to individuals who reported earned income, yet did not pay social security taxes. This means that the U.S. government agreed to disperse refunds to people who didn't pay any taxes. The maximum amount of the disbursement is $600 per child for 2001 and 2002. The amount per child increases to $1000 for 2003.

For example, a couple living abroad with four children earning $35,000 is eligible for a refund of $2,400 assuming that they are not liable for any U.S. taxes.

More information about the child tax credit and tax refunds.

Why would the U.S. government refund money to citizens who do not pay any taxes?

The government decided that middle income wage earners are entitled to the same benefit as higher level wage earners. If the child tax credit exceeds the tax obligation and the credit was not refundable, then the wage earner would get no benefit from the credit. Thus, they decided to refund the excess benefit.

 

Do both parents need to be U.S. citizens?

No. Only one parent needs to be a U.S. citizen.
If one parent is not a U.S. citizen and does not have a Social Security Number, AND you want to file as 'married joint' or 'married separate', then the spouse will need an 'individual taxpayer identification number'.

This must be presented in person with original documentation (passport or id card) to an IRS office, or mailed with certified or notarized copies of the documentation. You need to go to the consulate for the notarization (called 'true copy' at the consulate) and it costs $30.

Alternatively, you can file as a head of household and just leave your spouse off the return.

 

Do I need to worry about the 'Alternative Minimum Tax?'

If your status is "married filed jointly" and your income is over $49,000, then the alternative minimum tax kicks in. In a nutshell, the AMT amounts to 26% of the amount of earned income over $49,000 for married couples filing jointly in 2002. For example, a married couple with an earned income of $60,000 will have an AMT of about 0.26*(60,000-49,000), or $2,860. The AMT watershed mark for singles or heads of household is $35,750.

The sad news with this clause is that you cannot use the foreign tax credit against this tax obligation. Thus assuming that our couple has five children, then the AMT will almost wipe out their child credit of $3,000. If they have less than five children, then they could end up owing taxes. In this case, they would be better off filing form 2555 and claiming the foreign earned income exclusion while forgoing rights to the child tax credit.



Child Tax Credit Rebate

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