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

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.

How much do I get?

Up to $600 per child for tax year 2002, and up to $1000 per child for tax years 2003 and 2004.

Don't I need at least three children to qualify?

No. Effective 2001, the credit is available to parents of one or two children.

Isn't there a U.S. residency requirement?

There is no U.S. residency requirement for the child tax credit. That only applies to the Earned Income Credit, which is entirely separate. See page 40 of the 1040 instructions year 2002 for verification.

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'.
Use the W-7 form.
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.

How much earned income do I need to qualify?

You need more than $10,350 of earned income to qualify. The credit is phased out for incomes exceeding certain amounts, as follows:

Also see the note below about the dreaded 'Alternative Minimum Tax.'

How do I prove to the IRS that I earned the foreign income and paid the taxes?

Employers outside of the U.S. (obviously) do not provide W-2 forms. I sent this question to the IRS, and their answer is quoted below.
"The instructions for this line does not ask you for proof, it does state that the income must converted to United States currency, please see Publication 54 Tax Guide for U.S. Citizens and Resident aliens Abroad,chapter 1. page 4,for more information. You can send a copy of the Hebrew earned income statement IRS has interpreters or you should have this information available if your return is examined."

Which IRS forms do I need?

  1.Form 1040
  2.Form 8812 Additional Child Tax Credit
  3.Form 1116 Foreign Tax Credit

What is the 'Consular Report of Birth Abroad?'

This is the document that proves that your child exists to the U.S. government.
It serves in place of a birth certificate to the U.S. government and its agencies.

How do I register my child for a U.S. passport and Consular Report of Birth Abroad (CRBA)?

1. Go to the U.S. consulate in Jerusalem, or the U.S. embassy in Tel Aviv.
   The consulate's public reception hours are 8:30 - 11:30, M-F
   Be aware, though, that the consulate is closed on: the last Friday of each month, local holidays (including Eid Al Adha?), and American holidays (Jan. 1, ML King, Presidents', July 4, Memorial day, labor day, Columbus day, veterans day, thanksgiving, Dec. 25).
   So check the date on an American calendar and try to call first as well and also check their web site. Bring the following:

2. Cash - $65 for CRBA, $82 for the passport.
   The consulate will accept NIS, but the rate that it gives is lousy. Also note that you cannot combine dollars and shekels. The , nor pay with check or credit card.

3. Application form DS 2029 - you can get it at the consulate

4. U.S. Passport(s) from one or both parents.

5. Original birth certificate.

6. Original marriage certificate.

7. Divorce certificate (heaven forbid).

8. If only one parent is a U.S. citizen, then you have to bring evidence of physical presence in the U.S. for five years after the age of 14. Acceptable documents include W-2 forms, stamped IRS tax returns, and transcripts.
   Alternatively, you can bring a CRBA of a prior child.

9. Tip - you should photocopy all documents before going to the consulate. Their photocopy prices are quite high.

How can I get a Social Security number for my child?

You can apply for social security for your child at the U.S. consulate office in Jerusalem, or the U.S. embassy in Tel Aviv. Documents (bring originals and photocopies) required:

1. Parent's signed U.S. passport.

2. Child's signed U.S. passport or your National ID card with child's registration, with translation to English .

3. Child's CRBA OR local birth certificate.

The photocopies may be sent in by mail within six weeks of the issuance of the Consular Report of Birth Abroad, along with a completed application form. Afterwards, you need to go in person. You do NOT need to bring your child. There are no fees for this service. The consulate social security office direct telephone is 02-622-7211.
See the note above regarding opening hours at the consulate.

My spouse is not an American citizen and I moved away from the U.S. at a young age, so my children do not qualify for automatic U.S. citizenship. Can I claim the children for the tax credit anyway?

Note: Surf to the grandparent rule page for more information.
Yes, but it is not easy. In order to get the credit, the children must have social security numbers. In order to get a social security number, the child must either be a citizen or a legal resident of the U.S.. So in our case, the children need to become U.S. citizens.
The trick is to use a U.S. citizen grandparent to qualify.
Quote from Immigration and Naturalization Service:
"Section 322 allows a citizen parent who is unable to transmit citizenship to apply for a certificate of citizenship for his or her child, based on the physical presence of the child's United States citizen grandparent (the United States citizen parent of the applicant)." Surf to
http://www.immigration.gov/graphics/services/natz/faq.htm#q25  for more details.
You will need some forms:
Form N-600, Application for Certificate of Citizenship.
Form Supplement A, Application for Transmission of Citizenship Through a Grandparent.
You submit the forms, a check for $185, documents, translations, and notarizations, and then arrange for an appointment with the immigration office, and then travel to the U.S. with your child(ren).
If you want to pursue this, then download the forms and read everything carefully. Also write into the tachlis mailing list and find some people who have done it already.

How do I receive the money?

The IRS normally sends a check for back tax returns.

How long does it take?

It usually takes a few months

The standard rate for a simple return is $250 + VAT, or $295.

How do I handle foreign currency?

Publication 54 says:
"Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income. You can generally get exchange rates from banks and U.S. Embassies."

Rates are posted by the commerce department at:
http://ia.ita.doc.gov/exchange/.

Where do I send the tax return?

Publication 54 says:
Internal Revenue Service Center
Philadelphia, PA 19255 0215

What if I already filed my return, but neglected to claim the Child Tax Credit?

It is not too late! You can file a 1040X, the Amended Individual Income Tax Return. If you paid an accountant to file your taxes and he neglected to claim this credit, then call him up and ask him to file the amendment gratis. If he doesn't know how to do it or asks for more money, then find yourself a new accountant. Perhaps yourself.
Note - there is a deadline of three years after the original return was filed to file an amended return.

Can I also get the "Earned Income Credit (EIC)?"

To qualify for the EIC, you and your children must reside in the U.S. for more than half the year. This rules most of us out. But if you do happen to qualify with children, then you can get up to $4,140 as a credit.

What if I am independently employed?

The good news is that this certainly qualifies as earned income. Some countries have a tax treaty with the United States that exempts them from double taxation for duplicate coverage. Israel does not yet have a treaty. In the absence of a treaty, you are obligated to pay "self-employment tax", which includes social security and medicare.
If your are self-employed, then you will definitely need a professional tax adviser.

Can I send questions directly to the IRS?

Yes. Surf to http://www.irs.gov/contact/default.asp and click on the 'Tax Law Questions' link.
Or call 1-215-516-2000 during standard business hours.

If the IRS gives me a hard time about issuing my refund, how can I resolve the issue?

The IRS has a Taxpayer Advocate Service. They can help to push unresolved tax issues. Take a look at http://www.irs.gov/pub/irs-pdf/p1546.pdf for more information.