How does the Child Tax Credit work for expats?

The Child Tax Credit (CTC) is available to US expats, but claiming it while living abroad has important limitations. For the 2024 tax year, the CTC provides up to $2,000 per qualifying child under age 17. However, the interaction between the CTC and the Foreign Earned Income Exclusion creates significant complications.

The CTC is a partially refundable credit. The non-refundable portion (up to $2,000) reduces your tax liability to zero but cannot generate a refund below zero. The refundable portion, called the Additional Child Tax Credit (ACTC), can generate a refund of up to $1,700 per child. The ACTC is calculated as 15% of earned income over $2,500.

Here is the critical issue for expats: if you claim the FEIE and exclude all or most of your foreign earned income, you may have little or no US tax liability and little or no earned income (for CTC purposes) after the exclusion. This means the non-refundable CTC has no tax to offset, and the ACTC is limited because your earned income after FEIE is reduced.

In practical terms, many expats who claim the full FEIE receive little or no benefit from the Child Tax Credit. This is one reason some expats with children choose the Foreign Tax Credit over the FEIE — the FTC reduces your tax without reducing your earned income, preserving your eligibility for the CTC.

For expats in low-tax countries, this creates a complex optimization problem. The FEIE may eliminate income tax, but losing the CTC could offset some of those savings. For families with multiple children, the CTC benefit ($2,000+ per child) can significantly influence the FEIE-vs-FTC decision.

Other requirements apply: qualifying children must have a Social Security Number (not an ITIN), and the credit phases out at higher income levels ($200,000 single, $400,000 married filing jointly). At Zenith Financial, we model all scenarios to determine whether the FEIE or FTC maximizes your total benefit, including the CTC impact.