Filing Requirements for U.S. Citizens and Residents:
Worldwide Income Reporting: U.S. citizens and resident aliens are required to report their worldwide income, regardless of where they live. This includes income earned by dependents living abroad. irs.gov
Foreign Earned Income Exclusion (FEIE): For tax year 2024, individuals may exclude up to $126,500 of foreign earned income, provided they meet specific requirements. However, utilizing the FEIE may impact eligibility for certain tax credits, such as the Child Tax Credit. irs.gov
Claiming Dependents Living Abroad:
Residency Requirements: To claim a child as a dependent, the individual must be a U.S. citizen, U.S. national, or resident of the U.S., Canada, or Mexico. Exceptions apply for residents of certain countries under tax treaties. irs.gov
Support and Income Tests: Parents must provide over half of the child's support during the tax year, and the child's gross income must be below a specified threshold.
Foreign Financial Assets Reporting:
FBAR and FATCA Compliance: If the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year, parents may need to file FinCEN Form 114 (FBAR). Additionally, Form 8938 may be required for specified foreign financial assets exceeding certain thresholds. irs.gov
Child Tax Credit (CTC) Considerations:
Impact of FEIE: Claiming the FEIE can render parents ineligible for the refundable portion of the CTC. To maximize benefits, some may opt for the Foreign Tax Credit instead.
By understanding these guidelines, parents can ensure compliance with U.S. tax laws and make informed decisions regarding their dependents living abroad.