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There are several ways on how to lower taxes. For US expats, the advantages are even more with the help of exclusions, deductions, and credits.

Seeking employment, doing business, or studying abroad with your family can be difficult at times. But if you have a child who is not of school age and you choose to have someone or an organization care for him while you are away, this can be used to gain additional benefit to your tax liabilities. This benefit is called the Child and Dependent Care Credit.

What are the advantages?
As a way of helping US expats who are working or studying and with a child or dependent living with them, this credit will enable you to have a credit worth of 20$ and up to 35 % of your childcare expenses.

The credit is also dependent on your adjusted gross income. It lowers your tax return as a US expat by providing a per dollar reduction in the actual tax amount. If you have a $200 credit, you get a reduction of $200 from your tax bill. Take note that this credit is non-refundable, which means your tax requirement will not go below zero.

The credit amount can be up to $3000 for each person or up to $6000 for two or more children and/or dependents.

Either you or your spouse, or both can study, work, or actively look for work, while somebody takes the responsibility of caring for your child. And you don’t have to worry about the expenses since you are getting a tax credit for it.

What are the requirements?
These are the conditions under which you can claim the Child and Dependent Care Credit to reduce your US expat tax:

1. An individual or an organization provided the childcare while you work or study abroad. The name, address, amount paid, and US tax ID number of the provider are needed. Foreign childcare providers are not required to have a US tax ID.
2. Since you have a child, it mostly means you are married, and that means you must file a joint return. Filing status of “married filing separately” will not qualify. If divorced, the credit will be allocated to the custodial parent or the parent whom the child was under care for the longer time during the year.
3. Your tax return as a US expat must have earned income. You and your spouse must both be working or are full-time students if you are filing jointly.
4. The child or dependent under consideration must be living with you for over half of the year. For situations where dependents live far away because of divorce, school, or illness, certain considerations are available.
5. The caregiver must not be your spouse or the child’s parent, one of your children who is under the age of 19, or another person whom you can claim as your dependent in your tax return.
6. The “child” refers to your dependent that is aged 12 or under. The “dependent” refers to your spouse or a dependent of any age who is living with you but is physically or mentally incapable of self-care.
7. Care can be given inside or outside your home.
8. There are certain expenses related to child and dependent caring that will not qualify for the credit. Examples of these are overnight camp expenses, transportation expenses to and from the childcare provider, education for school-aged children, and childcare paid or reimbursed by your employer.

What are other considerations for the US expat?
As a US expat, the earned income is where certain other considerations should be met. Earned income refers to the salaries or net profits through self-employment. Incomes from capital gains, dividends, or interests are not included.

For you to avail of the Child Care Credit, an earned income must appear on your US expat tax return. Before this happens, you have to decide whether to claim the Foreign Tax Credit or not. The FTC comes before the Child Care Credit. But if your taxes went down to zero after going through the FTC, then you cannot avail of the Child Care Credit. Not using the FTC or a partial tax exclusion will qualify you for the Child Care Credit.

The FEIE (Foreign Earned Income Exclusion) is basically what US expats use to minimize taxes. However, it excludes earned income on your tax return so that your taxable income is reduced. After you claim FEIE, the remaining earned income is where you can calculate your Child Care Credit.

The challenge arises when FEIE excludes all of your earned income. Your tax return as a US expat will not be eligible to claim the Child Care Credit. If you choose not to exclude your income through the FEIE, the tax credits may not be enough to cover the taxes from your income.

If you choose not to use the FEIE so that you can avail of the Child Care Credit and other credits to minimize tax liabilities, you have to remember that you will not be able to claim the FEIE for the next five years.

There is an option to claim a partial FEIE within a year so that there is still certain earned income from where to calculate the Child Care Credit. A tax professional will help you decide which is the best option to undertake.

What are other reminders?

1. You must accomplish form W-10 or the Dependent Care Provider’s Identification and Certification to request information from the care provider. If such information is not available, you can still avail of the credit but must show evidence that you have exercised due diligence to get the needed information.
2. Qualifying US expat parents must accomplish Form 2441 or the Child and Dependent Care Expenses.
3. The IRS website offers an interview to check your eligibility of claiming the Child and Dependent Care Credit.

Remember that this credit will be available to you if you take the time to organize your expat taxes using the FTC, FEIE, and other available tax credits. Being prompt will help you pay less and save more!