The child tax credit is the one part of a US return that can pay an expat family money rather than costing them any. Americans in Britain routinely owe no US tax at all once relief applies, and a refundable credit can still arrive on top of that nil bill.
However, the most common expat election switches the refundable part off completely. So one choice about excluding your salary quietly decides whether this credit pays out. This guide covers the rules, the trap, and the arithmetic behind choosing well.
What is the child tax credit?
It is a credit for taxpayers with qualifying children, and the IRS describes it in two parts. The main credit is non-refundable, reducing tax you owe. The Additional Child Tax Credit is the refundable part, which can generate a payment when the main credit exceeds your liability.
That split is everything for people abroad. Expat families frequently owe no US income tax once relief applies. The non-refundable half then has nothing left to reduce. So the refundable half is where any actual money comes from, and protecting it is the whole exercise.
The IRS page on the credit sets out the current figures, including the refundable amount per qualifying child. Those numbers move between tax years, so check the year you are filing rather than relying on a figure quoted anywhere else.
Two names cause most of the confusion. The main credit reduces tax you owe. The additional credit can pay out cash. People use the terms loosely, yet only one of them puts money in your account.
Why does the exclusion block the refund?
Because the refundable portion is built on earned income, and excluded income no longer counts. The instructions for Schedule 8812 list the conditions plainly, and one of them is that you are not filing Form 2555. Claiming the exclusion therefore removes the refundable credit outright.
The logic follows from what the foreign earned income exclusion actually does. It takes a slice of salary out of the American calculation entirely. That income then stops being available to support a refundable credit built on earnings.
In our practice we see this cost families real money every year. The exclusion gets elected by default, often by software, and nobody notices that a refund worth thousands quietly disappeared alongside a tax bill that was already going to be nil.
What does choosing credits instead achieve?
It usually wipes out the same US tax while keeping the refundable credit alive. Foreign tax credits offset American tax with British tax already paid. Because UK rates generally run higher, the offset is often complete. Yet your salary stays inside the calculation as earned income.
So the family reaches a nil tax bill by a different route, and the refundable portion survives it. That is the core of the trade, and for many UK-based families with children it is worth more than anything else on the return.
Our guide to avoiding double taxation sets out how the two mechanisms compare across the whole return. The credit-versus-exclusion choice reaches well beyond this one credit, which is exactly why it deserves modelling in the first year.
One caution before switching. The comparison should cover several years rather than one, since the exclusion carries a five-year lockout once revoked. A single good year is a poor reason to change a long-run position.
| Choice on your return | US tax on salary | Refundable credit |
|---|---|---|
| Foreign earned income exclusion (Form 2555) | Often nil | Blocked - Form 2555 filers cannot claim it |
| Foreign tax credits instead | Often nil where UK tax is higher | Available if other conditions are met |
| Neither claimed | Full US tax on worldwide income | Available, but the tax bill removes the point |
| Exclusion revoked in a later year | Depends on the year | A five-year lockout applies to re-electing |
Who qualifies for the refundable portion?
Families meeting the credit's ordinary conditions, with enough earned income to support it. The IRS states that you must have earned income of at least $2,500 before the refundable Additional Child Tax Credit becomes available at all, and the amount then depends on your income.
Income limits apply at the upper end too. The IRS states that you qualify for the full credit for each qualifying child where annual income is not more than $200,000. That figure rises to $400,000 on a joint return, with the credit reducing above those levels.
Each qualifying child also needs a Social Security number, and that requirement catches families with children born abroad. A British birth certificate does nothing here, so the American paperwork for each child needs starting early rather than at filing time.
Check the age and relationship conditions too. A qualifying child must meet several tests, not just the numbers above. Those rules are the same whether you live in Leeds or Ohio.
The Social Security number problem for children born abroad
It is the practical obstacle that delays more expat claims than any rule of tax law. A child born in Britain to American parents may well be a US citizen, yet citizenship alone produces no Social Security number. That has to be applied for, usually through a consulate.
The sequence takes time. A consular report of birth abroad comes first, then a passport, then the number itself. Families who start in the year of birth rarely have trouble. Families who start in April, hoping to claim for the year just ended, generally do.
Because the number must be in place under the credit's rules, a missing one can push a claim into a later year. So treat it as the first item on the list for any American child born overseas, well before anyone thinks about a tax return.
Book consular appointments early, because slots move slowly in busy posts. The tax deadline will not wait for the appointment calendar, and no amount of preparation speeds that queue up.
Start the paperwork before the tax question arises. The number outlives every filing season, and it unlocks far more than one credit.
Working out your own position, step by step
The order below prevents the most expensive mistake, which is electing the exclusion before anyone has modelled the alternative.
Do it in the first year abroad if you can, because the choice compounds and reversing it carries a five-year lockout.
- Confirm each child's status and Social Security number, starting any consular applications immediately.
- Calculate your US tax with the exclusion applied, then again using foreign tax credits alone.
- Compare not just the tax owed, but the refundable credit available under each version.
- Check the earned income floor and the upper income limits for the year you are filing.
- Choose the route with the better overall outcome, and document why you chose it.
- Revisit the position when income, family size or country of residence changes.
An illustrative example
Take an illustrative example: an American couple in Leeds with two young children and one UK salary. Their UK tax comfortably exceeds what the US would charge, so their American bill lands at nil whichever route they take.
Filing with the exclusion, their return shows no tax and no refund. Filing with foreign tax credits instead, the same nil bill appears, and the refundable credit becomes available for each qualifying child. Identical facts, identical tax, materially different outcome for the household.
Their neighbour's position differs, because his children have no Social Security numbers yet. His claim waits until the consular paperwork completes, whichever route he picks. Nothing about his tax changed; the documentation did.
Same salary, same children, same nil tax bill. The only variable was which relief route the return used, and that variable was worth thousands to the household.
Common mistakes with the child tax credit abroad
The first is letting software elect the exclusion silently. Consumer packages often treat it as the default expat answer, and the refundable credit disappears without any warning on screen. The return still looks correct, because a nil bill is a nil bill.
The second is assuming a nil tax bill means nothing to claim. That reasoning skips the refundable half entirely, which is precisely the half that pays out when tax is already zero. Families who reach that conclusion often stop filing, compounding the loss.
The third is switching routes casually. Revoking the exclusion locks you out of re-electing it for five years. So the decision needs modelling across several years rather than one. Also, refunds claimed with this credit face a statutory delay, so expect timing rather than instant payment.
A fourth catches larger families hardest. Each child needs their own documentation trail, and one missing number can hold up a claim for the whole household. Track them individually rather than collectively.
Does claiming it create any UK problem?
Generally no, because it is an American credit against American tax, not income arising to you in Britain. It does not turn into UK taxable income by being refunded, and it does not affect your UK Self Assessment position.
The two systems otherwise carry on independently for family support. UK child benefit follows its own rules, including the high income charge, and the guidance for taxpayers abroad sets out the American filing framework these credits sit inside. Our guide to how HMRC knows about your income covers the British side.
What does matter is consistency between the two returns. Because the American claim rests on earned income figures that also appear on the UK side, the two filings should tell one reconcilable story about the same year.
One filing note for couples. Where only one spouse is American, the filing status choice interacts with this credit and with much else. Model that choice properly rather than letting a default decide it.
How US UK Tax Hub helps
We model the exclusion against credits before anything is elected, through our US federal returns service, so the refundable credit is protected where it is worth protecting. For families new to filing abroad, that first-year decision is usually the highest-value part of the engagement.
If you have been filing with the exclusion and have children, it is worth a look at the open years. Send us the outline and we will review what was claimed and what could be, at a fixed fee agreed first. This article is general information, not personal tax advice; take advice on your own facts from a qualified US-UK adviser.
Bring last year's return if you have it. Comparing what was claimed against what was available takes minutes and tells you whether the open years are worth revisiting.