# additional child tax credit



## deyo

Here's my question. I make about 5 million yen a year working for myself as an English teacher. So I'm exempt from paying US taxes. I don't pay into social security by my choice. Am I eligible to receive additional child tax credit. My wife files our Japanese taxes and since I'm self employed we usually have to pay a little bit each year. 

Second question. I've always filed as working for a "foreign entity" but realized that maybe I should have been filing under self employed. Would that make a difference in any way regarding the about question?


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## larabell

In theory, yes. When the credit exceeds your tax liability (which, in your case, is zero), there are calculations to do in order to determine how much of the excess credit you can get. I don't see anything that would prevent you from claiming the credit, even though you're excluding all of your income, but... in some cases (as with determining limitations on tax credits), your actual income before exclusions is used.

Since you're probably already filing a US return, why don't you just run through the calculations on the form and submit it? If there's some obscure rule that prevents you from claiming the credit, you may get a letter from the IRS instead of a refund but it doesn't cost you much to give it a shot.

I don't think the "foreign entity" thing makes any difference. It might for self-employment tax (the fancy name for social security tax if you don't work for a company) but you shouldn't be liable for social security if you're paying for social insurance in Japan because of treaties between the two countries.

BTW, I'm not a tax attorney and I don't even play one on TV... so if accuracy matters, you should talk to someone trained in ex-pat tax issues. Look for the Greenback ad on the Japan Classified section of the forum. They should be able to give you a specific answer based on your situation.


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## BBCWatcher

deyo said:


> Here's my question. I make about 5 million yen a year working for myself as an English teacher. So I'm exempt from paying US taxes.


If that's your only (or at least overwhelmingly predominant) source of income, and if you live in Japan, that's correct.



> I don't pay into social security by my choice.


It's never a choice from the U.S. point of view. You either are or are not required to contribute to U.S. Social Security, and there is no voluntary contribution option if you are not required.



> Am I eligible to receive additional child tax credit. My wife files our Japanese taxes and since I'm self employed we usually have to pay a little bit each year.


If you meet the requirements of the ACTC. An actual child that you care for is required.  You also must NOT take either the Foreign Earned Income Exclusion or the Foreign Housing Exclusion to be eligible for that particular tax credit. You may, however, take the Foreign Tax Credit.



> Second question. I've always filed as working for a "foreign entity" but realized that maybe I should have been filing under self employed. Would that make a difference in any way regarding the about question?


Per the U.S.-Japan Social Security Totalization Agreement you (probably) should be contributing to the Japanese national insurance system even as a self-employed individual. Though my recollection is that you may have a one-time option of a 5 year waiver.


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## deyo

Thanks! Actually I have been receiving the ACTC for the past 10 years. However last night I spoke with a tax specialist on the phone and they informed me that I shouldn't be eligible for it and may have to pay all the money I received over that time back. I thought I had been doing everything right and that hit me hard. As I understand it, I'm not eligible for a child tax credit but I am for the "additional child tax credit" . I live on an island with two American's. It's hard to get any face to face tax advice.


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## BBCWatcher

Did you take the Foreign Earned Income Exclusion (Form 2555/Form 2555EZ)? That'd render you ineligible for the ACTC, and that tax specialist would be correct.

If the IRS had no objection to your _oldest_ tax filings then that's probably their loss. They have a certain number of years to raise an inquiry depending on the nature of what you did incorrectly, if you did something incorrectly.

It's actually your child receiving the credit through you. There is a U.S. citizen child involved here, right?


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## deyo

BBCWatcher said:


> Did you take the Foreign Earned Income Exclusion (Form 2555/Form 2555EZ)? That'd render you ineligible for the ACTC, and that tax specialist would be correct.
> 
> *Yes I use form 2555/8812 and 1040*
> 
> If the IRS had no objection to your _oldest_ tax filings then that's probably their loss. They have a certain number of years to raise an inquiry depending on the nature of what you did incorrectly, if you did something incorrectly.
> 
> *They have never sent me a notice saying I wasn't eligible for the past 12 years or so.*
> 
> It's actually your child receiving the credit through you. There is a U.S. citizen child involved here, right?


*Yes my 4 children are all US citizens. And since there are four children you can understand why when I was told that shouldn't have been getting the credit it scared me. I don't want to have to pay back 12 years and nearly 40 thousand US dollars.*

*You've been great. Thanks for the help. I just need to decide whether or not to keep filing as I have been (because obviously the IRS approve or file differently because they have made a mistake and it's just a matter of time before they discover it and then I'll be up shi* creek.*[/B]


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## larabell

I don't see anything in the ACTC rules (Publication 972) that disqualifies someone filing Form 2555 from the ACTC. In fact, there are special rules for Form 2555 filers to determine their Modified AGI for purposes of the credit calculation so I'm pretty sure Form 2555 doesn't disqualify you from ACTC. And if the IRS has left your claim unchallenged for 10 years, you can be pretty sure you've been doing it right all along. It's possible they might miss something on a single return (although my experience is that they seldom do) but it's pretty far-fetched to think they would miss something so fundamental for 10 years running.

These days you're not limited to in-person tax advice. All the IRS publications are available online. You could also submit your question to the IRS for a ruling without having to show up physically. And there are real tax advisers online who could give you a more definitive answer. Take anything you read on a discussion forum with the usual dose of skepticism... especially when that much money is involved.


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## BBCWatcher

Larabell, you could be right. Looking at the instructions, I think I'd amend what I said. I'd say that if you take the Foreign Earned Income Exclusion (Form 2555/Form 2555EZ) it becomes _more difficult_ to qualify for the Additional Child Tax Credit. Maybe not impossible.

Anyway, if you're filling out the forms and following the instructions correctly, I don't see a problem. It's always nice to get free money from the IRS if you qualify.


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## larabell

BBCWatcher said:


> I'd say that if you take the Foreign Earned Income Exclusion (Form 2555/Form 2555EZ) it becomes _more difficult_ to qualify for the Additional Child Tax Credit.


I dunno... I'd have to run some numbers through the form. All it looks like to me is that they have you add back the excluded income for purposes of figuring the limitations. If you would qualify as a non-ex-pat, you should still qualify even in the face of the FEIE. I used to do my own returns and I recall there being a lot of different places where you have to reverse the exclusion when computing limits on deductions and credits so people earning only slightly more than the $92K exclusion don't suddenly qualify for things meant for lower-income taxpayers. Seems pretty logical to me.

If by "more difficult" you're referring to the additional paperwork, I would agree. The IRS doesn't seem to care how hard things become for ex-pats... maybe because there are so few compared to everyone else. I finally gave up around the time my return consisted of over a dozen different forms.


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## BBCWatcher

I was looking at one of the worksheets where it looked like (at quick glance) it gets harder with the FEIE, but maybe not.


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