# Low income: To file or not to file



## xali

Hello,
I’m trying to determine whether I’d benefit from filing (even if not required) and I’d appreciate your help. 
In a Spain “nómina,” what is the gross income? Is it BASE I.R.P.F. or T. DEVENGADO? I am assuming it’s one of those boxes because they show the greatest amounts. If that is the gross income, I made some 9200 € from work, probably not enough to be required to file US taxes as a head of household. The question is whether I can benefit from filing. 
In 2014, I lived the entire year in Spain with my minor child. I worked six months and the rest of the year I received a “prestación no contributiva”of 426 € monthly. Does this general assistance income from the Spanish government need to be reported on US income tax return? If so, where on Form 1040?
In 2013, I lived in Spain under six months and was able to get the EIC and Additional Child Tax Credit, which I won’t be able to get this year. On the other hand, would I qualify for any foreign tax credits, moving expenses deductions, or any other tax benefit? It seems to me that because I made so little money I cannot benefit from any of this. Thank you very much for any insight or advice.


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## Bevdeforges

OK,the filing threshold for Head of Household this year is $13,050 so you seem to fall safely under that, based on your income.

If you read Publication 17, the section on Welfare and Other Public Assistance Benefits, it appears you do not need to declare the child care benefit you received, though admittedly the wording is pretty vague on this. Still, given that child support payments aren't considered income, it seems a pretty safe assumption (and besides, it's highly unlikely the Spanish government is reporting their benefits paid to the IRS). 

I'll have to leave you to those with more experience of these matters as to whether or not you qualify for either the EIC and the Child Tax Credit.
Cheers,
Bev


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## BBCWatcher

I agree with Bev on the treatment of that government assistance.

Is your child a U.S. citizen or U.S. national? Also, how much did you pay in Spanish income tax in 2014 (total including local and provincial, if applicable)? Exclude social insurance contributions.


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## xali

Yes, my child and I are both US citizens and Spanish citizens. I did not file Spanish income tax since I was not required because of my low income.


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## BBCWatcher

xali said:


> Yes, my child and I are both US citizens and Spanish citizens.


The Additional Child Tax Credit (ACTC) may be available, then. That's a refundable tax credit, meaning free money from the IRS if you're eligible. It's worth up to $1000. That would be worth a postage stamp, wouldn't it? 



> I did not file Spanish income tax since I was not required because of my low income.


Let me try asking a different way. 

Did you have any income tax _withheld_ from your ~9200 euro of total income? Or did you truly owe/pay zero income tax?

Given the possibility you qualify for the ACTC, I would recommend running a simulated U.S. income tax calculation for tax year 2014 to see if you can benefit from filing. You can use a free tax preparation option such as TaxAct to run the calculation. Start with a simple simulation without worrying about either the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC), paying close attention to the Child Tax Credit (and possibly Earned Income Tax Credit), if qualified, and see what you get. If you're eligible for a tax refund -- free money from the IRS -- great. Spend a little more time making sure your simulation is correct, then prepare a tax filing to collect your free money.


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## xali

Hi,
As I said on my original post, the income I gave was gross income based on “nómina” (paystub) boxes labeled BASE I.R.P.F. and T. DEVENGADO. For example, one month's amount in either of those boxes is €1397.51 for an actual paycheck of €1286.93. So yes, income was withheld by the Spanish government. Now, my question is, given my low income, can I benefit from filing US Income Tax Return? I doubt I'm eligible for ACTC or EIC. If I'm not mistaken, you have to live in the US over half a year to qualify for those. What I'd like to know is whether the foreign tax credits, deductions and exclusions that apply to people living abroad could benefit me or I'm excluded from them because of my low income. I'll do the simulation. Thanks!


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## Bevdeforges

If you're not eligible for a refundable tax credit (i.e. one of those where they send you the $$ if you don't owe anything), it probably doesn't pay to file if you don't have to. 

And while, yes, the Spanish government certainly did withhold something, you have to determine just what they withheld. If it's any of the social insurances (retirement, health or family allocation coverage) then that part of the withholding does you no good on a US tax form. Only what is specifically tagged as going toward income taxes is eligible for the Foreign Tax Credit. And at lower income levels, even "high tax rate" countries tend to extend a number of deductions and exemptions for your social insurances that may well mean your "income taxes" strictly defined will be less than the US income tax on the same salary.
Cheers,
Bev


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## xali

Thanks, Bev. I think that clarifies a lot for me. I'm trying to figure out what the actual tax is among all the deductions on the paystub. There are several contributions for unemployment, vocational training and the like, and then there is "tributacion IRPF" which I think it's the real income tax. This is only a €28 deduction on the monthly salary, which is just 2% of gross income, as indicated on the paystub. However, according to 2014 IRPF tables available on the internet, the IRPF withholding for my income is 25%. I have no idea how this relates to the 2% withheld on my paycheck. In any case, on my income I know I would not owe any taxes to the IRS. But it seems that I can't get any credit either. Thanks for your help.


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## BBCWatcher

There is no 6 month requirement for the ACTC with U.S. citizen children. U.S. citizens with U.S. citizen children, all living overseas, all never stepping foot in the U.S., can qualify for the ACTC -- it is possible. I think you qualify for that refundable tax credit, worth up to $1000 per child in free money from the IRS. So yes, I'd recommend running a tax calculation to see how much (if anything) you can collect if you file with the IRS.

Determining how much (if anything) you paid in Spanish income tax helps you figure out your Foreign Tax Credit. That's optional, but the higher your FTC the more likely it is you could increase your ACTC.

As I said, start with the simple case: just take all your (gross) income for the year, excluding the direct government benefits (when you were unemployed) we talked about earlier, and use that in a dry run. Use the free TaxAct or other free tax preparation assistance software (or Web site) if you like. Ignore the Foreign Earned Income Exclusion and Foreign Tax Credit -- just don't bother with those. Take the ACTC (assuming you qualify), and see what you get. If you end up with a refund -- tax owed less than zero -- congratulations, but don't file just yet. Do a little more work on the FTC, check the EITC, etc. to see if you can do even better. But start with the simple dry run and see if you're already negative (or at least very close to free money).


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## xali

Thanks, BBCWatcher, for the valuable info. I may qualify for the ACTC. I had assumed the rules for a qualifying child were the same as for the EIC, which requires the child living with the parent in the US for more than half a year. That doesn't seem to be the case for the ACTC. You do mention to look into the EIC (EITC) as well. I know from completing the EIC form (and I just checked it out) that one of the conditions is that the child lived with you in the US for more than half of the year.


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## BBCWatcher

Right, and your income may have been too high to still qualify for the EITC without counting your child. But still something to check since you're close. If you paid some income tax and qualify for the Foreign Tax Credit that might push you down into EITC range -- or might not if the FTC doesn't help that way.

Take a look at child care expenses and educational expenses (American Opportunity Tax Credit in particular) to see if they help.

Anyway, I'm very glad to hear the ACTC at least looks promising.


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## xali

Just to be clear, EITC eligibility requires meeting the residency test (you and your child must have the same main home in the US for more than half the tax year). I thought to mention it because you have repeatedly referred to it as an option. Child or no child, it requires living in the US, right?


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## BBCWatcher

Without child, true. With child, no, you can be an overseas resident. (But you must file jointly if married, and there are some other requirements.)


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## xali

I don't see anywhere where you can be an overseas resident. In any case, I'm filing as head of household with one child. No one else can claim the child as dependent. I ran the eligibility test and the US residency requirement came up.


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## BBCWatcher

Is the child a U.S. citizen? That's a requirement overseas.

Which eligibility test? The IRS's, or somebody else's?


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## xali

The child is indeed a US citizen but I haven't seen anything either on IRS form instructions or IRS.gov suggesting that people living abroad can be eligible for EIC--on the contrary. The eligibility test I mentioned is on IRS.gov and it's called EITC Assistant. 
http://www.irs.gov/Individuals/Earn...-Assistant-to-Find-Out-if-You-Should-Claim-it.
At one point, it gives you several eligibility requirements as live links. The residency requirement tells you that you and your child must live in the US for more than half a year. In fact, I am quite familiar with Schedule EIC because I took this credit in the past. Item 6 asks to state the "number of months child lived with you in the United States" during the tax year. The back of the form states that a qualifying child is one "who lived with you in the United States for more than half" the tax year (among other requirements). Everywhere you look, it says "lived with you in the United States," not just "lived with you."


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## BBCWatcher

OK, I checked back to see what the rules are. Here we go:

1. Although a particular child may not pass the residency test, that doesn't the EITC is closed out. You can still potentially qualify for the EITC without your children qualifying. If the child(ren) don't qualify it just changes the income limits to qualify.

2. There is a residency exception for U.S. military personnel stationed overseas.


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## xali

Thanks. Yes, that confirms that you do have to live in the US unless you are military personnel stationed overseas. Both my child and I have been overseas and I'm not military personnel, so we don't qualify.


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## BBCWatcher

That's not (only) what I wrote. Point #1 means the EITC is available to some overseas residents. If you don't qualify based on your income being too high, or you're disqualified for some other reason, OK, but overseas residence is not disqualifying.


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