# Question for US expats who had a baby while overseas



## bluedempsey

Any female US citizen who had a baby while working overseas? I have a very specific tax question when filling my 2014 tax returns....

In Spain, the public Social Security pays all moms their salaries during 16 weeks while on maternity leave (“Prestacion por maternidad”). I do not know if I can include this income on form 2555 “Foreign Earned Income Exclusion”. Has anyone experienced a similar situation? My guess is yes, but I am not 100% sure.

Any advice would be more than welcome. :fingerscrossed::fingerscrossed::fingerscrossed:
Thanks!!!


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## BBCWatcher

I'm not female, but I might be able to answer your question. The short answer is there doesn't seem to be a clear answer, so, in my view, you're probably on reasonably firm ground treating those government-paid maternity benefits as part of your earned income. Or, alternatively, as "welfare" of a non-taxable kind.

Now let's turn to the details, at least as I see them. Here's what IRS Publication 525 says:

_*Sick pay.* Pay you receive from your employer while you are sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.
A welfare fund.
A state sickness or disability fund.
An association of employers or employees.
An insurance company, if your employer paid for the plan.
However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later._

I don't see the word "maternity" anywhere in that publication, but this section seems to be the closest match. So your maternity benefits from the government are "income," and this text strongly implies they're part of _earned_ income -- though it doesn't come right out and say it.

There's also a section in Publication 525 on "Welfare and Other Public Assistance Benefits," but I think the "Sick Pay" section is much more directly on point. However, you might want to consider that "Welfare" section to see if it applies. I could defend an argument that it does.

Let's turn to the Foreign Earned Income Exclusion and associated IRS instructions to see if there's anything suggesting how to treat your maternity leave payments from the government. The IRS's instructions for Form 2555 explain that "Pension and annuity income (including social security benefits and railroad retirement benefits treated as social security)" is not considered earned income. But note the words "pension" and "including." That is, they seem to be considering only the social security benefits that are a subset of pensions. The fact a "social security" agency paid your maternity benefits doesn't seem to fit this definition.

Elsewhere in IRS publications the IRS discusses when disability benefits are treated as earned income or not (and taxable or not). Maternity, I suppose (and not how I'd phrase it), is a form of temporary disability from the IRS point of view. In that text the IRS does not think that U.S. Social Security disability insurance and SSI are forms of earned income. But the IRS acknowledges that "some disability retirement benefits" are considered earned income. And U.S. Social Security doesn't pay maternity benefits, so there's really no direct analogy here.

I also took a quick look at the U.S.-Spain tax treaty, but I didn't find anything particularly useful.

So I throw up my hands a bit on this one, but, as I said, I think you're on reasonably safe ground to treat your government-paid maternity benefits as an extension of your earned income based on IRS Form 525 and what it says about "Sick Pay." You'd be on even more solid ground if your employer (or you, or both) paid into that maternity insurance program. The fact it's government-run doesn't seem to be particularly interesting or relevant. I can't find anything _obviously_ contrary to treating that income as earned income in the instructions to Form 2555.


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## Bevdeforges

Frankly, I'd take the other approach, and consider it "public assistance payments" which then means you simply don't bother to report it at all. The US doesn't have "family allocation" like this, so they don't make provision for it in the tax system.

It's not earned income - however if you report it as such and exclude it, you have the same result. The chances of them questioning it if you do exclude it like this are slim to none. But I'd stick to the "public assistance" approach simply to avoid any possible question.
Cheers,
Bev


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## Nononymous

My usual piece of advice on a different question: 

If you or your child are not planning to return to the US at any time in the near future, do the kid and favour and do not register their birth with the US consulate.

Keep records so they can "activate" their US citizenship one day, if they so choose, but for now having a non-US birthplace is like a golden passport to avoiding FATCA and IRS requirements and everything else. It makes life so much simpler if he or she chooses to remain in Europe.

If the plan is to return to the US (see "Spain youth unemployment rate") then ignore the above advice.

PS on edit - you'd be part of a trend, saw a WSJ piece about a month ago about the drop in birth registration by US expats.


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## bluedempsey

Thank you all for your quick and super-helpful answers!!! 

I will give it some more thought but I feel more at ease with all the positive alternatives

Thanks!!!


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## BBCWatcher

That's bad advice, Nonymous, for most people. Most Americans in Spain would be able to collect $1000 in free money (probably even tax free in Spain) per documented U.S. citizen child per year via the Additional Child Tax Credit (and taking the Foreign Tax Credit not the Foreign Earned Income Exclusion). This citizenship literally pays.

Taking your advice would cost about $17,000 per child. (Potentially more.) That's expensive.

That child then has a fee-free window to renounce citizenship if he/she chooses upon reaching adulthood.

Bad advice, very.


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## Nononymous

Some clearly beg to differ:

When American Expats Don’t Want Their Kids to Have U.S. Citizenship - Expat - WSJ


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## Bevdeforges

Each US taxpayer has to decide for themselves the "ethics" of claiming the child credit from overseas. But by not registering the child at birth, you do no damage to the child's later claim to US citizenship. (Which is probably more like it should be, at least IMO.)

But the subject of this thread is the taxability of the family allocation payments which are common in many European countries. And I think that question has been answered.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> But by not registering the child at birth, you do no damage to the child's later claim to US citizenship.


That's not correct either. Minors cannot document their own citizenships, and the bureaucratic steps (and associated costs) involved in documenting a U.S. citizenship when an adult are higher. They also become at least more difficult, particularly in cases when the U.S. citizen parent is the father, particularly when unmarried.

Delaying also means the minor/young adult in question at least cannot _quickly_ take advantage of any of the rights and privileges associated with U.S. citizenship if he/she chooses. Prospective employers, for example, certainly have no obligation to wait for clarity.

In short, it's bad advice any way you slice it. This is nothing to fool around with, our adult hangups notwithstanding. Let your child decide, and grab the free money in the meantime.

And I'm not inventing anything here. The U.S. State Department provides the same advice, and that advice is correct.

Yes, I think the original question was answered. I actually disagree with you a bit, Bev. Whenever there's nothing to hide -- and there isn't in this case -- take the less hidden path with the IRS. The "Sick Pay" section I cited is the closest match to the income and its nature, so I'd choose that path, assuming the tax outcome is the same. Per the original poster's question, it is the same (FEIE), so there you go. This is for statute of limitation reasons if nothing else. Reported income goes on the 4 year clock, and unreported income doesn't.


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## Bevdeforges

BBCWatcher said:


> In short, it's bad advice any way you slice it. This is nothing to fool around with, our adult hangups notwithstanding. Let your child decide, and grab the free money in the meantime.


In your opinion, it may be bad advice. But it depends quite a bit on just what you're trying to accomplish and what your personal circumstances might be. The "free money" of which you speak has its cost.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> The "free money" of which you speak has its cost.


OK, then don't claim the free money. The same advice about not foisting your problems and hangups onto your kid applies....

....Unless you're referring to a very specific scenario where the adult parent has an outstanding arrest warrant, and the U.S. consulate might be tempted to do something Geneva-violating if the parent shows his/her face. Is that what you're referring to? Well, OK, but then giving your kid up for adoption might be in his/her best interests in case Seal Team 6 comes barging in. 

My attitudes are not necessarily my kid's. I respect that. So, I keep my kid's options open, all of them. Including Broadway, Hollywood, and Silicon Valley (we can hope). That's what every responsible parent does.

If you don't agree, then spend some time reading the horror stories among young adults who don't have properly documented citizenships -- in some cases even ones they can terminate if they wish. It's really awful, and I wouldn't wish that on anyone.


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## bluedempsey

So, I have given it some thought and I think I will declare it as earned income and include it on form 2555. As I make way less that the maximum deductible, I can deduct it all.

Regarding giving citizenship or not, that is a very tricky question. My husband (non-US) and I also have lengthy debates...I guess you just have to do what you think is best for your children until they can decide for themselves.

Thanks a lot!


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## Nononymous

bluedempsey said:


> Regarding giving citizenship or not, that is a very tricky question. My husband (non-US) and I also have lengthy debates...I guess you just have to do what you think is best for your children until they can decide for themselves.


The WSJ piece was fairly good on that debate, had a few sound bites from both sides. Somewhere I saw some number crunching comparing birth registration with expat population and estimated birth rates, and it was a pretty significant number not being registered.

If you think you'd qualify for the free money, that's certainly a consideration. (I wondered if I hadn't missed something but probably would only have qualified for a couple of years when I wasn't working much, so am happy with the decision not to pursue it.) I naively registered our daughter's birth but now wish I hadn't, though at least with a non-US birthplace she won't have to deal with FATCA and can more easily stay off the radar. We've never renewed her baby passport, nor will we. I think it would be wise to collect all the information needed to prove citizenship, then file that away safely for future use if needed. It's also likely much easier to register and apply for a passport in the country of birth; I remember being told this back in the day, which is why I made the snap decision to take care of it before we left Germany. Otherwise I probably would have waited.


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## BBCWatcher

Of course there's also the fact that an undocumented U.S. citizen is still legally a U.S. citizen, with all the obligations thereof. Lack of documentation means that young adult cannot formally renounce his/her citizenship upon reaching age 18 even if he/she wanted to -- not without first documenting his/her citizenship (at greater expense and with greater difficulty). But that adult could later find him/herself in the awkward (at least!) situation of being determined subject to U.S. jurisdiction later in life. (Surprise!) For example, if he/she commits a crime (or alleged crime) and is subject to U.S. jurisdiction he/she can perfectly legally be denied consular assistance from his/her other government.

Like I said, bad advice.


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## BBCWatcher

bluedempsey said:


> So, I have given it some thought and I think I will declare it as earned income and include it on form 2555.


If you have just a little bit of time, Bluedempsey, fire up that tax preparation software (such as the free TaxAct or TaxSlayer) and run a calculation to see what happens if you do not take the Foreign Earned Income Exclusion (FEIE) but instead take only the Foreign Tax Credit (IRS Form 1116). Then take the Additional Child Tax Credit if you/your child qualify. See what happens.

If that particular path means you get $1000 in free money from the IRS per qualifying child, congratulations, that's probably the path to take. When you take this FTC-only path, try it first including your maternity benefits as "Sick Pay," i.e. as part of wages/salary. If that doesn't result in something nice (or nice enough), try the calculation again treating those maternity benefits as "Welfare," i.e. not U.S. taxable income. If that works, read that "Welfare" section again to decide whether you feel comfortable treating that particular income in that category. If you are, congratulations again.

This is a big reason why tax preparation software -- even the free stuff -- is valuable. You can run various tax calculations to see what makes best sense for your situation.

Finally, make sure you read up on the limitations flipping between taking and not taking the FEIE. There are a couple restrictions on that. I don't think they'd be any particular problem, but just take a look at that information to make sure you're comfortable.

Good luck.


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## Nononymous

BBCWatcher said:


> But that adult could later find him/herself in the awkward (at least!) situation of being determined subject to U.S. jurisdiction later in life. (Surprise!) For example, if he/she commits a crime (or alleged crime) and is subject to U.S. jurisdiction he/she can perfectly legally be denied consular assistance from his/her other government.


I'll remind my daughter not to mention her US baby passport if she's arrested for drunk and disorderly while on a spring break trip to Florida.


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## BBCWatcher

That could well be bad advice, too. If she lies to a law enforcement officer that's (probably) a felony, and if they care to prosecute that felony it's not good news. As they prosecute that felony she has no right to Canadian consular assistance. (Or any other country's consular assistance.)

So, don't lie to a law enforcement officer. The _correct_ advice is that she should not mention _anything_ except that she will speak only to her attorney.


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## shidareume

I'm going to agree with Bev and BBC that it is probably not a good idea to avoid registering the child with the US embassy, for the simple reason that it will complicate that kid's ability to clarify their status later. Whether the kid decides to keep US citizenship or not, failure to do the proper paperwork from early on will only create problems, and not solve any.


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## Bevdeforges

Whoa, I never said it was a bad idea to avoid registering the child with the Embassy. By not registering the child at birth, you give him or her the ability to "fly beneath the radar" as an adult should they not want to "benefit" from the US citizenship.

As with so many of these decisions, it's all in what you are trying to achieve. I know of a few cases where the registration of the child complicated their situation enormously when they came of age. Not having kids of my own, I'm sympathetic to both sides of this issue. And rather happy not to have had to make such a decision.
Cheers,
Bev


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## shidareume

Sorry for misrepresenting your position, Bev.


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## BBCWatcher

Bevdeforges said:


> By not registering the child at birth, you give him or her the ability to "fly beneath the radar" as an adult should they not want to "benefit" from the US citizenship.


I don't think you do.

Define "fly beneath the radar"? To what end, for what purpose, for a _child_? (Adults are different, stipulated.)

The child is still legally a U.S. citizen, documented or not. What child needs to "fly beneath the radar"? Is this 8 year old selling landmines to ISIL?  (This is what I mean by "adult hangups foisted on children.") When you're dead, as soon as tomorrow perhaps, do you think your kid's going to thank you at your grave for leaving her undocumented? It doesn't make sense.

As an adult there's no flying beneath the radar for anything serious, like getting arrested in the United States. That adult is still legally a U.S. citizen, and that'll be figured out for anything serious. Especially 20+ years from now when IT is even more highly evolved.

What _are_ you trying to achieve _in the child's interest_, as a responsible parent? Not your hangup, your _child's_ interest?

Let me see if I can imagine.... OK, I can think of one specific exception. Let's suppose your U.S. citizen child is born and raised in one of the very few countries where documented possession of U.S. citizenship could be an impediment to the child's progression in life. North Korea might be an example. If you're raising your child in North Korea and you want to keep your child's U.S. status quiet....

....OK, that's ridiculous. I can't even make that one work, because it's in the child's own self-interest to get the hell out of North Korea if he/she has access to the United States. No, sorry, I'm coming up blank here. What _child's_ interest is served in not documenting a child? I can't think of one, and I'm usually pretty imaginative.


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## Vangrrl

In my bid to become tax compliant, I back-filed US taxes for a year that I was maternity-leave. In Canada mat leave is paid as a form of "Unemployment Insurance" and so that is how I reported that income. I also had a employer top-up which was paid as salary, and I reported that as earned income.

As for registering your kid born abroad - I haven't registered mine and I would prefer to keep her off the US radar. In reality, I don't think she even qualifies for US Citizenship - for a child born in wedlock to one USC parent and one Alien, the US Citizen parent must be able to establish 5 years physical presence in the US, 2 of which are after the the age of 14.


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## BBCWatcher

You can ask your local U.S. consulate whether she was born a U.S. citizen or not.


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## bluedempsey

Thanks for sharing your experience.

And how did you declare the "Unemployment Insurance"? Is it tax free? I checked the IRS website but could only find information on form 1099g which the Spanish Social System does not provide...



Vangrrl said:


> In my bid to become tax compliant, I back-filed US taxes for a year that I was maternity-leave. In Canada mat leave is paid as a form of "Unemployment Insurance" and so that is how I reported that income. I also had a employer top-up which was paid as salary, and I reported that as earned income.
> 
> As for registering your kid born abroad - I haven't registered mine and I would prefer to keep her off the US radar. In reality, I don't think she even qualifies for US Citizenship - for a child born in wedlock to one USC parent and one Alien, the US Citizen parent must be able to establish 5 years physical presence in the US, 2 of which are after the the age of 14.


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## Bevdeforges

Unemployment benefits are taxable in the US if they are paid by the Federal or State system. Foreign unemployment benefits are neither Federal nor State (at least not in the US sense). There is some debate out there as to how they "should" be reported - everything from not at all (i.e. if they can be considered "public assistance") to declared but not eligible for inclusion under the FEIE.

There is also an argument that, because they are "insurance benefits" for which you pay part or all of the premiums (which is not the case in the US public unemployment system) they are not reportable because they are payouts from an insurance contract.

Unfortunately, there is no one "correct" answer. You have to play the game and take your chances.
Cheers,
Bev


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